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On 14 January 2020, Singapore’s central bank, ACRA (Accounting and Corporate Regulatory Authority), and MAS (Monetary Authority of Singapore) came together to unveil the Variable Capital Companies (VCC) framework.
Its primary aim was to establish a roadmap for the constitution of investment funds across traditional and alternative strategies in the country.
The variable capital company is a corporate structure with a focus on collective investment schemes (CIS).
It is designed to provide an alternative to a company form of the legal entity under the Singapore Companies Act to form a CIS in the country. The VCC bill will act as the registrar and provide a platform for fund managers to establish a domicile of their investment funds.
This article discusses the variable capital companies in Singapore and the steps to set them up.
As per ACRA, the VCC is allowed to operate solely for CIS and can complement the existing CIS structures operating in the country, including open-ended and closed-ended ones. However, a variable capital company is not allowed to perform any other business.
As for its capital structure, it will have shareholders similar to the ones in CIS. The share capital of VCC is bifurcated into units, and each such unitholder is a partial owner of the body. In addition, ACRA has ordered each VCC to have a fund manager regulated by MAS to manage its investments. The person carries out the investments and manages the fund’s day-to-day activities.
In addition, no VCC formed in the country can deal solely with offshore vehicles. There has to be an investment management activity conducted within the physical boundaries of the country.
Types of VCC in Singapore
There are two types of VCC structures in the country –
- Standalone VCC
- Umbrella VCC
As the name suggests, the standalone VCC is a single VCC entity managing its liability and assets.
Under the umbrella structure, multiple CIS can combine to form a single corporate entity. All the sub-funds don’t need to have the same objective.
These can have different assets and liabilities too, and the VCC allows the creation of compartments to ensure others are completely unaffected by others’ performance.
It also means that the liabilities incurred by a sub-fund have to be discharged separately, and it cannot use other sub-funds’ assets to clear the same.
Advantages of VCCs over private limited companies
There are several advantages a VCC has on offer over its private limited companies counterpart –
- For private limited companies, they will have to seek investors’ approval. In contrast, a VCC can amend its share capital without seeking investors’ backing. It allows investors to invest, redeem, or withdraw money anytime they wish
- The constitutions and returns of a VCC have to be submitted to the Registrar of VCCs but will not be accessible to the public. Whereas, it is not the case with a private limited company
- Even the register of members is not accessible to the public. A shareholder can only ask for information pertaining to their holding. The fund manager, custodian, a person permitted by the court, and some public authorities can access the register of members of a VCC
Are there any additional requirements for a VCC?
ACRA entails a VCC to follow several ancillary requirements –
- Its capital must equal its net assets.
- It must have an office registered in Singapore and appoint a Company Secretary based in the country.
- It must have a Singapore-based regulated or regulated fund manager (if otherwise, they must obtain an exemption from relevant authorities).
- It must appoint a qualified custodian.
It must appoint a Singapore-based auditor and the financial statements of the VCC
- Must be prepared as per IFRS, Singapore FRS or US GAAP. It must follow the existing Securities and Futures Act (SFA) requirements for managing its investments.
Steps to set up a VCC in Singapore
The steps to set up a VCC in Singapore are similar to a standard company. The MAS licensing process is straightforward, making variable capital companies a great alternative to LLPs and trusts.
Here are the steps to incorporate a VCC in Singapore –
Submit a legal name for your VCC
The first step is to decide on a name for your VCC and submit an application electronically to the ACRA for the approval and reservation of the proposed name of the VCC.
A VCC must have “VCC” as part of and at the end of its name.
The processing time for the name application is 14 days. Once it is approved, you will receive the transaction number pertaining to your application.
Applying for registration
The next step is to apply for your VCC registration. For that, you will have to furnish the following information –
- Transaction number of approved name application.
- Copy of your constitution.
- Details of the permissible fund manager and subscribers.
- Details of VCC officers, such as an address, name, ID number, ID type, contact information, and nationality.
- Registered office address.
- Financial year-end.
- Working hours.
Along with these details, you will also have to pay a non-refundable fee of SGD 8,000 for the incorporation process. The law allows only a subscriber to the constitution of the VCC or a Corporate Service Provider (CSP) to file the form.
The incorporation application can be submitted electronically to ACRA for its review and approval. It may take between 14 to 60 days for the application for incorporation of VCC to be processed. This includes the time required for referral to another government agency for approval or review, if necessary.
Receive your Business Profile
For the application of incorporation, ACRA will email to the VCC applicant/lodger a free business profile within 5 working days upon successful incorporation.
