SINGAPORE Law and Practice Contributed by: Lee Xin Mei, Cheryl Tan, Eugene Lee and Benjamin Liew, Rajah & Tann Singapore LLP
The tax incentive scheme for Approved Special Purpose Vehicle (ASPV) engaged in asset secu - ritisation transactions (the “ASPV Scheme”) was introduced to support the development of Sin - gapore as a structured finance centre in Asia. The scheme grants a suite of tax concessions to an ASPV engaged in asset securitisation transactions, including a tax exemption from income derived by an ASPV from asset securiti - sation transactions, a fixed goods and services tax (GST) recovery rate on its qualifying busi - ness expenses at the prevailing GST recovery rate/methodology accorded to MAS-licensed full banks for the specific year in question and, subject to certain conditions, a withholding tax exemption from payments to qualifying non-res - idents under over-the-counter financial deriva - tives. The ASPV Scheme also includes a new sub- scheme called the ASPV (Covered Bonds) sub-scheme (the “ASPV (Covered Bonds) Sub- scheme”), for special purpose vehicles holding the “cover pool” in relation to the issuance of covered bonds under MAS Notice 648 (Issu - ance of Covered Bonds by Banks incorporated in Singapore) (“Notice 648”). The ASPV (Cov - ered Bonds) Sub-scheme is administered by the MAS and grants similar benefits as the ASPV Scheme, except that income derived by the SPE from activities under the covered bond struc - ture will not be taxed in the hands of the SPE. Instead, the income is taxable in the hands of the originator in the same financial year in which the income is derived by the SPE, and the income will be included in the originator’s corporate tax return. 1.4 Special Purpose Entity (SPE) Jurisdiction It is common for SPEs to be established in Sin - gapore for the following factors.
• Low corporate tax rate (which is potentially reduced under the ASPV scheme), and tax benefits, such as exemptions from withhold - ing tax. • Ease of incorporation. • Relative political and social stability. • Investor preference. Another common jurisdiction for the establish - ment of offshore SPEs for Singapore transac - tions would be the Cayman Islands. 1.5 Material Forms of Credit Enhancement The credit enhancement used in each transac - tion depends on the parties involved and the rat - ing requirements. Some techniques used in Singapore securitisa - tion transactions include: • subordination of junior notes/subordinated loans; • over-collateralisation; • cash reserves; • deferred purchase price; • credit insurance; • collateral or guarantees; • letters of credit; and • guaranteed liquidity facilities. 2. Roles and Responsibilities of the Parties 2.1 Issuers The issuer (typically an SPE) issues debt secu - rities, the proceeds of which will be used to finance the issuer’s purchase of the assets being securitised.
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