Open a SPV in Labuan

Anyone is allowed to open a SPV in Labuan. If the SPV is registered for financial activities, then it must abide by the obligations imposed by the Labuan Financial Services Authority (LFSA). The incorporation of the SPV is done in accordance with the standard registration principles applicable in Labuan, which can be explained and completed by our consultants.

SPV is the acronym for special purpose vehicle (the term may also be encountered as special purpose entity), which, as it name suggests, refers to a legal entity that is incorporated for a specific purpose (as a subsidiary). In general, the SPV is registered for financial or for other specific business purposes.

What is the main role of the SPV company?

The SPV is incorporated by another company so that it can invest in a new, separate project without jeopardizing its current financial situation. Thus, SPV is used as a mechanism that can safeguard the parent company from the risks and other liabilities that can be associated with the new investment project. In general, investors who open a SPV in Labuan opt for this legal entity when engaging in:

1. isolating financial risk from the parent company;
2. asset securitization;
3. sukuk (financial activities carried out under the Islamic law).

As per the local legislation, the legal understanding of the term SPV is defined as follows:

• the SPV refers to a legal entity incorporated in accordance with the rules of the Companies Act 2016 (as per the Malaysian law);
• for those who want to set up a company in Labuan as an SPV, the SPV falls under the definition prescribed by the Labuan Companies Act 1990 (the SPV can be registered as a Labuan offshore);
• in order to complete the process for Labuan offshore company as an SPV, the entity must also abide by the provisions of the Labuan Business Activity Tax Act 1990, Section 3A.

Concerning the latter observation, for SPVs incorporated in Labuan under the 2 laws mentioned above, we mention that the Malaysian authorities have stipulated that the taxation of the SPV is standardized in Malaysia and Labuan as well, as long as the 2 conditions mentioned for Labuan are both met.

If so, those who completed the process of company formation in Labuan for the SPV entity will be taxed in accordance with the rules of the Income Tax Act, Section 60I(4), in connection to the issuance of sukuk.

What legal entities are accepted for SPVs?

In order to complete the process on company incorporation in Labuan, investors must assign a legal entity to the SPV. According to the law, the SPV may be registered as one of the following:

1. corporation;
2. trust;
3. limited liability company;
4. limited partnership.

The decision to incorporate the SPV as one of the business forms mentioned above should be taken in accordance with the investors’ business needs and the objectives set out by the parent company. Our consultants in company formation in Labuan can advise on the advantages/disadvantages of each of the structured mentioned above.

Are there any investor qualifications imposed for financial activities?

Yes. Those who plan to open a SPV in Labuan should know that, given the complexity of the investments made through the SPV, investors must show evidence on their qualifications, which guarantee that they are aware and have the knowledge of the implications of their project. Because of this, the SPV is typically limited to accredited investors, who generally must make proof of the following criteria:

1. the professional experience;
2. their income sources;
3. the net worth;
4. their certification, etc.

Please address our team if you need further details on how to open a SPV in Labuan. Our consultants can provide full assistance on the tax policies applicable to this entity, as well as on any other obligations you may have once you open a company in Labuan (tax reporting, accounting, etc.).