Difference between a branch and a subsidiary in Hong Kong

The Difference Between Branch and Subsidiary Hong Kong

A branch is the same legal entity as its foreign parent company. A subsidiary is a separate Hong Kong company with its own legal personality and limited liability. This distinction determines liability, registration, tax treatment and ongoing compliance.

A foreign company establishing a presence in Hong Kong can choose between three structures: a branch, a subsidiary or a representative office. Each carries different legal consequences.

Hong Kong Branch vs Subsidiary Liability

A branch has no separate legal personality from its overseas parent. The parent company is directly and fully liable for all obligations of the branch, including debts, contracts and any legal claims. Creditors can pursue the parent in its home jurisdiction if the branch defaults.

A subsidiary is a separate legal entity incorporated under the Companies Ordinance (Cap. 622). It owns its own assets and owes its own debts. The parent's liability is limited to the value of its shares in the subsidiary, unless the parent has given personal guarantees. This structure contains risk within the Hong Kong entity.

Setting up a Branch in Hong Kong

Setting up a branch in Hong Kong requires registration as a non-Hong Kong company under Part 16 of the Companies Ordinance. The foreign company must file Form NN1 together with Form IRBR2 with the Companies Registry. The branch must have at least one authorised representative in Hong Kong who is ordinarily resident and can accept legal documents. The branch is registered as having a place of business in Hong Kong but retains the parent company's name and legal identity.

The branch files an annual return on Form NN3 but is not required to file full accounts unless specifically requested by the Registrar.

Hong Kong Subsidiary Company Structure

A subsidiary is a Hong Kong incorporated private company limited by shares. It is formed by filing Form NNC1 and Form IRBR1 and receiving a Certificate of Incorporation and a Business Registration Certificate. The subsidiary has its own directors, company secretary, registered office and share structure. It must have at least one natural person director, one shareholder and a company secretary ordinarily resident in Hong Kong.

The subsidiary files an annual return on Form NAR1 and must have its financial statements audited annually by a practising certified public accountant. The parent company holds shares in the subsidiary and is a member, but does not assume the subsidiary's liabilities by virtue of ownership.

Foreign Company Branch Registration Hong Kong

The registration process for a foreign company branch uses Form NN1. The applicant must provide a certified copy of the company's certificate of incorporation, its constitutional documents, a list of directors and secretary, and details of the authorised representative. The branch must register with the Inland Revenue Department using Form IRBR2.

Once registered, the branch is a "registered non-Hong Kong company" and must notify the Registrar of any changes using Forms NN6 and NN9.

Tax Treatment

Both a branch and a subsidiary are taxed on the same territorial basis: only profits arising in or derived from Hong Kong are chargeable. The profits tax rate is the same: 8.25% on the first HK$2,000,000 of assessable profits and 16.5% on the remainder, for a single entity in a group. A branch files Form BIR52 (for non-corporate persons) and a subsidiary files Form BIR51.

The branch's profits are considered the parent's profits, and the Hong Kong Inland Revenue Department may examine the parent's worldwide accounts to determine transfer pricing. A subsidiary's profits are its own and are distributed as dividends, which are not subject to further Hong Kong tax.

Representative Office

A representative office cannot trade, contract or generate income. It is a liaison office only and registers solely with the Inland Revenue Department, not with the Companies Registry. It has no separate legal personality and cannot conduct commercial activities.