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Any foreign company keen to do business in Hong Kong can do it in a couple of ways.

One of the simplest modes available is setting up a branch office.

A branch office in Hong Kong is an easier way to enter the market and carry out the same business as the parent company.

Compared to a subsidiary, the registration procedure of a Hong Kong branch office is also straightforward.

Here is what you need to know to set up a branch office in Hong Kong.

What is a branch office?

Legally, a branch office functions as a satellite operation of a corporate entity. That’s why it is set up outside the jurisdiction of incorporation of the parent company.

As an extension of an existing business, it carries out identical business operations but in a different physical location. So, if your company is set up in Japan, you can establish a branch in Singapore.

But unlike a direct subsidiary company, a branch doesn’t have a separate legal identity.

Apart from setting up a subsidiary company or a branch office, foreign companies can also enter a new market through their representative office.

It is the preferred choice if the foreign company doesn’t want to execute any contracts in Hong Kong, but merely wants a way to look for potential customers and make them aware of its business.

Why choose a branch office?

Usually, larger corporations looking to gain a foothold in a new market opt for a branch over other modes of setting up a business.

Here are some common reasons why they do that:

• Registering a subsidiary takes longer compared to registering a branch
• Some countries prescribe minimum capital requirements for subsidiary registration.
• The parent company exercises more control since a branch isn’t an independent legal entity
• It is a great way to test a new market and diversify without making a huge commitment
• Registration documents of the parent company are sufficient for establishing a branch in most countries
• Tax advantages under local tax regulations and double taxation avoidance treaties apply to branches
• Share transfers in a subsidiary company attract stamp duty. However, note that no stamp duty is payable for transferring a Hong Kong business operated by a foreign company through its branch.
• Closing down a branch is easier than closing down a subsidiary

Requirements to follow when setting up a branch office in Hong Kong

To set up a branch office in HK, the foreign company must first register as a Non-Hong Kong company with the Companies Registry.

Here’s what you need to do:

Name

Since a branch office is not a separate legal entity, it cannot have a different name.

The name of the branch office should be the same as its parent company. This is the name that appears on the incorporation certificate of the parent.

Companies Registry can reject a company name if it is already registered or if it is improper or misleading. Always perform a name search on the Companies Registry website before you apply.

Also, note that registering a company name with the Registry doesn’t grant the parent or the branch office any trademark or other intellectual property rights over the name.

Officers

At least one Hong Kong resident should act as the official representative to receive legal notices on behalf of the foreign company.

Companies can appoint either an individual or a company for this position.

Registered address

A branch office should have a physical address in Hong Kong. It serves as the business address of the parent company in Hong Kong. Having a PO box address is insufficient to fulfill the requirement.

Typically, most non-Hong Kong companies use a professional firm’s address as the branch’s address. It is a temporary measure before the branch establishes an actual place of business.

Appointment of company secretary

The foreign company should appoint a local firm or individual as the company secretary of the branch to take care of various compliance requirements.

Compulsory documents of foreign parent company

The following documents are mandatory for setting up a branch office:

• copies of the parent company’s Memorandum and Articles of Association,
• copy of the original incorporation certificate
• a business registration certificate
• details of the company directors; and
• latest account statements

Any document submitted should be certified to be true and be either in English or Mandarin.

What are the benefits of setting up a Hong Kong branch office?

Here are the benefits foreign investors enjoy when they opt for a branch office in Hong Kong:

• No minimum capital requirement
• The registration process is straightforward
• Greater scope for business opportunities as the branch office leverages the parent company’s name to enter into transactions
• The parent company remains directly involved with the management of the branch office
• No ongoing maintenance expenses associated with a branch as Hong Kong law does not prescribe a separate branch audit
• Compliance with limited provisions of the Hong Kong Companies Ordinance is sufficient
• Inland Revenue Department offers a favorable tax treatment as only profits earned in Hong Kong are subject to tax.
• A branch office can also benefit from the double taxation avoidance treaties Hong Kong has, with over 40 countries.
• Branch office registration doesn’t require any statutory documents, apart from the parent company’s constitutional documents and its business registration certificate; and
• Shutting down a branch only involves notifying regulatory authorities such as the Companies Registry and the Inland Revenue Department, within 7 days after cessation of business.

What are the compliance obligations of a Hong Kong branch office?

A branch office has the same compliance obligations as local companies in Hong Kong.

