Setting up a special purpose vehicle (SPV) in Singapore is usually done through setting up a separate legal entity, typically as a private limited company. Such an entity is created for a specific, narrow purpose and usually for investment.
An SPV is an excellent tool for business owners or entrepreneurs, providing many benefits if utilized properly. The key aspects of an SPV and the steps of its incorporation are discussed below.
What Exactly Is An SPV?
A special purpose vehicle (SPV), sometimes known as a special purpose entity (or SPE), is a corporate structure that acts as a tool that enables a company to transfer or isolate risk, get funding, and accomplish other essential business objectives. An SPV is often employed for a specific commercial aim or project.
An SPV is typically a subsidiary of the parent company, although it also operates as an independent legal entity with its balance sheet. This subsidiary company is shielded from the financial risks associated with its parent corporation.
Because of its legal standing as a separate business, its assets and liabilities are independent of those of the parent. An SPV structure, for instance, secures its creditors’ obligations even if the parent company goes bankrupt.
As a result, a properly collateralized SPV might have a far higher credit rating than its parent company, thus achieving better financing conditions.
Are SPVs Applicable in Singapore?
SPVs were previously solely employed by financial institutions and individuals involved in the real estate sector. The concept permitted a parent business to make highly leveraged or risky investments through special-purpose vehicles without putting the entire company at risk.
However, it has recently picked up traction among companies and venture capitalists in the funding stage.
ADVANTAGES OF USING AN SPV
In Singapore, SPVs are usually used by start-up companies, investors, and others. Further explanation of the advantages obtained by these parties can be seen below.
- If a company obtains funding by enabling the individual to purchase shares, it may have to address the concerns of each new shareholder about how the company functions, which might be time-consuming and even overwhelming.
- An SPV can help the company avoid this by allowing it to deal with only one new investor (the SPV company), rather than many. The investors put money into the SPV, which then puts money into the start-up.
Forming an SPV allows companies or individuals to legally isolate and share the risks of an investment with other participants. Many angel investors may feel more at ease with an SPV led by management with industry knowledge.
Certain assets might be difficult and time-consuming to transfer. Transferring assets can be accomplished by forming an SPV that owns an entity’s assets and selling it as a whole.
Real estate acquisition
If property sales taxes are greater than Singapore capital gains, a company may establish an SPV to own the properties for sale. It will allow them to sell the investment vehicle in their possession rather than the properties and pay capital gains tax rather than property sales tax.
Securitization by insurance companies and banks
Insurance and banking institutions frequently establish SPVs because they facilitate the functioning of securitized assets. A bank, for example, may desire to issue mortgage-backed securities whose payments are derived from a pool of loans.
However, to ensure that the holder of mortgage-backed securities has first-priority access to loan payments, these loans must be legally isolated from the bank’s other commitments.
This is accomplished by forming an SPV and transferring loans from the bank.
Onerous restrictions can occasionally be circumvented by forming SPVs. For example, legislation requiring owners of certain assets to be registered or based in specific jurisdictions can often be avoided by establishing an SPV in the appropriate country.
Such an SPV can thus hold the appropriate assets without transferring all of the parent’s activities to that jurisdiction.
HOW CAN I INCORPORATE AN SPV IN SINGAPORE?
Limited partnerships, limited liability companies, trusts, and corporations are all legal options. Since it is only a vehicle, there are no unique requirements for forming an SPV in Singapore that distinguishes it from forming any other company.
In the end, it depends on the shareholders’ intentions of how they want to utilize it.
Procedure for the incorporation of an SPV
Construct a suitable business structure
First and foremost, you must grasp why you want to construct the SPV. This will decide the business structure that is required.
For example, your SPV may be a subsidiary company held by the parent company for fundraising, or it could be a holding company owning many enterprises that want to combine, etc.
Once you’ve decided on a business structure, you can incorporate one or more SPVs as required by your structure. In Singapore, an SPV is often constituted as a Private Limited Company, which is an entity in which shareholders’ liability is limited by the cost of shares.
Your SPV, which is formed as a business, may be held by a minimum of one and a maximum of fifty shareholders, who can be natural people or corporate entities, both local and international.
If you require assistance to set up a Singapore private limited company, feel free to reach out to us at email@example.com
You must prepare a customized company constitution as part of the SPV’s formation procedure. The default constitution provided by Accounting and Corporate Regulatory Authority (ACRA) might not be an exact fit and might need updates.
In addition to the regular rules contained in the Private Limited Companies’ constitutions, the constitution of an SPV should specify the business structure in which the SPV is involved, the SPV’s functions, and its particular purposes.
Objects will likely be decided through a conversation with all stakeholders and would be tied to the transaction strategy.
Unlike regular companies, where the object clause normally identifies the sort of activity the company aims to carry out, as well as the goal of receiving and distributing earnings, the SPV’s object clause frequently describes the specific purposes and functions of the SPV in the business structure.
Furthermore, if such a company is formed for a specific project and a limited period, the company constitution should reflect this operational duration and outline the applicable winding-up method.
How are SPVs taxed in Singapore?
If your SPV is formed as a company, its chargeable income will be taxed at the corporate tax rate of 17%, subject to the tax breaks available to qualified companies.
The Goods and Services Tax (GST) is one of the unique tax provisions that apply to Singapore Special Purpose Vehicles. In some circumstances, eligible SPVs are free from GST. Real Estate Investment Trusts (S-REITs) listed on the Singapore Exchange (SGX) and their SPVs, for example, are given a GST exemption to claim GST on business expenditures.
For the execution of certain documents relating to properties and shares, SPV may be obliged to pay stamp duties.
What are the accounting requirements for a Singapore?
SPV must comply with all the accounting requirements of a Singapore private limited company. You can refer to the Singapore annual requirements for additional information.
How are SPVs regulated in Singapore?
Because a Singapore SPV is almost always incorporated in the form of a Private Limited Company, all regulations relevant to this kind of company will apply to the SPV. The following rules and regulations must be observed while establishing an SPV in Singapore.
Regulates all corporate bodies, such as a Private Limited Company.
Relevant when banks employ an SPV for financial dealings.
The Securities and Futures Act
Regulates the issue of securities, which is a popular financial instrument associated with SPVs. It will be relevant to fundraising start-ups that employ an SPV and issue securities.
Applies to all Singapore-based organizations.
Applicable to the SPV’s dissolution.
Are SPVs in Singapore subject to annual filings?
An SPV in Singapore must comply with the same yearly filing requirements as Singapore private limited businesses. However, there are several exceptions. If, for example, the SPV is established by a Singapore business that is listed on the SGX, the assets and liabilities of the SPV may be required to be included in the parent company’s financial statements, although the two are independent organizations.
A financial statement consolidation is required if the organization satisfies all of the following criteria: –
- It has authority over the SPV.
- It is exposed to or has rights to variable returns due to its participation with the SPV.
- It may use its power over the SPV to influence its returns.
Are SPVs in Singapore subject to withholding tax?
When interests and royalties are paid to a non-resident, Singapore SPVs may be subjected to withholding taxes.