A company created for a specific purpose and set up to benefit a parent firm is known as a special purpose vehicle (SPV). Investors must follow BVI company incorporation procedures and all relevant laws regarding the kinds of activities the SPV will engage in to establish an SPV firm in the BVI.
The structure by which a luxury asset will be acquired and thereafter held should be one of the first factors taken into account when making a purchase. Holding the luxury asset in a British Virgin Islands (BVI) Special Purpose Vehicle (SPV) is one of the most common options.
WHY USE SPVS?
Depending on the specific SPV structure chosen, SPVs are corporate structures (usually BVI business companies) that are frequently established for the exclusive purpose of acquiring and keeping luxury assets. They often offer a mix of any or all of the following advantages:
- Financing Flexibility and Risk Limitation: (subject to any guarantees given) An SPV may be structured “off balance sheet” and used to obtain financing for a new luxury asset at the SPV level without raising the debt or security for the larger corporate group or HNWI/UHNWI directly.
- Transfer/Sale: Since the SPV can be sold as a stand-alone business, it will be easy to sell or transfer the luxury asset if that is ever desired. Permits and registrations (in the case of yachts and aircraft) might not need to be transferred and will stay in the name of the transferring SPV, which could have further advantages.
- Limited Liability: The majority of SPVs will benefit from “limited liability recourse,” which means that, subject to any guarantees provided, an existing group company or the HNWI/UHNWI will typically be protected from the financial risk in the event of default or other problems involving the luxury asset.
BVI COMPANY FORMATION REQUIREMENTS
To start a business in the British Virgin Islands, you must take the following actions:
- Reserve a business name – Select and reserve a name for your business; it must be original and not conflict with the name of another business that is already registered with the BVI.
- Decide the shareholding structure – Determine the shareholding structure, which also involves offering the necessary disclosures regarding the beneficial owners of the business.
- Prepare the paperwork – This involves preparing the Memorandum and the Articles of Association of the company and other relevant documents.
- Registration – BVI offshore company registration includes selecting a company secretary, paying government fees, getting any further permits and licenses, and submitting the required paperwork to the Financial Services Commission.
The following are relevant to the new business’s taxation and compliance:
- Since BVI doesn’t levy income taxes, almost all BVI businesses are tax-exempt (with certain exceptions for property ownership);
- There is no sales tax, value-added tax, or withholding tax; both the employer and the employee must pay payroll tax, which is equal to 2% or 6% of the gross wage for the employer;
- In some situations, there is a 12% stamp duty plus a land tax if the property is owned by a BVI business.
IMPORTANT CONSIDERATIONS FOR INVESTORS ESTABLISHING A BVI SPV COMPANY
The British Virgin Islands allow the incorporation of a variety of business forms. When establishing legal companies in this jurisdiction, it is necessary to work with a registered agent.
The categories of legal entities that can be incorporated are briefly described below:
- BVI business company: This might be an unlimited company (with or without shares), a company limited by shares, or a company limited by guarantee (with or without shares);
- Limited partnership: A limited partnership is one that has been created in accordance with the Limited Partnership Act of 2017 and is founded on a signed partnership agreement.
- Micro-business company: Suitable for start-ups, micro-business companies can be established in the BVI using the two business forms mentioned above.
STRUCTURE OF BVI SPVS
The BVI Business Companies Act, 2004 (as modified) (BCA), which provides for a variety of BVI company forms, is the main piece of legislation controlling businesses in the BVI. However, a BVI business corporation limited by shares (BVI BC), which has the following essential characteristics, is the most popular option when it comes to a BVI SPV created to hold luxury assets:
- Due to a BVI BC’s distinct legal personality, a shareholder or member’s liability is usually limited by the amount (if any) owed on those shares. Usually, this sum is either zero or only nominal.
- The directors of the business, who often do not need to be physically located in the BVI, can be tasked with managing the day-to-day operations of the BVI BC.
- To reduce administrative burdens, the SPV will have a registered agent and registered office situated in the BVI that can manage some of the daily administrative aspects of upholding the BVI BC on behalf of a customer.
- The BVI BC is a well-known and internationally recognized type of SPV.
- There are no statutory restrictions on financial assistance for the BVI BC.
WHY CHOOSE BVI TO OPEN A SPV COMPANY
- Reputation: Compared to less well-known offshore financial centers that might make similar claims, the BVI is one of the most recognizable and established offshore financial centers, which offers a major advantage when interacting with important counterparties (such as financiers, banks, and insurers).
- Confidentiality: Unless otherwise decided, the public does not have access to the information of any shareholders or members of a BVI SPV.
- Tax Neutrality: The BVI is tax neutral, which means that neither income tax nor corporate tax nor capital gains tax is imposed there. Additionally, the BVI does not apply any stamp duty on the transfer of shares of an SPV that is sold as a self-contained corporation owning the luxury asset, unless there are extremely special conditions.
- Legal System: The Privy Council in London is the final judge of the BVI’s well-established and respected common law legal system.
- Laws: In contrast to several onshore and other offshore jurisdictions, the BVI offers incredibly adaptable and user-friendly business laws.
- Costs: The formation and maintenance of an SPV within the BVI are quite inexpensive when compared to the majority of other reputable offshore financial centers.
Reach out to us at Relin Consultants for further assistance with registering your SPV company in BVI.
FAQs
What is the minimum investment for SPV?
While LPs usually have to commit at least $500,000 to a larger VC or PE fund, some spend as little as $1,000 in an SPV. Because SPVs are typically raised for a single deal—that is, to invest in a single company—they are less diverse than a regular fund. For investors, this may mean a higher level of financial risk.
What is the disadvantage of SPV?
While not always the case, one of the primary issues with SPVs is their occasional lack of transparency. It’s possible that those who contributed are unaware of the precise assets, their performance, and the risks involved.
How does an SPV generate revenue?
SPVs are used in venture capital to combine the funds of several investors and use them to fund a single business. The main difference between a fund and an SPV is that a fund makes many investments into various firms, while an SPV only makes one investment into one company.
What distinguishes an SPV from a company?
The SPV is a separate business with its own legal position, assets, and liabilities. They are typically made with a specific goal in mind, usually to isolate financial risk. Because it is a distinct legal entity, the special purpose vehicle can continue operating even if the parent company files for bankruptcy.
What is the difference between a VC and a SPV?
While venture capital firms invest in several startups over time, SPVs usually make a single targeted investment. While VC funds focus on early-stage and growth companies, SPVs can also manage assets outside of startups, such as real estate or private equity.
