Hong Kong’s location, close to Mainland China and close to major cities in Asia, makes it a preferred investment destination. Its dynamic business environment attracts international companies and businesses. With a wide variety of mechanisms and structures to expand your business operations, you won’t regret starting your investment here!
Entering a new market can be risky. This is why international companies will search for ways to protect their investment. One of the ways this works is through an SPV (Special Purpose Vehicle). By creating an entity, a foreign company can limit its exposure and reduce the liability from its overseas assets. In this article, we’re going to be discussing what an SPV is, the requirements for the setup process, as well as what forms it can take in Hong Kong. More details will be shown in the next sections of this article.
What is a Special Purpose Vehicle SPV?
Technically speaking, the Special Purpose Vehicle term is used to refer to a business or a company established that has a very specific purpose. 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 assets of the parent company, in what could be a risky business opportunity. Additionally, there is another term that is often interchanged with the SPV, the Special Purpose Entity (SPE), which has the same meaning and use.
For example in Hong Kong, it has become common to use this business structure to open a subsidiary in Mainland China. This route protects the main company from becoming liable if the business doesn't work. Especially if regulations are changing quite often, like in Mainland China. Also, the name Holding Company is used to refer to an SPV. This means that an SPV was created to own another company, a subsidiary of the company overseas.
How can you form an SPV in Hong Kong?
Here we will enlist some of the options to create an SPV:
- Registering a Partnership: for example, in Hong Kong, there is the option of having a General or Limited Partnership.
- Creating a Trust: a trust is formed by assigning an individual or an entity, which later becomes the trustee.
- Registering a Hong Kong Company: by forming a (Private) Limited Company, an SPV can take form in Hong Kong.
Making reference to the last option that we’ve mentioned, it is one of the most common forms that an SPV takes. One of the reasons is that, if we compare it to the other forms, they don’t protect the investors as much. A (Private) Limited Company can be only liable by the value of its shares. Also in Hong Kong, an investor can have 1 share with a value of $1 (Hong Kong) dollar.
To learn more about this topic, read our guide on Setting up a Hong Kong Limited Company
We hope that you have a better understanding of the Special Purpose Vehicles by now! Remember that in Hong Kong, this term is mainly used to refer to a business entity. In the rest of this article, we’ll be discussing what is needed to form an SPV. Also, we are discussing the steps to take to register in Hong Kong.
What are the Requirements for SPVs
There are a few requirements that need to be fulfilled to successfully register a Special Purpose Vehicle in Hong Kong. Here we will enlist some of the criteria needed:
- Place of Origin: as a company will be the owner, said the company needs to be registered outside the jurisdiction of Hong Kong. For example, in the United States, Singapore, Europe or elsewhere. This means that Hong Kong residents, in this case, another Hong Kong company, cannot form or own a Special Purpose Vehicle in Hong Kong.
- Scope of Activities: the entity to be designated as an SPV cannot engage in any other business activities, except acting as a holding company.
Hong Kong Companies Ordinance
The Hong Kong Companies Registry and the Companies Ordinance (Cap 622), which is the regulatory authority and the regulatory 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.
How to Register SPVs
As in most cases, a Private Limited Company is chosen for the special purpose vehicle, because of its low requirements, in this section, the registration process we will take this entity as an example.
1. Choosing a Company Name: as a Private Limited Company has a separate legal entity from their owners, in this case, the shareholders, any name can be chosen for the SPV that is not already in use. However, offensive words or names that can confuse the public should be avoided.
2. Internal Structure: a Hong Kong limited company must have at least one director, one shareholder, a company secretary, a registered address in Hong Kong, and a defined share capital.
3. Application Submission: once all the registration forms have been filled in with all the required information, they must be submitted to the Companies Registry.
4. Paying the Registration Fee: after the payment has been processed and if the application was successful, the registration of your company should be completed in around 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: an SPV is limited and cannot conduct or engage in any commercial activities in Hong Kong. Since there is no specific legislation or differentiation for an SPV, further permits and licenses may be required to function and act as a holding company.
- 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.
In this article, we have explained to you the SPV’s basic points. We hope that now you know what is an SPV. But, to refresh your memory, it’s just a technical term. Also, remember that registering an SPV is not just like opening any company. As it has a “special purpose”, you might need some guidance through the registration process.
If you want to contact a professional, Statrys can help you! Don’t waste your time and register your SPV now!