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Why entity management in Hong Kong and China needs an integrated perspective

5 August 2022

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For entities in the Greater China region, an integrated, coherent approach to governance can drive efficiency and make sure multiple entities across the region stay compliant

Multinationals doing business in the Greater China region usually set up holding companies in Hong Kong with subsidiaries on the Chinese mainland.

This strategy makes sense. It takes just seven days to incorporate a Hong Kong holding company. And thanks to new rules introduced in 2018, a Chinese subsidiary can be up and running within a month.

International organisations take confidence from the familiarity with Hong Kong’s common law legal system. Comprehensive double tax agreements with the mainland bring a range of tax efficiencies.

However, setting up and maintaining multiple entities across both jurisdictions can often prove complex. If it’s not done well, it can bring serious inefficiencies, duplicate workflows and compliance issues.

An integrated approach to maintaining entities in Greater China was discussed during the Hong Kong Chartered Governance Institute (HKCGI) webinar in June 2022, in which we both took part.

As we were being invited to share tips in tackling governance challenges, we covered how this approach streamlines entity management – both across the region and over an entity’s full lifecycle – from set-up to deregistration.

It also provides a holistic view for multinational corporations, such as private equity firms, that manage multiple subsidiaries and special purpose vehicles (SPVs).

Entity management in “one country, two systems”

Multinational companies doing business in China often operate entities both in Hong Kong and the mainland, despite their contrasting legal systems and accounting and reporting standards.

Under the “one country, two systems” arrangement, Hong Kong continues to have distinct political, socio-economic and legal arrangements as a special administrative region of China.

Having entities in both Hong Kong and China brings important advantages. But maintaining compliant entities in both jurisdictions requires local knowledge in each.

Businesses often mistakenly assume they need separate teams and an isolated approach in Hong Kong and mainland China.

But engaging two separate providers means missing out on the synergies that make entity management in Greater China much more efficient, accurate and insightful.

The problem with separating entity management

Using separate teams to maintain Chinese and Hong Kong entities puts an extra burden on supplier management processes.

It also leads to duplication. A substantial amount of information can be shared when forming and maintaining entities in the two jurisdictions. Engaging two teams who don’t talk to each other effectively means doing the same work twice.

That creates inefficiency – and your organisation also misses out on the business insights that come from having a single, overarching view of all your entities in the region.

An integrated approach to entity management in Hong Kong and China

The alternative is an integrated approach – giving multinational businesses local knowledge in each jurisdiction, but with one point of contact and one holistic view.

What are the benefits? One central contact gathers information from both jurisdictions. Teams talk to each other, sharing information and avoiding duplication. And, more importantly, they consolidate the two separate approaches into one comprehensive programme.

This gives you one view of your entity estate, simplifying your administrative oversight.

When you set up a holding company in Hong Kong and subsidiaries in China, some decisions – for example over directors and their responsibilities – must align between jurisdictions.

With an integrated approach, an advisor can guide you through the process in a way that makes sense in both jurisdictions.

In short, an integrated approach gives you two or more local teams that collaborate on your behalf. They centralise documents and data collection, as well as employing a collaborative approach that ensures compliance and adds value.

The role of technology in entity management

The smooth operation of this integrated approach can be facilitated by implementing the relevant technology.

Managing multiple entities requires collecting and maintaining large amounts of data. This must be continually updated and presented in a way that’s appropriate for each jurisdiction.

Entity management via spreadsheet – or just notes in your diary – is no longer sustainable.

A good Entity Management System (EMS) makes things much easier if it’s accessible to everyone involved. It can streamline data collection from multiple entities and be used as the single source of truth for entity maintenance.

When linked to a management portal, an EMS gives instant access to information on every entity with the same ownership in the region – including directors’ details, statutory information and all constitutional documents.

The portal can be used to share this information, rather than relying on confusing email trails that may not contain the latest updates.

Private equity firms are among the multinational businesses that often have to manage a large number of entities in Hong Kong and China.

The sheer weight of data required to do so makes this a significant pain point for busy fund administrators. An integrated approach, backed by relevant technology, can take that pain away.

How Intertrust Group can help with entity management in Hong Kong and China

  • At Intertrust Group we employ a fully integrated approach to entity management, giving you local expertise from our teams in Hong Kong and China via a central point of contact.
  • Our teams talk to each other, sharing information and creating a holistic overview of all your entities in the region. Here’s how it works in practice.
  • We use proprietary technology that combines a powerful EMS with an intuitive management portal. It puts the information you need at your fingertips, creating a single source of truth.
  • Intertrust Group is a publicly listed company with 70 years’ experience providing world-class administration and company secretarial services to clients around the world.
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