Here are a few examples:

• The foreign company must apply for a Business Registration Certificate from the Inland Revenue Department, one month after the branch begins its operations.
  The certificate should be on display on the branch office premises.
• the branch should include the name of the parent company and the place of its incorporation on its letterhead.
• The parent company should inform the Companies Registry about any changes to the management structure of the branch.
• The branch office should open a corporate account at a local bank.
  Having a well-established business account allows the branch to carry out business activities on behalf of the parent.
• A branch office should file annual account statements with the Companies Registry. Either a director, company secretary or an authorized representative should sign the accounts before filing.
  However, if the parent company has no obligation to file account statements to any regulatory body in the country of its incorporation, the branch office is exempt from filing account statements in Hong Kong.
  A branch should also file tax returns with the Inland Revenue Department.
• The branch must file the details of any assets secured or acquired with the Registrar of Charges, within 1 month from the charge creation or acquisition date.
• A branch office should apply for a business license if required. Business licenses are mandatory if the parent company is operates in any of the following sectors:
  1. Financial services
  2. Education
  3. Employment
  4. Trading
  5. Travel
• Once a branch is shut done, the parent company should settle any pending taxes or returns.
  An authorized representative of the branch can act as the process agent for at least 11 months after the cessation of business to receive notices from relevant authorities.

Should you set up a branch office in Hong Kong?

Hong Kong is an attractive destination for any business entity that wants to establish its presence in the Asia Pacific region.

Opting for a branch office in Hong Kong is an easy way to start business operations, if you don’t want to set up a subsidiary company right away.

However, you must carefully consider what’s best for your company, keeping in mind your business goals.

Not sure if a branch office is a safe bet for you? Get in touch with Air Corporate today to learn more about what you can do for your business.

We provide a range of secretarial services to Hong Kong foreign companies, including setting up a branch.

We also help set up a corporate bank account to support your banking needs. Partner with us to enjoy peace of mind when you do business in Hong Kong.

FAQs

How much time does it take to set up a Hong Kong branch office?

Registration takes approximately 2 weeks. The exact timeline varies on a case-to-case basis.

Are there any disadvantages to setting up a branch office in Hong Kong over a subsidiary?

A branch office has no legal identity. As a result, the parent company has full liability for any actions taken or debts incurred by its Hong Kong branch. It is also legally bound by all contracts that its branch executes.

In the case of a subsidiary company, the parent doesn’t have any legal obligations. Since the subsidiary company maintains a distinct legal identity, none of its actions are legally binding on the parent.

Can a branch office in Hong Kong freely send money to its parent company once it is shut down?

Yes, as there are no exchange control regulations in Hong Kong. There are no restrictions on sending remittances abroad. 

But any profit generated abroad remains subject to applicable tax regulations of the country that receives the money.

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Most people associate the term ‘offshore bank accounts with multinational corporations or ultra-rich millionaires carrying out illegal activities such as evading taxes.

In reality, though, offshore bank accounts are a completely legal and valuable way to take care of financial commitments spread across jurisdictions.

So what are the benefits of having a bank account offshore? Do you need to set up an offshore company before you can open an offshore account? And most importantly — which is the best destination for opening such an account?

This guide answers all your questions and also rounds up the 6 hottest destinations for opening offshore accounts in 2023.

What is an offshore bank account?

When you open an account in a country where you don’t live, it is known as an offshore bank account.

For instance, if you live in the UK but open a bank account in the US, it counts as an offshore account.

An offshore company also needs such accounts when carrying out business activities in different countries.

Say, your company wants to do business in Singapore but the company’s principal investors reside in Malaysia. In that case, opening an offshore account in Singapore can help to send and receive payments in Singapore Dollars.

What is the use of an offshore bank account?

Offshore accounts are used for a variety of reasons, including:

• Holding and receiving payments in multiple currencies;
• Reducing your business tax liability;
• Protecting your investments and assets in a foreign jurisdiction; and
• Enjoying privacy and security

Is Offshore Company Incorporation Mandatory to Open an Offshore Account?

Setting up an offshore company is only not the only way to start your offshore account.

As a parent company, you may incorporate an offshore company to enjoy tax benefits and a better regulatory regime. But there are various other reasons why you should have an offshore company.

If you hold investments in a foreign country in an individual capacity or spend a part of the year living in a different country or even provide financial support to someone who lives overseas, you are eligible to open such bank accounts.

Why Choose an Offshore Bank Account?

These accounts make it incredibly easy for their holders to manage financial obligations across countries. One can also benefit from attractive tax incentives that come with maintaining accounts in a different country where the tax system is relaxed.

