When it comes to establishing a business presence in Hong Kong, foreign investors have several entity types to consider, each with its own set of advantages and considerations. From subsidiaries to branch offices and representative offices, each entity type offers distinct benefits tailored to different business needs. To assist you in making an informed decision, let's explore a comparative overview of these entity types.
Entity Type | Pros | Cons |
LLC (Private Limited Company) | - Separate legal entity - Easy fund-raising - Better public image - Seamless ownership transfer | - Setup complexity - Numerous compliance requirements - Public disclosure obligations - Complex liquidation process |
Public Limited Company | - Easy fund-raising - Positive public image - Smooth mergers and acquisitions | - Costly and intricate setup - Vulnerability to takeovers - Profits sharing and statutory compliance |
Public Company Limited by Guarantee | - Limited liability - Maintain control over operations | - Non-distributable profits - Limited capital options |
Sole Proprietorship | - Simple setup process - Clear decision-making - Exclusive profits | - Subject to legal scrutiny - Full personal responsibility - Limited funds and business lifespan |
General Partnership | - Easy fund-raising - Simple setup and maintenance - Combined expertise | - Unlimited liability - Divided goals and ideas - Profits sharing and accountability for co-partners' actions |
Limited Partnership | - Limited personal liability for limited partners - Easy fund-raising - Improved efficiency | - Full personal liability of general partners - Limited roles for limited partners - Expensive setup costs |
Investment Structures Comparison
Among the most common investment structures in Hong Kong are subsidiaries, branch offices, and representative offices. Evaluating each based on various practical aspects such as legal responsibilities, compliance requirements, and permissible activities is crucial for foreign investors.
Aspect | Subsidiary | Branch Office | Representative Office |
Separate Legal Entity | Yes | No | No |
Liability | Limited Liability | Extends to the parent company | Extends to the parent company |
Entity Name | Can be different from the parent company | Must be the same as the parent company | Must be the same as the parent company |
Allowed Activities | Can be different from the parent company | Must be the same as the parent company | Market research or coordination activities, no profit-generating activities |
Ownership | Can be 100% foreign or locally owned | An extension of the parent company only | A temporary administrative arrangement |
Maximum Number of Members | Yes, maximum 50 | Not applicable | Not applicable |
Key Officer Appointment | A local Hong Kong resident or corporate body required as a company secretary | A local Hong Kong resident or corporate body required as an authorized representative | A local Hong Kong resident required as a chief officer |
Timeframe for Registration | 4-7 working days | 14 working days | 1-2 working days |
Audit Requirements | Mandatory | Depends on the parent company's audit requirements | Depends on the parent company's audit requirements |
Profits Tax Obligation | Applicable for Hong Kong-sourced profits | Applicable for Hong Kong-sourced profits | Not applicable |
Filing of Annual Return | Yes | Yes | No |
Annual Filing | Must file an audited report of the Hong Kong subsidiary with the IRD | Must file branch office’s and the parent company’s accounts or audited reports with the IRD | Not applicable |
Conclusion
Choosing the right entity type and investment structure is crucial for success in Hong Kong's competitive business landscape. Whether you opt for a subsidiary, branch office, or representative office, understanding the distinct advantages and considerations of each will help you make an informed decision aligned with your business objectives.
Woodburn Accountants & Advisors is one of China’s most trusted business setup advisory firms.
Woodburn Accountants & Advisors is specialized in inbound investment to China and Hong Kong. We focus on eliminating the complexities of corporate services and compliance administration. We help clients with services ranging from trademark registration and company incorporation to the full outsourcing solution for accounting, tax, and human resource services. Our advisory services can be tailor-made based on the companies’ objectives, goals and needs which vary depending on the stage they are at on their journey.
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