Subsidiary or Branch? Choosing the Right Business Structure in Hong Kong
- Kristina Coluccia
- 6 days ago
- 3 min read
When entering the Hong Kong market, one of the first—and most critical—decisions you’ll need to make is how to structure your local presence. The two most common options for foreign companies are:
Setting up a Hong Kong-incorporated subsidiary, or
Registering a branch office of a foreign company (also known as a Part 16 Company).
While both structures enable business operations in Hong Kong, each comes with distinct legal, operational, and tax implications. Choosing the right model depends on your business goals, level of control, and broader regional strategy.
Subsidiary: A Separate Legal Entity
A subsidiary is a private limited company incorporated under Hong Kong law, often wholly owned by a foreign parent. It is treated as a local entity, with its own legal personality, governance structure, and financial reporting obligations.
Key features of a subsidiary:
Limited liability is confined to the subsidiary itself—the parent company is not automatically liable for its debts or obligations.
Easier to define governance structures, appoint directors, and issue shares.
Perceived by banks, clients, and authorities as a local business, which can build trust and credibility.
More straightforward to manage tax affairs, as it’s taxed on its own profits, and financials are prepared and audited locally.
Greater flexibility in opening bank accounts, signing contracts, and hiring staff.
If you're looking to establish long-term operations in Hong Kong with a full business presence, incorporating a subsidiary often offers greater autonomy and local legitimacy.
Branch Office: An Extension of the Foreign Parent
A branch office is not a separate legal entity, but an extension of the foreign company. It operates under the parent’s name and is registered under Part 16 of the Hong Kong Companies Ordinance.
Key features of a branch office:
The parent company retains full liability for all operations, debts, and obligations of the Hong Kong branch.
Must file the parent company’s financial statements with the Hong Kong Companies Registry.
Requires an authorised representative in Hong Kong to accept legal documents.
The branch must comply with local laws and reporting obligations, but governance and decision-making ultimately lie with the foreign parent.
Branch structures are often chosen when the business is testing the market, operating for a limited scope (e.g., liaison or support functions), or when the company wants to minimize administrative setup.
Tax and Compliance: What’s the Same?
Both branches and subsidiaries are subject to the same profits tax rates in Hong Kong. Each must register with the Inland Revenue Department and file annual tax returns. The key difference lies in how profits are reported and attributed—branches must allocate and audit Hong Kong-sourced profits based on local activity, while subsidiaries report their own standalone financials.
From a compliance standpoint, subsidiaries generally offer clearer boundaries, easier accounting, and fewer complications when dealing with the local tax authority or commercial partners.
So, Which One is Right for You?
Choose a subsidiary if you're planning a long-term market entry, want limited liability, need flexibility in local operations, or intend to build a trusted, local brand.
Opt for a branch if your presence is temporary, limited in scope, or your global structure requires centralised control and reporting.
At Woodburn Accountants & Advisors, we guide international clients through entity selection, setup, and compliance in Hong Kong. Whether you’re launching a full-scale business or testing the waters, we’ll help you choose the right structure—so you can grow with confidence from day one.
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.