Special Purpose Vehicle (SPV) in Hong Kong: How It Works 2023

Hong Kong's strategic geographic location, situated near Mainland China and major Asian cities, positions it as a favoured investment hub. The vibrant business landscape in Hong Kong enables international enterprises to establish structures to expand their operations while enhancing the security of their investments.

One of the ways an international company can protect its assets when entering another market is through a Special Purpose Vehicle. The Special Purpose Vehicle term refers to a business or a company established in Hong Kong with a specific purpose to limit the amount of liability from a parent company overseas. 

As it is a separate legal entity from its owners, which typically are corporations registered overseas and outside of Hong Kong, they are used to lower the risk exposure from the parent company's assets in what could be a risky business opportunity. 

This article will discuss the requirements and processes for setting up a Special Purpose Vehicle and what forms it can take in Hong Kong.

What Are the Possible Structures for an SPV in Hong Kong?

There are several avenues for creating a Special Purpose Vehicle (SPV) in Hong Kong, including:

1. Establishing a Partnership: This can be a General or Limited Partnership.
2. Setting Up a Trust: The SPV can be entrusted to an individual or an entity that assumes the role of a trustee.
3. Registering a Hong Kong Company Often involves forming a Private Limited Company.

Among these options, a Hong Kong Private Limited Company is the most common choice for structuring an SPV in the region. This preference stems from the added protection it affords investors due to the inherent characteristics of this business entity, which restricts liability and assigns nominal value to the shares. 

To elaborate, one of the prerequisites for a Private Limited Company in Hong Kong is to issue at least one share with a value of $1 Hong Kong dollar, thereby minimising investors' liability.

Now that we've clarified the concept of Special Purpose Vehicles and their role as specialized business entities registered in Hong Kong, we can proceed to explore further details regarding their conditions and the steps involved in their registration.

📖 Tip: Learn more about other legal entities in Hong Kong.

Before the Registration - What Are the Requirements for SPVs?

Specific requirements must be met to successfully register a Special Purpose Vehicle (SPV) in Hong Kong. Below, we will outline some of the essential criteria:

1. Ownership: The owners of an SPV must be non-residents of Hong Kong, meaning they must be foreign individuals or entities.
2. Place of Incorporation: The entity that will serve as the owner of the SPV must be registered outside the jurisdiction of Hong Kong. This could include locations such as the United States, Singapore, Europe, or any other foreign jurisdiction.
3. Scope of Activities: The designated entity for the SPV must limit its business activities exclusively to acting as a holding company and should not engage in any other types of business activities.
4. Other Criteria: An SPV cannot take the form of an Excepted Private Company since this particular type of business entity is solely permitted for individual ownership.

These criteria are fundamental requirements when establishing an SPV in Hong Kong.

Hong Kong Companies Ordinance

The Hong Kong Companies Registry and the Companies Ordinance (Cap 622), the regulatory authority and framework for companies in Hong Kong, make no legal distinction for an SPV compared to other registered entities. Therefore, it is important to clarify which form it will take to proceed with the registration process and do the preparation accordingly. 

Registration Process - What Steps Are Needed to Be Taken?

A Private Limited Company is the preferred choice due to its minimal requirements. This section will use this entity as an example to explain the registration process.

Selecting a Company Name: Since a Private Limited Company possesses a distinct legal identity separate from its shareholders, you have the flexibility to choose any name for your SPV that is not already in use. However, it's important to avoid offensive or potentially confusing names.

Internal Structure: To establish a Hong Kong limited company, you must have at least one director, one shareholder, a company secretary, a registered address within Hong Kong, and a defined share capital.

Submitting the Application: Once all the necessary registration forms have been completed with the required information, they should be submitted to the Companies Registry.

Payment of Registration Fees: After the payment is processed and if the application is approved, your company's registration should be completed within approximately 4 working days.

Other Considerations for the SPVs

As there are some restrictions for the operation of an SPV, here we will enlist some of our considerations when establishing one:

• Licenses and permits: As the activities of an SPV are limited to not conducting business in Hong Kong, and there is no specific legislation or differentiation for an SPV, further permits and licenses may be required to act as such. 
• Tax regime: The flexible tax regime of Hong Kong gives very attractive tax rates. Additionally, there are multiple Double Taxation Agreements (DTA) signed between Hong Kong and other countries and jurisdictions, including Mainland China.

Conclusion

As we have read in this article, a Special Purpose Vehicle (SPV) is a more technical term used to refer to a Hong Kong-incorporated entity to use as a holding company. As this is not a typical company registration process and further details and preparations should be consulted and made, it is always advisable to seek the guidance of the experts in the topic, such as a professional firm that can advise you on the process itself.