What is Special purpose vehicle (SPV)?
A Special Purpose Vehicle (SPV) is a separate legal entity created for a specific, narrow purpose, such as holding assets, managing risk, or facilitating a particular transaction. SPVs are commonly used in corporate finance, real estate transactions, securitization, and project financing. In Switzerland, SPVs are used to isolate financial risk, structure investments, or carry out specific legal obligations without exposing the parent company to potential liabilities.
Key Features of a Special Purpose Vehicle
- Isolated Risk and Liability: One of the main reasons for creating an SPV is to isolate financial risk. By transferring assets or liabilities to an SPV, a company can limit its exposure to potential losses or legal issues. This ensures that the parent company’s balance sheet is not affected by the SPV’s activities.
- Asset and Liability Segregation: SPVs are often used to hold specific assets or liabilities that are separate from the parent company’s general business. This segregation can help optimize capital structure, facilitate financing, or shield the parent company from unwanted financial risks.
- Specific Purpose or Project: SPVs are typically created for a single purpose, such as financing a particular project or holding a specific set of assets. Once the purpose is fulfilled or the project is completed, the SPV may be dissolved or remain inactive.
Special Purpose Vehicles in Switzerland
In Switzerland, SPVs are commonly used in various sectors, including real estate, finance, and structured transactions. The Swiss legal and tax framework provides clear regulations for setting up and managing SPVs, ensuring that the structure is used effectively and legally.
- Legal Structure: SPVs in Switzerland are usually established as limited liability companies (LLCs) or stock corporations (AG). These entities are governed by the Swiss Code of Obligations, which sets out the rules for their formation, governance, and operations.
- Tax Treatment: SPVs in Switzerland can benefit from favorable tax treatment, particularly if they qualify for certain tax exemptions or deductions. This is especially relevant for companies using SPVs for asset management or structuring complex financial transactions. Additionally, Switzerland’s extensive network of double taxation treaties can be advantageous when structuring cross-border SPVs.
SPVs are a powerful tool for companies in Switzerland to manage financial risks, isolate liabilities, and structure investments efficiently. They are frequently used in both domestic and international transactions to achieve specific business goals while maintaining legal and financial separation from the parent company.