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How to Set Up a Hong Kong Special Purpose Vehicle

special purpose vehicle hong kong

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A Special Purpose Vehicle, also known as an ‘SPV’ or ‘SPE’ (Special Purpose Entity) is a subsidiary established by a parent company, often created in furtherance of isolating financial risk.

To put it simply, an SPV acts as a separate company with its own assets, liabilities, and legal status.

Hence holding a separate legal status to the parent company, if in any circumstance the parent company goes bankrupt or faces insolvency, the SPV that acts as a back-up can still continue to operate.

This is why SPVs are oftentimes also referred to as ‘bankruptcy-remote entities’.

However, rest assured, isolating financial risk is not all SPVs do.

Here are some more functions SPVs are used for: 

  • Asset transfer
  • Property Sale
  • Risk Sharing

Benefits and Risks of SPVs

Although, until now, SPVs might seem too good to be true, there are some downfalls too.

Here is a list of the pros and cons of SPVs:

Pros 

  • Isolated Financial Risks (limited losses)
  • Tax Savings/Cuts
  • Easy to set up 
  • Easier Communication and Awareness
  • Direct Ownership of certain assets

Cons

  • Additional legal and accounting work
  • No Capital Gains Allowance
  • Complex financial statements 
  • Liability for subsidiary’s actions, debts
  • SPV abuses

Real-World Example of SPVs

Many bigger corporations have implemented an SPV into their own companies in the hope of securing their own financial assets.

Namely, Warren Buffett’s Berkshire Hathaway Inc., for example, owns a set of smaller subsidiaries, including Clayton Homes, Dairy Queen, Business Wire, GEICO, and Helzberg Diamonds.

The purpose of this is that by dividing their assets among subsidiaries, they have succeeded in sharing the company’s risk and, therefore, taken off pressure from the big corporation if, in any case, it was likely to go under administration. 

Why Set Up An SPV In Hong Kong

1. Hong Kong Is the Hotspot of Finance

Hong Kong being a Special Administrative Region (SAR) has always been viewed as a rapidly developing city, and this year more than ever we are seeing significant increases in HK’s already-booming economic rates.

So what better way to be a part of its economic success than to set up an SPV in HK?

Furthermore, being in close proximity to China also helps Hong Kong become a key financial hub in Asia, becoming especially beneficial if you are looking to do deals with Chinese investors or trying to penetrate the Chinese market.

2. Hong Kong’s Strategic Corporate Structure

Secondly, if you are looking to enter the Chinese market, holding an SPV in Hong Kong could be a way to do it.

For instance, if a French company owns an SPV in Hong Kong, in turn, the Hong Kong SPV will own China-based assets being a WFOE (Wholly Foreign-Owned Enterprise).

Thus it will be regarded as an HK company, and due to its also close geographical location with China, it will be easier to partner or link with Chinese firms and investors.

3. Advantageous Tax Laws

Hong Kong is also famous for its favorable corporate tax rates, as well as for its strategic taxation laws.

Most notably, for companies in Hong Kong, a treaty called the ‘double tax agreement’ was formed between Mainland China and Hong Kong to help withhold taxes on dividends as well as help prevent double tax and tax evasion.

In turn, it allows companies to achieve higher profits and revenues. 

Additionally, as previously mentioned Hong Kong holds low personal and corporate tax, as there is no capital gains tax, no value-added tax or sale tax, and no withholding tax on dividends or taxation on going to public welfare benefits.

Hence, why Hong Kong remains one of the countries with the lowest tax rates in the world when compared to other countries, which is also reflected by their equally correlating fastly growing corporate world. 

Special Purpose Vehicle Specifications in Hong Kong

Here are a few requirements from the Hong Kong Government if you are looking to set up an SPV in Hong Kong:

  • Should have a parent company fully incorporated or registered outside of Hong Kong
  • Must be owned fully or partially by a non-resident in Hong Kong
  • Cannot engage in business operations, trade, or activities other than holding
  • Cannot be registered as an immune or excepted private company
  • Is established solely for the purpose of holding, directly or indirectly, and administering one or more excepted private companies

Conclusion

Naturally, setting up an SPV will be a very complex decision to make. It should be evaluated carefully and thoroughly in the best way possible to see whether or not it will benefit your business.

However, it has become apparent over the years that SPVs have become a major development towards securing big corporation assets, and what better way than to set up an SPV in Hong Kong that aligns with promising tax legislation for your company to achieve its greatest heights yet.

For us, it’s a no-brainer! 

Are you looking to open your own SPV in Hong Kong?

Register your business with Air Corporate today and get approved in under 48 hours!

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Vivian Au

For many years, I worked at big accounting and company secretary firms in Hong Kong. I started Air Corporate to make the life of entrepreneurs and SMEs easy.

Vivian Au

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