Offshore account holders earn higher interest rates on deposits when compared to deposits in domestic accounts.

What to consider when choosing a destination for your offshore account?

There are a few things to keep in mind before you decide on your destination.

These include:

• The economic and political conditions of the country
• Ease of setting up the bank account remotely
• Availability of internet banking facilities
• State of banking infrastructure and privacy laws
• Flexibility to sign up for a multi-currency account
• The reputation of the financial institution
• Requirement of making a minimum initial deposit
• Fees payable for making international transfers

Which Countries are Ideal for Setting Up an Offshore Bank Account?

There are several countries that allow you to set up an offshore bank account. Most are known for their business-friendly laws and economic stability.

Here is a list of the top 6 countries to consider, if you are on the lookout:

1. Switzerland

Switzerland is a popular choice for opening offshore accounts for several reasons.

Swiss banks and financial institutions are bound by strict confidentiality and privacy laws that forbid them from sharing any information regarding someone’s account without consent.

A Swiss bank is not at liberty to share whether a person even has a bank account unless the account holder consents. Illegally disclosing information attracts heavy penalties and a six-month jail term for Swiss bankers.

Swiss markets are tightly regulated which means investors face a low financial risk and better wealth protection.

Switzerland also has a very strong economy and is the most politically stable country in the world, which are added incentive for an offshore company.

2. Hong Kong

If you are looking at the Asia Pacific region for opening offshore bank accounts, Hong Kong is an excellent choice.

Regarded as a leading financial center in the world, Hong Kong offers several advantages to its foreign banking customers.

75 out of the 100 largest banks in the world have a presence in Hong Kong. These banks offer a wide array of financial services to suit the needs of foreign companies.

Even though the banking sector is strictly regulated by Hong Kong laws, there are no restrictions imposed on the outflow or inflow of funds out of Hong Kong bank accounts.

Foreign entrepreneurs can open a corporate bank account in Hong Kong without being present in person — the entire procedure can be completed online. All you need is a local registered address of your company and relevant documents.

Banking firms in Hong Kong are also bound by confidentiality obligations that prohibit them from disclosing customer data.

Lastly, Hong Kong has an efficient legal system and offers various tax relief measures that attract foreign entrepreneurs to set up offshore companies. And thanks to Hong Kong’s strategic location, an offshore company also enjoys direct access to the Chinese market.

Not sure how to go about company registration in Hong Kong? Check out this handy guide to setting up an Offshore company in Hong Kong.

3. Cayman Islands

Apart from being a popular tropical destination, the Cayman Islands is also a preferred choice when it comes to offshore banking.

Cayman is a politically stable country with excellent offshore banking facilities which include investment and estate management services.

It is also a tax haven where account holders have no liability to pay any taxes including capital gains tax, dividend tax, income tax, property tax, or company tax. Foreign investments are not subject to any exchange control laws allowing the free movement of funds in any currency.

4. Germany

Germany is a popular foreign banking destination if you are looking at Europe.

As one of the stronger economies in the European Union, Germany is strict about regulating their banking system. German banks occupy the fourth position in the list of the top ten safest banks across the globe, thanks to the safety protocols in place.

The economic stability in the country also makes it a secure destination for parking your funds. Plus, most German banks follow a remote banking system that enables you to open your offshore account without being physically present in Germany.

5. Belize

Belize is considered a premier destination for opening offshore bank accounts.

Banks in Belize are known to offer the highest interest rate compared to what is offered by international banks elsewhere. The account of an offshore company is exempt from any exchange control laws.

The country also has a politically stable environment which is a critical factor for anyone transacting in offshore jurisdictions.

Exemption from the local tax system used to be a major pull for setting up an offshore company and its account in Belize. But due to pressure from Organization for Economic Co-operation and Development, several favorable tax practices have been discontinued.

6. Singapore

Regarded as one of the best places in the world to do business, Singapore is a hot favorite when it comes to offshore banking.

Singapore’s government closely regulates the banking system, which makes it extremely secure and stable. Banks provide an array of services to choose from, including financial advice, tax planning, and investment management.

It also offers a stable economic and political environment, which makes it easy for a Singapore offshore company to carry out its business activities.

But Singapore offshore companies may find it challenging to set up an account completely remotely as several banks need the account holder to be present in person.

A newly incorporated company also needs to provide a business plan and demonstrate business interests as part of the account opening procedure.

