The number of foreign and mainland companies with subsidiaries in Hong Kong grew 2.7 percent to 7,449 in the year ending June 1, according to Invest Hong Kong, a government body for inbound investment promotion.

Japanese companies made the biggest stride into the special administrative region, setting up 171 more subsidiaries in the past year, bringing the total to 1,389.

Foreign companies list Hong Kong's simple tax system and low tax rate as the top reason why they choose to establish in the city. Other favorable factors include the free flow of information, geographical location, free port status and the rule of law.

"Hong Kong is a strategic location in the region, and it attracts not only global functions from major multinationals but also more Asian companies that are using Hong Kong as their base from which to expand into other parts of Asia and to the rest of the world," said Simon Galpin, director-general of Investment Promotion with Invest Hong Kong.