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What is a Designated Activity Company (DAC)? And why you should use one for SPV transactions

Ireland continues to thrive as a European financial hub and offers a wide range of services within the financial services industry.

With its strategic geographical location and a strong pool of experts across a wide range of professional services, Ireland remains a key player within the financial services industry, as well as the leading European jurisdiction for SPVs with 31.5% of the European market share and 27% of market value.

Mohammad Zia and Aislinn Byrne from JTC’s Corporate Services team based in Dublin have extensive experience and are ideally placed to explain the Designated Activity Company (DAC), why they are beneficial, and why DACs are a commonly used structure when it comes to setting up an SPV:

A DAC provides a recognisable corporate structure with specific limitations on its operations, making it a suitable choice for certain business scenarios in Ireland.

Incorporation usually takes between three and five days from the date of submitting paperwork to the Irish Companies Registration Office (CRO).

It is relatively straightforward to incorporate requiring a minimum of €1 issued share capital, one shareholder and two Irish tax resident directors that can be provided by a corporate service provider at the time of incorporation.

Being an onshore jurisdiction, a member of the EU and OECD, it can provide a European passport as, once approved by the Central Bank of Ireland, securities issued by an Irish SPV can be accepted within Europe for admission to trading on regulated markets.

Ireland is a common law jurisdiction and has established a network of trusted and competitive service providers, directors, listing agents, accountants, and trustees. In addition to this it has a pro-business legislature supporting Ireland’s competitiveness in international capital markets, a well-developed tax infrastructure, efficient listings of securities on the Irish Stock Exchange (the “ISE”) and a stable political and economic environment.

Additionally, Ireland has an extensive double tax treaty network with 76 countries which means that depending on the particular treaty, it can ensure that the SPV receives income on its underlying assets free from withholding tax or, alternatively, at a reduced rate.

Section 110 of the Taxes Consolidation Act 1997 (“Section 110”) is fundamental to Ireland’s securitisation regime, allowing qualifying Irish resident SPVs to undertake a wide range of financial transactions while ensuring they are tax neutral.

Section 110 companies are usually incorporated as DACs and can be structured to ensure that the SPVs assets are bankruptcy remote should the parent entity become insolvent. This is done through establishing the SPV as an ‘orphan entity’, its shares being held by an Irish registered share trustee and a trust being declared over the SPVs shares for the benefit of an Irish registered charity.

The main uses for DACs are aircraft leasing, structured finance, securitisations, repacks, distressed asset investment and RMBS/CMBS transactions.

At the end of Q3 2023, there were a total of 3,368 active SPVs in the registered in Ireland, with a total of €1,105bn. The asset type held by the SPVs range from debt securities, deposits and loan claims to securitised loans[1].

Our team has years of experience both in respect of the traditional, and more niche, asset classes with specialist knowledge, expertise, and global reach to offer a truly bespoke service for clients.

To find out more, please get in touch with Mohammad or Aislinn directly or visit our dedicated Ireland web page here.

 

[1] Atlantic Star Analytics Irish SPV report Q3 – 2023