Foreign Companies are capable of setting up a local office in Hong Kong by either registering a branch office, subsidiary, or a representative office.
A subsidiary is a private limited company that is structured to be the asset of an overseas company. Hong Kong allows for 100% foreign ownership of companies, meaning that the subsidiary will be fully foreign owned.
Most foreign companies prefer to set up a subsidiary for many reasons. Primarily, a subsidiary is a separate legal entity and is independently liable for its own debts and other liabilities. Multinationals often when investing into China use Hong Kong private limited companies as an intermediary between the foreign parent company and its Chinese operating business entity, protecting IP and assets to be used in China while taking advantage of free trade agreements and double taxation agreements.
Branch Offices are not separate legal entities and are seen as an extension of the parent company. So the parent company is accountable for the debts and liabilities of the Hong Kong branch.
Representative Offices do not have legal standing, so the foreign parent company is fully responsible for the debts and liabilities of the branch. It cannot enter into legal contracts on its own, nor can it negotiate on behalf of the parent company, sign deals, raise invoices, or be involved in trading activities.
A representative office cannot engage in profit making activities, and is generally used for promotion and liaison activities. There are no registration requirements with the Companies Registry, and no compliance procedures like filing tax returns, auditing or maintaining accounts.