As it goes by many names: A Special Purpose Vehicle (SPV), or a Financial Vehicle Corporation (FVC) is a legal entity that is incorporated with a predefined and specific goal by a parent company. Despite being a subsidiary, SPV has its own legal personality, assets and liability.
Usually, SPVs are created with limited objectives such as transferring and managing assets off the balance sheet, undertaking the finances of large projects thus acting as a risk insulator or securitizing debts so that investors are assured of repayment.
SPVs can also be misused for detrimental purposes such as tax avoidance or masking important information from investors.
The following sections outline the main types and forms of special-purpose entities, uses and purposes and how to set up an SPV in Dubai and the wider UAE.
Structure and form
An SPV may be owned by one or more other entities. Some jurisdictions require SPVs to be owned by certain parties with certain percentages. It is important that the SPV is not owned by the sponsor, i.e the company whose on behalf the SPV is set up. SPVs are orphan companies with no connections to their sponsors as their shares are settled in charitable trusts and run by professional directors outsourced from another company.
As a stand-alone company an SPV takes on many legal forms including a limited partnership, a trust, a corporation, a limited liability company or even a joint venture. It is important to note that SPVs are not subsidiaries since it is essential that they stand on their own feet independent of the sponsoring company.
Distancing from the parent organization allows for hiving off assets or activities into the SPV. This isolation of assets is important for providing comfort to investors as the performance of the SPE will not be affected by the ups and downs of the originating sponsor. SPVs are ideal for preventing equity infusion in cases of complex financing.
As stated above the advantage of SPVs being free from pre-existing obligations and debts allows them to be used for a number of purposes including the acquisition of and/or financing of projects and set up of securitization schemes. Following is a detailed list of the most common purposes for setting up an SPV:
- Risk sharing: SPVs can be used to isolate high risk/asset from the parent company and to dilute the risk among other investors
- Maintaining the secrecy of intellectual properties and concealing innovation blueprints from competitors
- Securitization of loans and other receivables
- Finances: SPE with multi-tier structure allow for multi-tier investments and loans
- Asset transfer: Sometimes permits to operate certain assets are non-transferable or difficult to transfer. Grouping those assets under one SPV will allow to then sell the SPV as one self-contained package of assets with all the associated permits
- Financial engineering: SPV can sometimes be created for adverse financial practices such as tax avoidance or manipulation of financial statements
- No attestation required
SPV set up options in UAE
Supporting company formation in Dubai and the wider UAE, SPV can be set up in two main freezones; Dubai International Financial Market (DIFC) and Abu Dhabi Global Market (ADGM). For more information on SPV set up in ADGM see our services
There are a number of advantages of setting up an SPV in UAE among which are:
- Fast and efficient set-up process
- No physical office space is required, rather only a registered address
- Variety of legal structures
- Independent law and regulatory framework
- Permission to apply for tax residency certificate to benefit from UAE Tax Treaty Network
Business owners intending to set up an SPV for company formation in Dubai and the wider UAE are required to take the following steps:
- Creating a profile and preparing and reviewing the required documentation
- Completing and submitting all the required forms along with the application form and making the necessary payments
- Once all the required information and documentation are completed and submitted applicants will receive their approval notification via email
- Upon successful application applicants will receive a soft copy of their license and an appointment to collect all original documents
Required documents for SPV incorporation in the UAE are:
- Article of Association (AoA)
- Resolution of Board of Directors or Shareholders Resolution
- Registered address
- Passport information including the signature page for the directors, shareholders and beneficial owners
- Emirates ID for UAE nationals
- Certificate of Incorporation / Registration (for corporate bodies)