Before you conduct any official business in Hong Kong or hire employees, you must learn how to set up a Hong Kong subsidiary, which operates independently from your parent company.
How to set up a Hong Kong subsidiary
You have 3 options when setting up a business in Hong Kong — you can set up a representative office, a branch office, or a registered subsidiary company. All 3 require that you have at least 1 permanent resident in Hong Kong to represent your company. Hong Kong subsidiary setup typically takes longer than setting up a representative or branch office, but it allows you to receive tax benefits and other trade opportunities that are not a part of the other 2 options.
Registering a subsidiary starts with choosing the type of company you will set up: a company limited by shares or a company limited by guarantee. You also need to select a name for your business. Step 2 is preparing a signed and completed incorporation form provided by the Hong Kong authorities along with additional incorporation documents: your company’s articles of association and a notice to the business registration office. In Hong Kong, you’ll also need identification documents, proof of residence, and a bank letter for those serving as your company officers. You will also need to hire a corporate secretarial services provider since this is a requirement for the establishment and operation of the company.
Hong Kong subsidiary laws also include mandatory fees. You’ll pay a registration and capital fee upfront before receiving a certificate of incorporation, usually after 4 to 7 days. Based on your industry, you may need to apply for additional licenses.
Hong Kong subsidiary laws
Subsidiaries operate as limited liability companies and are treated as separate legal entities from their parent companies. Therefore, under Hong Kong subsidiary laws, the parent company is not liable for anything the subsidiary company does.
Your Hong Kong subsidiary is entirely independent from your parent company and may operate under a different managerial framework that fits the local culture and business practices. The Hong Kong subsidiary will handle its own accounts and be responsible for any compensation issues, litigation, and benefits management.
You can choose the same name as your parent company, or you can opt for a different name. However, the subsidiary name needs to be approved by the Companies Registry. Other Hong Kong subsidiary requirements include:
- Appointing at least 1 director.
- Every subsidiary requires at least 1 shareholder, but no more than 50 shareholders.
- Appointing a company secretary. If an individual, they must reside in Hong Kong or, if a body corporate, it must have its registered office or place of business in Hong Kong. A sole director of a private company cannot be the company secretary.
- Appointing an auditor that is a member of the Hong Kong Society of Accountants with a practicing certificate.
Hong Kong’s law also requires local companies to file annual returns and pay annual registration fees, along with audited financial statements prepared and signed off by a certified public accountant. If these obligations are not met, penalties may apply to the local company.
Benefits of setting up a Hong Kong subsidiary
Although the Hong Kong subsidiary setup process is lengthy, your company can experience numerous benefits. For example, setting up a subsidiary allows you to operate under a limited liability structure, which helps your parent company avoid costly litigation or other fines.
You’ll also enjoy incredible flexibility. Hong Kong has an excellent infrastructure, a thriving free economy, and low taxes that make it easy to operate a business. Because your business gets a degree of independence from the parent company, you can choose how to run the subsidiary and can tailor it to meet the needs of the local culture.
Other important considerations
Hong Kong subsidiary setup can take months from start to finish. While you reap the rewards after you register the company and begin operations, you lose time, talent, and money in the meantime. You cannot hire any employees until you establish the subsidiary, which means you could lose qualified candidates who don’t want to wait around until the company forms.
You need plenty of time to establish a subsidiary and invest significant resources to hire professional counsel to help you set up and maintain your company.
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