Final thoughts

Setting up a bank account in a foreign jurisdiction can ease the operations of your offshore company and help it thrive.

But choosing the best destination for account opening depends on what works for your business as there is no one-size-fits-all solution.

Want to set up an offshore bank account in Hong Kong? Register with Air-Corporate today. We can set up your offshore company in Hong Kong which includes access to a remote business account.

FAQs

Is it legal to set up an offshore company?

Incorporating an offshore company is completely legal, as long as it doesn’t engage in any illegal activity.

So the first check should always be — is your offshore company legal?

Is it illegal to open an offshore account?

Offshore bank accounts have been historically associated with money laundering and tax evasion.

But opening an offshore account is a perfectly legal activity, as long as you comply with the legal regulations of your home country and the country where you open your account.

It is only illegal if the account is opened for tax evasion or money laundering.

How to open offshore bank accounts?

The exact procedure depends on which international bank you approach.

Typically, most banks will need your identity documents and also understand the source of your funds to open your account.

How to withdraw money from offshore bank accounts?

Usually, banks provide internet banking facilities and also issue a debit card that allows you easy access to funds, no matter where you are.

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For entrepreneurs keen to establish their presence in the Asia Pacific market, doing business in Hong Kong is a preferred choice.

Besides its strategic location and stable economic environment, Hong Kong is known for its business-friendly policies that encourage new businesses to flourish. On the flip side, there are also significant challenges to doing business in Hong Kong that one must consider before setting up.

In this article, we look at 8 pros and cons of setting up a company in Hong Kong to help you make an informed choice.

Benefits of doing business in Hong Kong

Here’s why it is good to do business in Hong Kong:

1. Free economy and free trade

Hong Kong is a preferred destination for doing business due to its dynamic economy, which is guided by the free market and free trade principles. You enjoy the freedom to practice trade and can run any business as long as it is legal.

No restrictions are imposed on inward and outward investments. There are no foreign exchange controls applicable, allowing free convertibility of Hong Kong dollar. The government also doesn’t impose any restrictions on foreign ownership of companies.

2. Ease of access to the Chinese market

Incorporating a company in Hong Kong is beneficial if your expansion plans include having a presence in the Chinese market.

The governments of Hong Kong and China have entered into a free trade agreement called Closer Economic Partnership Arrangement (CEPA). Under CEPA, you can export products to the Mainland China market by setting up a Wholly Foreign Owned Enterprise (WFOE) or joint venture (JV) company in Hong Kong. The ownership of WFOE is 100 percent foreign-owned, whereas a JV is set up through a partnership between Chinese and foreign investors.

Goods and products manufactured in Hong Kong enjoy zero tariffs on imports to China as long as they are of Hong Kong origin. Businesses trading in services can also enjoy benefits under CEPA if they meet the eligibility requirements of a Hong Kong Service Supplier. Such suppliers can receive preferential treatment while providing services in Mainland China.

3. Independent legal system

The competitive economy and free market offered by Hong Kong for businesses are strengthened by its independent legal system based on common law principles.

The enforcement of contracts is efficient and cost-effective. Apart from paying a nominal filing fee for registering the case with the appropriate court, the applicant doesn’t have to pay any upfront fees. This is a departure from jurisdictions where litigants have to pay a percentage of the total amount of the claim as court fees.

The legal system also recognizes alternate modes of dispute resolution, such as arbitration and mediation. Hong Kong is a popular choice as the seat of arbitration. it is extremely rare for courts to refuse enforcement of an arbitral award, whether made in or outside of Hong Kong.

As a Special Administrative Region, Hong Kong is also the only jurisdiction that has numerous mutual arrangements with Mainland China that recognize and enforce court judgments and arbitral awards of civil and commercial disputes.

In December 2020, Hong Kong also entered into a supplemental arrangement with Mainland China for mutual enforcement of arbitral awards. Under the terms of this arrangement, the winning part of the arbitration can apply for parallel enforcement in China if the enforcement in Hong Kong is not successful.

4. Support for business improvement and growth

Over the years, the Hong Kong government has established several programs to support the growth of your business in Hong Kong.

For example, the Hong Kong Trade Development Council assists foreign companies that are keen to do business in Mainland China and other parts of Asia. Hong Kong companies also receive assistance in finding newer markets.

Similarly, the Hong Kong Productivity Council, a multi-disciplinary organization, helps companies in Hong Kong to do business more efficiently. Companies receive advice for upgrading their business performance and lowering operating costs.

