SPV Explained – How It Works In Singapore

As your company grows in size and scope, it may be necessary to take on larger projects in order to raise more profits and cover rising expenses.

However, the larger the project, the more complex and risky it may become. Not only are there financial risks, but also legal issues that can result in penalties and reputation damage for your company.

To manage these risks, most Singapore business owners would start a Special Purpose Vehicle (SPV) as a flexible and efficient way to reduce liability exposure for specific projects or transactions.

If you want to maximize the advantages of SPVs, it is important that you understand how they work, situations where they are commonly used, how to set up one, and other considerations related to this structure.

In today’s article, let’s discover it in detail with us.

What is a Special Purpose Vehicle?

A Special Purpose Vehicle (SPV) is typically a subsidiary of a parent company, but it has a distinct legal personality that separates its assets and liabilities from the parent’s.

This feature allows an SPV to operate independently and take on specific projects or transactions while protecting the parent company’s assets from potential risks or losses.

An SPV can serve various purposes such as investing, raising funds, owning properties, and more. Suppose you want to build a new apartment complex but worry about the losses associated, you can make investments via an SPV to take on this project without endangering your core assets and operation.

In the next section, let’s explore in detail the pros and cons associated with using an SPV in Singapore.

Common uses of Special Purpose Vehicles in Singapore

In Singapore, SPVs can be used by companies of all sizes across different industries including real estate, infrastructure, transportation, technology, and so on.

This structure is also popular among investors as a vehicle to provide funding and financing for startups.

• Limiting risk exposure for parent companies

By creating an SPV for a specific project, the risks associated with that project are contained within the SPVs and do not affect the parent company’s overall financial health.

This can make it easier for the parent company to undertake new and potentially risky ventures, without putting the entire company in danger.

Let’s say a real estate company establishes an SPV for its commercial property projects. If the project encounters financial difficulties, such as cost overruns or construction delays, the parent company’s liability is only limited to the amount of its investment in the SPV.

• Expanding investment opportunities for VCs

Most venture capitalists (VCs) would invest in a startup that meets specific criteria set out in their fund’s strategy. What if a startup falls outside the fund terms, but the VC firm still sees the investment potential?

In such a scenario, the VC can set up a distinct SPV to raise independent capital and invest in the startup with money that doesn’t belong to the fund.

If the startup goes bankrupt, the VC will lose only the initial investment put into the SPV.

But if the startup succeeds, the VC firm can sell the share, receive the gains or dividends, and close the SPV.

This allows greater flexibility and diversification in fund strategies, enabling VCs to maximize returns and increase fund capabilities.

• Fundraising and financing for startups

Setting up a Special Purpose Vehicle can be a great decision for young entrepreneurs looking to obtain financing from private investors in Singapore.

Rather than pursuing individual investors, a startup can create an SPV as a vehicle to pool capital from multiple investors and make a single investment. This provides startups with access to larger sums of capital, which can be critical for the success of certain business ventures.

By aggregating smaller investments from multiple investors, startups can raise the necessary capital to fund activities while also spreading the risk across a wider pool of investors.

What are the benefits and drawbacks of starting SPVs in Singapore?

Benefits of Singapore SPV

Setting up a Special Purpose Vehicle in Singapore can offer several benefits for businesses and investors, including:

• Easy to set up

The process of setting up an SPV in Singapore is relatively straightforward and can be completed within a few days, as long as all the necessary documentation and requirements are met.

Additionally, SPVs in Singapore can be established in various forms, such as a private limited company, limited liability partnership, or limited partnership, providing flexibility to investors.

• Various incentives

Singapore offers various incentives and schemes to promote business activities and investment in the country, including tax incentives, grants, and other forms of support.

These incentives are available to both locals and foreigners and can help to reduce the overall cost of doing business in Singapore and boost profitability.

• Favorable taxation

Singapore’s tax system is known for its simplicity, transparency, and low rates. SPVs in Singapore may be eligible for tax exemptions, deductions, and incentives, depending on the business activities and the structure.

Moreover, Singapore has a network of more than 80 Double Taxation Agreements (DTAs) with other countries, which can help to reduce the overall tax liability of SPVs with overseas operations.

