Getting to Know: Special Purpose Vehicle (SPV) Entity in Indonesia Business Framework

When Individuals or groups came to do business in Indonesia (“sponsor”), they may have heard of the option of purchasing a Special Purpose Vehicle (SPV) as the fastest option to penetrate the market. In business practice, establishing a company as an SPV is common in fulfilling the founder’s desire to execute a specific transaction or achieve a particular goal. 

According to the Minister of Finance Regulation No. 127/PMK.010/2016 on the Tax Amnesty Based on the Tax-Amnesty Law for Taxpayers in Possession of Indirect Assets in Special Purpose Vehicles, SPV is defined as a company established solely to:

1. perform specific functions for the benefit of its founder in purchasing and/or financing investments,
2. does not engage in business activities.

Following that, though is not necessarily, this type of company is almost entirely controlled by the legal entity that sponsors its establishment. For instance, SPV should be kept distanced from the sponsor both in its management and ownership, since if the SPV is controlled or regulated by the sponsor, there will be no difference between the branch company and the SPV.

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SPV is commonly formed as a limited company and therefore, since there are several business sectors limited by Indonesian Law for having foreign investment or requiring to invest with a minimum foreign investment plan of IDR 10 million, SPV has a certain advantage in solving this situation which the individual or groups that could use the pointed Indonesia partner to lead and owned shares of the SPV so the foreign or certain investment could be placed. In short, the pointed Indonesian partner only holds the shares for the sponsor (owner)’s benefit. As a result, investment action, sponsor supervision, and other corporate actions can be taken with ease.

In practice, SPVs can be used to obscure the identity of their owners through the concept of separating ownership from the legal entity of the Corporation (OECD, 2001). This identity concealment is usually achieved by establishing dozens or even more SPVs and creating layered ownership structures over these SPVs across various jurisdictions (involving many countries). Following that, these characteristics led the SPV to be established for illegal purposes since it is often associated with activities such as money laundering, tax fraud, etc.

There are two common types of company phrases we often hear concerning SPV, which are the shell company and the shelf company. These two types of companies enhance the other purposes of SPV establishment which are:

• Shell Company: Commonly does not possess any legitimate business purposes and is mostly only incorporated in other tax-haven countries to avoid tax obligations and money laundering actions.
• Shelf Company: Established and maintained for being sold to a newcomer to cut down the time and eliminate the hassle that a person or a group has to go through for setting up a brand new company faster in Indonesia, higher credibility, enhanced chances of loan, leasing, project tender opportunities, etc.

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In Indonesia, the individual or groups who comes to do business, instead of risking their business by establishing a shell company, may comply with Indonesian law such as establishing a SPV which is regulated according to Law Number 40 of 2007 on Limited Liability Companies and Minister of Finance Regulation No. 127/PMK.010/2016  or establishing Permanent Establishments (“BUT”) in the provisions of the income tax law. These steps may prevent them from being identified as corporate criminal acts and ask for corporate criminal liability by the state.