Hong Kong
  • Singapore
  • UK
  1. Osome Blog Hong Kong
  2. Setting Up a Hong Kong Company as a Special Purpose Vehicle

Setting Up a Hong Kong Company as a Special Purpose Vehicle

The term “Special Purpose Vehicle” may be unfamiliar to you, if you have not dealt with the finance or real estate sector before. A Special Purpose Vehicle, also known as an SPV, in Hong Kong is a company, usually a subsidiary used to secure the assets of the investors of the parent company in case it faces bankruptcy.

For example, you are an investor who has an asset share in the China company, Fortycent (fictional company). If Fortycent uses a SPV, you can place your assets into the SPV, instead of the company itself. In any case Fortycent goes bankrupt, the SPV company can still operate.

If you’re researching on the different formations to register your business, this article will explore what a Special Purpose Vehicle entails, and why Hong Kong is a hotspot for starting an SPV. Otherwise, drop us a chat to ask us any questions on company registration, bookkeeping, accounting, and company secretarial work.

What is a Special Purpose Vehicle?

In Hong Kong, SPVs can be a company that is fully incorporated, a trustee, or a partnership.

Forming an SPV is somewhat different from registering a whole new company in Hong Kong. The legal requirements may follow the Companies Ordinance just like normal company incorporation, but there are other requirements as well.

SPVs should act as a normal company and therefore, should keep a separate balance sheet from its mother company. Profits and losses should be stated in the SPV’s balance sheet as well, just like a usual company would. This also protects the interest of investors and helps your SPV attract potential investors.

If you are unsure about how to incorporate your company, or if you are an existing business owner looking to form an SPV for your company, Osome can help you with your company incorporation.  

What do you need to form a Special Purpose Vehicle entity in Hong Kong?

To form an SPV in Hong Kong, the chosen company needs to fulfill these 5 requirements:

  1. Should have a mother company fully incorporated or registered outside of Hong Kong
  2. Must be owned fully or partially by a non-resident in Hong Kong
  3. Can only be a holding company
  4. Cannot engage in business operations, trade or activities
  5. Cannot be registered as an immune or excepted private company

Why choose Hong Kong to establish Special Purpose Vehicles?

SPVs are mainly used by business owners, investors, companies and institutions such as banks to better manage their tax and financial management practices. Thus, it's no wonder why SPVs are gaining popularity, especially in Hong Kong with a favourable tax regime.

There are three main reasons why investors are interested in using this city as a base, which we will go into detail below.

1. A Major Financial Hub in Asia

Hong Kong is in close proximity to Mainland China and is a key financial hub in Asia with a straight-forward legal and financial system. It is a great way to enter the China market, especially if you want to hold Chinese investments. SPVs are especially popular for foreign investors as well.

2. Hong Kong’s Corporate Structure

Having a holding company in the form of an SPV can be a way to enter into China’s markets. One example would be if a US company owns an entity in Hong Kong. In turn, the Hong Kong company owns China-based assets or entities as a Wholly Foreign-Owned Enterprise (WFOE).

Jonathan is the owner of US company Jon Enterprise. Under Jon Enterprise is its Hong Kong entity Jon Enterprise HK. Jon Enterprise HK manages China-based assets. Jonathan can then sell any China-based entities held under Jon Enterprise HK by disposing of its shares, thus gaining benefits from all the China-based assets or entities his Hong Kong company holds.

3. Preferential Tax Benefits

Better known as the double tax agreement between Mainland China and Hong Kong, the treaty provides a rate of withholding tax on dividends. Of course, this rate is subjected to meeting certain conditions.

What is the Double Taxation Agreement?

In December 2019, the Fifth Protocol of the Double Taxation Avoidance Agreement (DTA) was finalized between China and Hong Kong. Its main goal was to prevent double taxation of income as well as to adjust tax rights between Hong Kong and other countries. This is on top of Hong Kong’s very clear-cut tax regime.

Because of its popularity for SPV formation, Hong Kong has also stepped up its legal rules for companies who wish to hold investments in China. If you are considering using a SPV as a stepping stone towards the China market, keep in mind that you need to obtain the needed certificates from the Inland Revenue Department of Hong Kong, such as the Certificate of Resident Status and a Mutual Agreement Procedure. You will also need various corporate and tax documents from both jurisdictions to qualify for the tax treaty. Talk to us to find out more about these in detail.

Conclusion

Of course, forming an SPV may seem like a difficult decision to make, as there is a lot to take into consideration. As with all business decisions, it is important to remain aware of the legal policies that the country has, especially since Hong Kong has been revising its laws to clamp down on dishonest and illegal transactions. Nonetheless, if you need help with forming your company, even setting right bookkeeping habits, Osome is here to help.

Share this post:

Tips to run your business smarter.
Delivered to you monthly.

You'll receive a verification email you'll have to open and confirm the subscription.

You might like it

Incorporation

Cost of Living as a Foreign Business Owner in Hong Kong

You’ve decided on setting up your company’s base in Hong Kong. The next step then would be to find out how much it costs to live there before you make the jump.

E-commerce

How To Design Your Website To Attract Buyers

If you’re looking to improve your e-commerce page and improve sales, you might want to learn the fundamentals of how to design a good website.

Entrepreneur's Bootcamp

Best Practice Invoicing Tips for SMEs

Want to know how to improve your invoicing? We’ve unpacked a few best practice tips that are ideal for business owners in Hong Kong like you, So if you need a little guidance, and a recap on writing commercial invoices as a newbie, we can help.

E-commerce

Paypal vs Stripe: Comparing Pros & Cons of 2 Payment Gateways

As an e-commerce business owner, you would have heard of payment gateways PayPal and Stripe. With these two big platforms being the most popular online payment gateways, you may face a dilemma when it comes to deciding which payment gateway to use.

Entrepreneur's Bootcamp

What Is a Compliance Calendar?

The repercussions of missing crucial deadlines extend beyond non-compliance and can even include hefty fines, lost revenues and opportunities, as well as decreased productivity.

E-commerce

An Online Seller's Guide to E-commerce Fulfillment & Shipping

Here’s a guide to e-commerce fulfilment and shipping for new sellers in Hong Kong looking to drive revenue from online sales. Find out more about the methods, models and software that’ll help you scale the business you’ve worked hard to build.

E-commerce

Tips For Amazon Sellers To Better Manage Your Inventory

Brand owners and sellers of all scales struggle to seek a well-balanced supply chain. Additionally, Amazon has its own inventory management rules, which makes everything even tougher.

E-commerce

The 10 Best E-commerce Hosting Services in 2021

When you are setting up your e-commerce shop, the right hosting provider can make all the difference. However, with a variety of options out there, choosing the best one can be confusing.

E-commerce

What To Include in an E-commerce Invoice?

For business owners who own and run an online store, you probably already know that invoices must be sent to your customers for the services you provide or the goods you sell, as a form of purchase proof.

Secretary

What Are the Penalties for Late Filing of Documents?

You will usually need to file your documents by a fixed time however, business owners are often so busy with business engagement that they forget about the deadlines.

Incorporation

How To Set Up Your Own Employment Agency

Given the importance of employment agencies, it is no doubt that they play an integral role in Hong Kong's economic success. Find out how to start an employment agency in Hong Kong as the world hurtles to define a new future of work.

E-commerce

How Packaging Inserts Can Increase Your E-commerce Revenue

As a business owner, you can use packaging inserts to publicise your products. Placing your focus on existing customers also means that you do not have to splurge extra dollars on marketing.

Tips to run your business smarter. Delivered to you monthly.

You'll receive a verification email you'll have to open and confirm the subscription.

We’re using cookies! What does it mean?