The concept of Sub-fund
ACRA makes it mandatory to have each sub-fund registered for any VCC planning to have an umbrella structure. Here are the details you must furnish –
- UEN and umbrella VCC’s name
- Proposed sub-fund name
- Date of sub-fund formation
In addition, you must pay a fee of SGD 400 for each sub-fund registration. The processing time for the registration of sub-fund may take up to 3 working days if it is referred to another government agency for approval or review, where necessary
A VCC is similar to any other company in the eyes of Singapore Law, irrespective of whether it is registered as a standalone or umbrella model.
Even when you follow the latter, you are required to submit a single corporate income tax return with IRAS (Inland Revenue Authority of Singapore). They are required to pay a corporate tax rate at a flat 17%.
13R and 13X requirements for a VCC
The government has brought about a series of refunds for improving the VCC scenario in the country. In the beginning, it introduced the Resident Fund Scheme (13R), and the Enhanced Tier Fund Tax Exemption Scheme (13X).
Finally, the latest addition came in Budget 2020, where changes to Approved Venture Capital (entity) Scheme (13H) were announced.
The thrust of the enhancements is to broaden the scope of the incentive to embrace partnerships and foreign companies, as well as the VCC.
These allow certain VCC income from designated investments to be exempt from tax. It includes income broadly from (with some exceptions which you can refer to the details here): –
- Shares and stocks of any companies
- FOREX transactions
- Qualifying unit trusts
- Qualifying financial derivatives
- Foreign currency deposits with overseas FIs
- Immovable overseas property
FAQs on VCCs
1. Why are so many companies and other entities not allowed to form a VCC?
There were fears of abuse of VCC structure for scams and other illegal purposes in Singapore. So MAS formulated a stern requirement sheet to ensure that only the ones fulfilling the criteria can form VCCs in the country.
2. Can a VCC issue dividends out of capital?
Unlike the entities under the purview of the Companies Act, Singapore, which does not allow paying dividends out of capital, the VCC Act does not prohibit it. But VCCs can issue shares with different rights and dividend policies attached to them. They must ensure that their constitution allows them to do so.
3. Can a VCC have more than one fund manager? If yes, will there be any changes in the rules surrounding them with regards to their management, operation, and corporate governance?
The VCC Act only allows one fund manager to be appointed for each VCC. The manager may delegate the fund management and operational tasks to other fund managers in Singapore or overseas. But the overall responsibility of the fund must lie with the appointed fund manager.
4. Is MAS trying to make the VCC structure more attractive in Singapore?
MAS periodically conducts policy reviews to understand what needs modernisation and how can they make things more conducive. So, MAS, in a drive to make VCC a more feasible option has been actively considering –
- Expanding the current set of permissible VCC fund managers who are able to use the VCC structure including, among others, such as single family offices
- Widening the scope of use of the VCC and
- Providing a legislative regime to facilitate the conversion of existing domestic CIS structures (e.g. unit trusts) to VCCs
5. Do VCCs hold annual general meetings (AGM) like other entities?
A VCC must hold an AGM for the year within six months of the end of every financial year. A VCC need not hold an AGM if:
- its directors give at least 60 days’ written notice to the members before the last date on which the AGM must be held; or
- the VCC has sent to all persons entitled to receive notice of general meetings a copy of the financial statements, or copies of the consolidated financial statements and balance sheet, relating to the relevant financial year, and accompanied by the auditor’s report on them, no later than 5 months after the end of the financial year.
However, one or more members with 10% or more of the total voting rights may by notice to the VCC require the AGM to be held.
6. How many directors should a VCC have?
A non-retail VCC must appoint at least one director who is an individual ordinarily resident in Singapore and is either a director or a qualified representative of the regulated fund manager. The person chosen must be ‘fit and proper.’
7. How many members should a VCC have?
Every VCC must have a minimum of one member, but there is no ceiling limit on how many members it can maximum have.
8. Is the Register of Members of a VCC a public document?
The manager of the VCC, custodian on non-umbrella VCC or its sub-fund, and any public authority or person authorized by a legal court can access its Register of Members. It is not accessible to the general public.
9. What does the tax structure for a VCC look like?
The tax authorities in Singapore treat VCC as any other corporate taxpayer and it files a single tax return. But the taxation for an umbrella VCC gets a bit complicated with sub-funds allowed deductions and allowances availed of by the VCC and also carry forward allowed losses. But these losses cannot be transferred from one sub-fund to another.
The VCC structure has been why fund managers from all over the globe are willing to shift to Singapore. It allows them to utilize over 80 tax treaties along with benefitting from being a part of the VCC Grant Scheme.
It also reiterates that Singapore is one of the best places on Earth to carry your business endeavors. In addition, with sub-funds in the picture, you can create a hub of investment entities with different outlooks but under a single head.
For more information, reach out to us at Intime Accounting.