The SPV is a legal vehicle used to segregate financial risk and support project financing or securitisation by separating assets and liabilities from the parent company
A Special Purpose Vehicle (SPV) is a legally separate entity created for a specific, limited purpose—commonly used in structured finance, asset isolation, and project financing transactions. In Luxembourg and other international financial centres, SPVs are widely used by corporations, investment firms, and institutional investors to manage risk, structure complex financing deals, and isolate certain assets or liabilities from a parent company’s balance sheet.
An SPV is not a regulated entity per se; however, its tax treatment, accounting rules, and operational requirements vary depending on its legal form, underlying activities, and whether it qualifies as a securitisation vehicle or another type of structure.
Key Functions and Use Cases
SPVs are highly versatile and can be employed in a wide range of financial and investment applications, including:
- Project Finance: Large infrastructure, energy, or real estate projects often require dedicated entities to ring-fence assets and liabilities related to the specific project. This simplifies fundraising, enhances transparency for lenders, and limits exposure to the sponsors.
- Securitisation: SPVs serve as the issuing vehicles in securitisation transactions, acquiring financial assets (such as loans, receivables, or lease contracts) and issuing securities to investors backed by those assets.
- Risk Isolation: Corporations use SPVs to isolate financial or legal risk associated with a specific business segment, asset pool, or transaction, ensuring that risks are contained and do not impact the parent company’s balance sheet.
- Investment Structuring: Investors, private equity firms, and funds often use SPVs to hold specific assets, such as a real estate portfolio or a shareholding in a target company, particularly in cross-border investment scenarios.
Legal Forms and Structuring
In Luxembourg, SPVs can be incorporated in various legal forms depending on the transaction’s needs:
- Société Anonyme (S.A.)
- Société à Responsabilité Limitée (S.à r.l.)
- Société Coopérative (SCoop)
- Securitisation vehicles governed by the Luxembourg Securitisation Law of 22 March 2004
SPVs can also be structured as orphan entities, where shares are held by an independent trustee or charitable foundation, further ensuring asset segregation and bankruptcy remoteness.
These entities are generally unregulated, unless they qualify as regulated securitisation undertakings (subject to CSSF supervision), investment funds, or financial institutions under local or EU law. As such, SPVs offer a high degree of flexibility with minimal compliance obligations when properly structured.
Tax Treatment
The taxation of an SPV depends on its form and activity. In general:
- Standard commercial SPVs are subject to Luxembourg corporate income tax, municipal business tax, and net wealth tax.
- Securitisation SPVs under the 2004 law benefit from a specific tax regime. While they are subject to corporate tax in principle, they are allowed to deduct all payments made to investors (interest or profit distributions), resulting in no effective tax base.
- SPVs may benefit from Luxembourg’s extensive double tax treaty network, unless structured as tax-transparent entities.
Luxembourg also offers VAT exemptions for SPVs engaged in qualifying financial activities.
Reporting and Governance
Although unregulated, SPVs must comply with general corporate and accounting obligations:
- Maintain statutory accounting records and file annual accounts with the Luxembourg Trade and Companies Register (RCS)
- Appoint a Luxembourg-based director or administrator to oversee governance and compliance
- Fulfil AML and KYC obligations if administrative or domiciliation services are outsourced
For securitisation vehicles, additional reporting may be required, including investor disclosures and risk transparency under EU regulations such as the Securitisation Regulation (EU) 2017/2402.
Why Choose an SPV?
An SPV offers a robust and flexible legal solution for complex financial structures. Its main benefits include:
- Legal and financial ring-fencing of assets and liabilities
- Efficient structuring of cross-border transactions
- Support for securitisation and capital markets transactions
- Risk isolation from sponsors or parent companies
- Attractive tax treatment and operational flexibility
Special Purpose Vehicles (SPVs) are fundamental tools in contemporary financial structuring. Whether used for real estate investment, energy infrastructure projects, or structured credit transactions, Luxembourg offers a robust legal framework and investor-friendly environment, making it an ideal jurisdiction to establish your SPV. This ensures effective risk isolation, streamlined project financing, and enhanced investor confidence.