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Advantages of Non-Hong Kong Company (Branch Offices)
Over Local Company
Any foreign incorporated
company may be registered in Hong Kong (as Non-Hong Kong companies, also known as branch offices) but for those clients
who simply wish to create a new Hong Kong entity then our
recommendation would be to register a company in one of the
offshore jurisdiction, such as British Virgin Islands. The
procedure whereby a foreign company is registered in Hong
Kong may result in considerable advantages over the equivalent
procedure of incorporating a new Hong Kong company. Those
advantages may be summarised as follows:-
(1) Stamp Duty Advantage
Any transfer of
shares in a Hong Kong incorporated company is subject to the
normal level of Hong Kong stamp duty but most of the offshore
jurisdictions do not impose stamp duty on share transfers.
Any share transfer which takes place in a Part XI registered
company would follow the procedures applicable in that offshore
jurisdiction where a reduced amount of paperwork is required
and no stamp duty need be paid.
(2) Ease of Administration
Offshore jurisdictions normally allow
for easier administration of a company. Although Part XI imposes
reporting requirements additional to those imposed by those
offshore jurisdictions the actual administration of the company
would largely follow the offshore jurisdiction procedures
and it is therefore much easier and quicker to undertake the
administrative procedures such as raising the share capital,
transferring shares, appointing and resigning directors, amending
the Memorandum and Articles of Association etc.
(3) Accounting Requirements
Subject to the Hong
Kong Registrar accepting that the structure of the offshore
company is equivalent to that of a Hong Kong private limited
company, the Part XI company will be exempted from the requirement
to file accounts with the Public Registrar and, if the offshore
jurisdiction does not impose a requirement for accounts to
be audited, the Hong Kong Inland Revenue Department may accept
unaudited accounts.
(4) Company Names
It is possible to
bypass many of the restrictions which would be imposed by
the Registrar of Companies if you were to apply for the corporation
of a Hong Kong company. For example, a Hong Kong incorporated
company which wishes to use the word "trust" in
its name would normally be required to have a higher paid
up share capital whereas no such requirement would apply to
an offshore company applying for registration under Part XI.
In most of the offshore jurisdictions it is possible to incorporate
a limited liability company without the requirement to use
the word "Limited" or any derivative thereof as
part of the name. A limited liability company may therefore
register under Part XI without including the world "Limited"
in its name. This procedure would not be available when incorporating
in Hong Kong.
(5)Bearer Shares
A Hong Kong company
may not issue bearer shares but the some of the jurisdictions
impose no such prohibition. Although the ability to issue
bearer shares would prevent the company from obtaining the
exemption from the requirement to file accounts at the Public
Registry, registering an offshore company which can issue
bearer shares under Part XI does allow you to create a Hong
Kong legal entity without the restrictions on share capital
imposed by the Hong Kong Companies Ordinance.
(6) Corporate Mobility
If a Hong Kong incorporated
company wished to leave the register in Hong Kong then it
can only do so by winding up and ceasing to exist. By contrast
a company registered in some of the offshore jurisdictions
which was registered in Hong Kong under Part XI may leave
the Hong Kong register by a relatively simple procedure and
continue to exist under the law of that offshore jurisdiction
retaining the corporate history. Additionally, a offshore
company would have the ability to redomicile itself in another
jurisdiction.
(7) Tax Advantage For Trading Companies
A foreign company
registered under Part XI is, potentially, given a more lenient
tax treatment by the Hong Kong Inland Revenue Department than
an equivalent Hong Kong incorporated company. IRD Practice
Note No. 21, issued in November 1992, outlines what, in the
opinion of the IRD, constitutes Hong Kong source income. In
relation to trading transactions the Practice Note states
that where either the contract for sale or the contract for
purchase is effected in Hong Kong then the profits which result
from the contract will be taxable in Hong Kong. However, it
states that "where an overseas company sets up a branch
in Hong Kong to act simply as a buying office (i.e. the branch
only purchases goods and is not involved in their sale) no
profits tax liability will arise". It therefore seems
as though an overseas company can effect contracts for the
purchase of goods in Hong Kong without liability to Hong Kong
tax whereas a Hong Kong incorporated company cannot enjoy
this privilege.
(8) Possible Salaries Tax Advantage for Employers
An individual
employed by a Hong Kong incorporated company would generally
not be allowed to claim relief from Hong Kong salaries tax
in respect of earnings accumulated while travelling abroad
on business. An employee of a Part XI registered company who
is able to show that his contract of employment was signed
and negotiated while he was outside Hong Kong may be able
to claim a time apportionment and gain relief from Hong Kong
salaries tax in respect of earnings accumulated while outside
Hong Kong.
Disadvantages
of Part XI Registration
A disadvantage of registering under Part XI is that two sets
of administration must be undertaken rather than one and therefore
two sets of registered office, registered agent and local
company secretarial fees are likely to be incurred. These
additional costs would normally be relatively inconsequential
and may be more than compensated for by the fact that, in
many instances, the accounts of the Part XI registered company
will not require auditing.
See also:
Non-Hong Kong
Company Registration Procedures and Costs
Hong Kong Offshore
Income
Features
of Hong Kong Company
Hong
Kong Company Registration Costs
Hong
Kong Company Registration Procedures
Hong
Kong Taxation
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