Businesses can also reach out to The Support and Consultation Centre for SMEs to receive information about various funding schemes available.

In addition to the above, a strict anti-corruption regime also help strengthen Hong Kong’s image as a business-friendly jurisdiction. The government has set up the Independent Commission Against Corruption, which is authorized to look into corruption cases in both the public and private sectors.

5. Cost-efficient business operation

One of the main reasons entrepreneurs consider Hong Kong to set up a company is the straightforward business registration. It is quick and fairly inexpensive. You can complete the incorporation process within a week’s time. There are no requirements for holding a minimum share capital.

You also enjoy tax incentives for your business in Hong Kong. Companies are subject to a two-tier profits tax regime. For the first HKD 2 million, profits of incorporated and unincorporated businesses are taxed at 8.25% and 7.5%, respectively. The remaining profits of incorporated businesses are taxed at 16.5%, while for unincorporated businesses, the tax rate is 15%.

No withholding tax applies on dividend payments declared by a Hong Kong company to residents and non-residents. Additionally, there is no capital gains tax, VAT, GST, or other export taxes payable in Hong Kong.

Challenges of doing business in Hong Kong

Here is a closer look at some of the challenges of doing business in Hong Kong:

 1. Strict financial regulations

Even though Hong Kong offers ease of doing business for most industries, the situation is different if you are operating a financial company.

Financial firms have to comply with several regulations and restrictions, some of which are even stricter in comparison to China.

Based on the type of activities performed, firms need to obtain relevant licenses from either the Hong Kong Monetary Authority or the Securities and Futures Commission.

Capital raising exercises of financial firms may be adversely impacted on account of the regulations, restricting their business operations.

2. High cost of living

Over the years, Hong Kong has become one of the most expensive cities to live in.

On average, you should be prepared to shell out at least HKD 15,000 monthly to cover housing rental costs alone. Office rentals also don’t come in cheap as the demand is high, but the supply is low.

Central Hong Kong occupies the top position as the most expensive office area, with total occupancy costs going up to HKD 2025 per square foot per year. More affordable areas in East Hong Kong still work out to be rather expensive, with an occupancy cost of HKD 852 per square foot every year.

And it doesn’t stop with rental costs alone. Entertainment and leisure activities also cost a fair bit in Hong Kong. Having a drink at a bar after work can set you back by at least HKD 80 per glass. As a result, you need to pay higher wages to your employees to cover their living costs.

3. Complicated bank account setup process

Although it may seem that opening a bank account is one of the easier tasks to strike off your to-do list when setting up a company in Hong Kong, it isn’t exactly the case.

If you wish to open an account with a traditional bank in Hong Kong, the cost and time spent are high without any guarantee that the bank will approve your application. Moreover, banks require all directors of the company to be physically present in Hong Kong for account opening.

A Hong Kong company also needs to provide a mountain of paperwork in support of the account opening application, such as :

• Resolution by the board of directors
• A corporate chart
• Incorporation documents
• A copy of the business registration certificate
• Audited financial statements or business plan
• Registered office address and contact information of the owners

Since banks also need the documents to be certified, hiring a company secretary takes priority before you can focus on other things on your agenda.

Alternatively, if you’re looking to get your business up and running quickly, you may want to opt for a virtual business account. It takes less than 3 days to open a business account in Hong Kong and you can also skip all the hassle traditional banks offer.

Additionally, you also need to make a substantial initial deposit, and there is a chance that your application may be rejected without any explanation from the bank. As a business owner, dealing with a complex account opening process can be a huge disadvantage.

Wrapping up

There is no denying that there are several benefits to setting up a business in Hong Kong. However, there are also significant challenges involved that cannot be ignored.

You should weigh the pros and cons to decide whether doing business in Hong Kong is the right choice for your company.

Need help in figuring out if Hong Kong is the ideal location to move your business? Register with Air-Corporate today, and we’ll help you figure out exactly what you need.

FAQs

1. Do Hong Kong laws permit you to set up different types of business entities?

Yes, there are various types of businesses to register in Hong Kong, and you are free to choose one as per your requirements.

The manner of incorporation varies depending on the type of entity you choose.

2. Can you hire foreign employees after setting up a company in Hong Kong?

Yes, provided the Hong Kong company obtains a work visa for such employees.

3. Can you set up a business in Hong Kong without a local partner?

Hong Kong laws do not require foreign investors to have a local shareholder or director. However, you need to appoint a local company secretary to manage incorporation and ongoing statutory compliances.

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