Drawbacks of Singapore SPV

While there are several benefits to using an SPV, there are also some potential drawbacks that you should be aware of:

• Extensive cost

Establishing and operating an SPV under a parent company can be expensive, as you may need to pay for additional legal and professional fees, as well as ongoing administrative costs such as accounting and reporting.

• Regulatory changes

The legal and regulatory framework for SPVs in Singapore is subject to change, which could impact the tax and regulatory treatment of these structures over time.

Make sure you stay informed of any changes and seek professional advice to ensure compliance with all applicable requirements.

How to create an SPV in Singapore?

The creation of Special Purpose Vehicles (SPVs) is similar to the creation of other business entities in Singapore. We breakdown the whole setup process into 3 simple steps:

Step 1: Choose a structure for your SPV

In Singapore, an SPV can be established as a private limited company (Pte. Ltd), a limited liability company (LLC), or a partnership.

The structure you choose for your SPV can have significant implications for compliance and taxation requirements in the long term.

For example, an SPV established as a private limited company may be subject to corporate income tax, while an SPV established as a partnership may be subject to personal income tax.

It’s recommended that you consider the specific needs and objectives of your SPV, and seek professional advice to determine the most suitable structure for your specific circumstances.

Step 2: Reserve a name for your SPV

You will need to choose and reserve a unique name for your SPV, which must be approved by the Accounting and Corporate Regulatory Authority (ACRA) in Singapore.

Make sure you conduct a company name check in advance to ensure that the name you have chosen is not already in use and does not infringe on any existing trademarks or intellectual property rights.

Step 3: Register your SPV with the ACRA

The registration will involve filing necessary documents and paying fees. Once the ACRA approves your registration, you will receive a Certificate of Incorporation via email.

You should carefully review this document and look for key information such as the Unique Entity Number (UEN) and your company’s business profile.

What are the annual requirements for SPVs in Singapore?

As a legal entity in Singapore, Special Purpose Vehicles (SPVs) are required to comply with annual requirements set out by the ACRA, including accounting, paying taxes, and annual filing.

Accounting for Singapore SPV

Under the Singapore Companies Act, all companies registered in Singapore, including SPVs, are required to:

• maintain proper accounting records; and
• prepare financial statements that give a true and fair view of the company’s financial position and performance.

The accounting requirements for SPVs in Singapore are set out in the Singapore Financial Reporting Standards (FRS), which are based on the International Financial Reporting Standards (IFRS).

Taxation for Singapore SPV

Below are some key tax considerations for SPVs in Singapore:

• Corporate Income Tax (CIT)

SPVs that are tax residents in Singapore are subject to corporate income tax at 17% on income generated in Singapore, or foreign-sourced income that is remitted to Singapore.

On the other hand, non-resident SPVs are subject to tax on income derived from Singapore only.

• Withholding tax

SPVs in Singapore may be subject to withholding tax on certain types of income, such as interest, royalties, and technical services fees, paid to non-resident companies.

The withholding tax rate in Singapore is generally 15% or the rate specified in the relevant tax treaty.

• Goods and Services Tax (GST)

SPVs in Singapore may be required to register for GST if annual taxable turnover exceeds S$1 million.

GST is a value-added tax of 8% levied on most goods and services consumed in Singapore.

• Tax exemption

Your SPV may be eligible for tax exemption under certain conditions, such as an exemption for foreign-sourced income and an exemption for startups.

You’re more than welcome to seek our professional advice to determine your eligibility for these schemes, chat with us now.

Annual filing for Singapore SPV

SPVs are subject to the standard annual filing requirements, which are:

• Annual return

The annual return must contain basic information about the SPV, such as its registered office address, directors, shareholders, and share capital, and must be filed along with the audited financial statements within six months from SPV’s financial year-end.

Small companies and dormant companies may be eligible for exemptions from filing annual returns, subject to certain conditions.

• Tax return

Unless exempted, SPVs in Singapore are generally required to file two types of tax returns:

1. Estimated Chargeable Income (ECI)
2. Form C/C-S/C-S Lite

Maintaining compliance with tax return requirements is important if you want to avoid penalties and maintain good standing for your Singapore SPV.

Closing thoughts

SPVs can be useful tools for managing your assets and liabilities. However, you should consider the legal implications of using an SPV in Singapore and ensures that all annual requirements are met.

If you could not find the answer to your questions in this article, simply let us know via service@bbcincorp.com and we’ll get back to you the soonest!

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