Your Ultimate Guide to Understanding a Special Purpose Vehicle (SPV)

A Special Purpose Vehicle (SPV) is a legally distinct subsidiary created to isolate financial risk and safeguard the parent company’s assets. Commonly used across industries such as real estate, finance, and infrastructure, SPVs provide companies with strategic flexibility to manage high-risk ventures, asset transfers, and complex investments without exposing core business operations. This guide unpacks what SPVs are, their applications, benefits, legal and tax frameworks, and how to set one up – especially in business-friendly jurisdictions like Singapore.

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Key Takeaways

• SPVs are separate legal entities used to isolate financial risk, limiting liability for parent companies and protecting core assets.
• They enable structured finance, securitisation, and asset transfers, making them critical tools for corporate financial planning.
• SPVs offer tax optimisation opportunities and are commonly used in real estate, joint ventures, and investment funds.
• Setting up an SPV involves legal incorporation, establishing a constitution, and ensuring compliance with financial reporting standards.

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What is a Special Purpose Vehicle (SPV)?

A Special Purpose Vehicle (SPV), also known as a Special Purpose Entity (SPE), is a legally independent company created for a narrow, specific objective—typically to isolate risk from the parent organisation. SPVs are most often used to hold assets, manage investment projects, or conduct transactions that require a ring-fenced approach.

Risk Isolation With Legal Independence

Once established, the SPV operates as a standalone entity. It has its own balance sheet, liabilities, and legal responsibilities. This setup provides what is known as “bankruptcy remoteness”—meaning that if the parent company becomes insolvent, creditors cannot claim the SPV’s assets.

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Common Uses of SPVs

SPVs are versatile financial tools that serve multiple strategic purposes across industries.

1. Securitisation

   SPVs are commonly used in securitisation of loans or receivables. For instance, a bank might transfer a pool of mortgage loans to an SPV, which then issues asset-backed securities (ABS) to investors.

2. Joint Ventures and PPPs

   When two or more parties collaborate on a project—such as real estate development or infrastructure—a jointly owned SPV allows them to share profits and limit exposure.

3. Asset Transfers

   SPVs simplify complex asset purchases or sales, such as transferring real estate or intellectual property, especially across jurisdictions.

4. Investment Vehicles

   SPVs are often used in venture capital and private equity to hold investment stakes in startups or to manage a specific fund with multiple investors.

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Benefits of Establishing an SPV

1. Risk Management

   One of the key benefits of an SPV is limiting liability. Risks from a specific project or investment do not spill over into the parent company’s operations. This is particularly important in volatile industries like fintech, construction, and energy. In public-private partnerships, SPVs help share financial exposure and manage risks in large projects, making them indispensable for complex financial undertakings.

2. Tax Optimisation

   By choosing jurisdictions with favorable tax regulations, companies can reduce tax obligations. For instance, Singapore levies no capital gains tax, making it attractive for asset-holding SPVs. Additionally, Singapore has signed Double Taxation Agreements (DTAs) with over 90 countries, including major economies like India, China, the UK, Australia, and the US.

   These agreements prevent income from being taxed in both the source country and Singapore. For example, if an SPV in Singapore earns royalty income from India, the India-Singapore DTA can limit the withholding tax rate, optimising the net returns for the SPV and its investors. This is especially useful when SPVs are used to:

   • Hold overseas assets (e.g., real estate in Australia or equity in a US-based startup)
   • Receive dividends, royalties, or interest from foreign entities
   • Enter into cross-border joint ventures or M&A transactions
   
   

   Certain SPVs also qualify for exemptions under the Goods and Services Tax (GST) framework, depending on the nature of their activities and whether their services are zero-rated or exempt. For example, SPVs involved in the provision of financial services—such as issuing debt securities or managing investment funds—are treated as exempt supplies under GST regulations, thus avoiding GST obligations on such transactions. Additionally, if an SPV is not GST-registered due to low taxable turnover (below S$1 million annually), it is not required to charge GST on its supplies.

