The new Singapore variable capital company is a fund structure game changer

Deal Structuring & Mergers & AcquisitionsBy Profit Board Last updated on Aug 18, 2020

On 15 January 2020, the Monetary Authority of Singapore (MAS) and the Accounting and Corporate Regulatory Authority of Singapore (ACRA) launched the variable capital company (VCC), a new corporate structure under which investment funds can be created.

VCC is regulated under the Variable Capital Companies Act 2018 (VCC Act) and is a new corporate structure for all types of collective investment schemes in Singapore. Under the VCC Act, foreign corporate entities may also be re-domiciled to Singapore, subject to satisfaction of relevant conditions.

A VCC can be set up as a standalone entity or as an umbrella entity with multiple sub-funds. Each sub-fund may have different investment objectives and strategies, investors, assets, and liabilities.

The new VCC framework has features that are on par with other global leading fund structures, such as those available in Luxembourg, Ireland, and Mauritius.

Benefits of a VCC:

  • Improved tax and operational efficiencies (including, the US “check the box” election);
  • Financial statements of the VCC are not required to be made public;
  • A VCC can be set up for different types of funds, including traditional mutual funds, private equity, hedge funds, and even real estate funds;
  • A VCC may be used as pooling and investing vehicle, thereby dispensing multi-tiered fund structures;
  • A VCC can be utilised to list funds as information listing and trading purpose; and
  • The VCC structure is now an option for the wealth management industry.

 

Tax structure of a VCC

 

 

Under the Income Tax Act (Chapter 134), the tax structure for standalone VCCs will be the same as a Singapore company with regard to the Enhanced Tier Fund (ETF) Scheme and Singapore Resident Fund (SRF) scheme.

The new umbrella VCC provisions have significant benefits and are distinctive. Certain economic conditions will apply at the level of the umbrella VCC and not at the level of the sub-funds. An umbrella VCC has only one set of economic terms applicable under the current ETF and SRF schemes.

For all VCCs, there are several tax and operational benefits, including:

  • Availability of Goods and Services Tax (GST) remission for the VCC (even when it is not GST registered)
  • Availability of a Certificate of Residence
  • A withholding tax exemption
  • The 10 per cent concessionary tax rate under the Financial Sector Incentive — For the Fund Manager
  • No approval for additional sub-funds that are within the same investment scope (i.e notification process)

 

This product is evolutionary in nature, in that the VCC draws (and builds) on certain attractive features found in existing frameworks used in other fund jurisdictions. This is a masterstroke, and one which will cement Singapore’s status as a fund hub, both in Asia and the world beyond.

 

The VCC is bringing Singapore to the forefront of the investment world and is opening up many new options for fund managers to structure their investments. In addition, the VCC structure may now be used in conjunction with existing Singapore incentives such as immigration and business programmes, making Singapore an enticing location for investors who wish to set up their investment hub.

 

 

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