What is a Special Purpose Vehicle in Singapore?
3 minute read
A Special-Purpose Vehicle, or SPV, is a separate legal entity, typically in the form of private limited company in Singapore, that is created for a specific, narrow purpose – usually for investment. This article gives you an introduction and how they are typically used, and how to create one in Singapore.
SPVs in Singapore
In the past, SPVs were typically used only by financial institutions and those in the real estate industry. It allowed a parent company to make highly leveraged or speculative investments via their SPV without endangering the entire company.
However, lately it has gained popularity amongst startups and VCs at the funding stage. So how can startups benefit from it?
A new way of equity financing
An increasingly popular method when it comes to financing is to use a SPV to help investors invest funds and receive equity when investing in the startup ecosystem.
With it, investors band together as a syndicate to put a sum of money into an investment vehicle that then invests in an entity. That entity collects the pool of investors under one capitalization.
Benefits of using a SPV (from the startup side)
As the company on the receiving end of a SPV investment, having it as an investment vehicle means that the company technically only needs to deal with one investor (ie the SPV company). This can prevent unnecessary influence from investors on day-to-day basis.
Moreover, startups can attract higher number of investors who are may be more risk averse, as the sum needed is much lower compared to typical funding session.
Benefits of using a SPV (from the investor side)
Creating a SPV allows companies or individuals to legally isolate the risks of an investment, and then share this risk with other investors. Many angel investors may also feel more comfortable with a SPV that is headed by a manager with experience in the field.
Certain types of assets can be hard and tedious to transfer. By creating a SPV that owns an entity’s assets, transferring assets can be done by selling it as a whole.
If the taxes on property sales are higher than that of the capital gain, a company may create a SPV that will own the properties for sale. It will allow them to sell the investment vehicle instead of the properties and pay tax on the capital gain instead of the property sales tax.
How do you create a SPV?
Legally, it can be limited partnerships, limited liability companies, trusts or corporations. There are no special requirements to create a SPV in Singapore that differentiate it from incorporating any other company as it’s merely a vehicle- it all comes down to the intent of the shareholders about how they wish to use it.
What are the accounting and tax requirements for an SPV?
Section 201(3A) of the Singapore Company Act requires directors of a company holding assets, investments or subsidiaries to present two additional reports above the basic tax compliance at the end of the financial year at the company’s Annual General Meeting.
- A Consolidated Accounts of the company and its investments
- A Balance Sheet dealing with the state of affairs of the holding company
All financial statements must comply with the prescribed Accounting Standards (IFRS 10) and give a true and fair view of the financial status of the company.
More information refer to our resource: Holding Company Considerations & Requirements.
With proper management and financing, SPVs can be a useful method to raise funds and mitigate risks. We can help you with incorporating a SPV in Singapore. Contact us and we will be more than happy to chat.