   Investors eyeing Singapore as a crucial part of their plan can also benefit from targeted investment incentives such as tax grants and development schemes.

3. Simplified Asset Transfers

   By consolidating assets into a single legal entity, SPVs enable streamlined acquisitions, mergers, or sales. This is especially beneficial when dealing with international investors or regulated industries.

4. Enhanced Investor Confidence

   SPVs provide transparency and accountability, especially when used in regulated markets or public-private partnerships. Investors are assured that the entity’s operations and liabilities are ring-fenced from unrelated ventures.

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Process to Set Up an SPV

1. Define the Business Purpose

   Start with a clearly defined goal—whether it’s for a real estate deal, managing intellectual property, or pooling investor funds.

2. Choose the Right Jurisdiction

   Select a country or region that aligns with your tax, regulatory, and legal needs. Singapore, for example, offers robust investor protection, tax advantages, and a transparent corporate regime.

3. Incorporate the SPV

   Incorporation usually involves:

   • Registering with regulatory authorities (e.g., ACRA in Singapore)
   • Appointing directors and shareholders
   • Drafting and submitting a company constitution

4. Set Up Governance and Compliance

   Ensure that the SPV is compliant with:

   • International Financial Reporting Standards (IFRS 10) mandates the consolidation of SPV’s assets and liabilities into the parent company’s balance sheet. This ensures that the financial health of both the parent company and the SPV is accurately represented. Annual General Meetings (AGMs) and board oversight: Directors are required to present consolidated accounts and a balance sheet at the Annual General Meeting.

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Financial and Accounting Requirements

SPVs must maintain clear, auditable records. Under IFRS 10, parent companies must consolidate SPV accounts if they retain control over the entity.

In Singapore:

• SPVs are generally incorporated as private limited companies.
• Annual filings are submitted to ACRA.
• Statutory audits may be required based on revenue and asset thresholds.

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Taxation of SPVs in Singapore

Singapore remains a favorable jurisdiction for SPV incorporation due to its competitive tax regime:

• Corporate tax rate: 17% on chargeable income
• No capital gains tax: Especially beneficial for property and equity deals
• GST exemptions: Possible for certain investment-related SPVs
• DTAs: Singapore has DTAs with over 90 countries

Singapore’s Economic Development Board (EDB) offers incentives for SPVs in high-tech digital innovation, green energy, and finance sectors. These incentives not only improve the financial viability of SPVs but also make Singapore a highly attractive jurisdiction for setting up purpose-driven investment vehicles.

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Legal Protection and Ethical Considerations

Legal Protection

Investors benefit from clear legal boundaries—SPV assets are protected even if the parent company declares bankruptcy. This makes SPVs a common structure for institutional investors and fund managers.

Ethical Considerations

SPVs have occasionally been misused for off-balance sheet financing or regulatory avoidance. Companies must maintain transparency and report clearly to regulators and investors.

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Emerging Trends and Future Outlook

SPVs are evolving with market dynamics and technology:

• Digital SPVs: Enabled by blockchain for transparent, real-time auditing
• Environmental SPVs: Created specifically for ESG-aligned investments
• Increased regulatory scrutiny: Especially after financial scandals involving hidden SPVs

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How Can InCorp Help Businesses and Investors With Smart Financial Manoeuvres?

SPVs are powerful tools that help businesses manage risk, optimise taxes, and pursue complex investments without endangering their core operations. From securitisation to real estate, they play a vital role in modern corporate finance. While jurisdictions like Singapore offer notable advantages, SPVs must be managed with transparency, ethical oversight, and full regulatory compliance. In the ever-evolving financial landscape, it is crucial for investors to engage a market entry solution provider such as InCorp Global. This partnership allows our consultants to ensure your business stays compliant and leverages SPVs to gain a competitive advantage. Contact our team today to see how we can make a difference in your new and upcoming ventures.

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