The Variable Capital Companies Act 2018 launched in January 2020 by both the Monetary Authority of Singapore (MAS) and the Accounting and Corporate Regulatory Authority (ACRA) received a positive reception during the official launch itself.
Up to 20 investment funds, including those from new Family Offices, were re-domiciled as Variable Capital Companies. To make the VCC even more attractive, the MAS also launched the VCC Grant Scheme which co-funds applicants of the VCC up to 70% of their expenses.
As a new investment vehicle, the VCC is exclusively designed for the fund management industry, and will strengthen Singapore’s position as a fund management hub in the region and beyond. Read on to further understand its salient features and advantages.
What is the Variable Capital Company Act?
The VCC Act 2018 outlines the legal boundaries from which an investment fund structure can operate. It provides for the incorporation, operation and regulation of corporate bodies to be known as Variable Capital Companies as well as other related matters.
VCCs are administered by ACRA. The aspect which MAS will monitor is anti-money laundering and countering the financing of terrorism obligations of the Variable Capital Companies. The Securities and Futures Act governs shares offering in a VCC and other aspects concerning the VCC as a fund.
This new corporate structure for investment funds is not meant to replace the existing suite of structures available in Singapore but to complement them.
According to the Act, all VCCs must be managed by a Permissible Fund Manager, which can constitute any of the following:
- a licensed fund management company (i.e. a holder of a capital markets services licence for fund management under section 86 of the Securities and Futures Act [Cap. 289]),
- a registered fund management company (i.e. a corporation exempted from holding a capital markets services licence under paragraph 5(1)(i) of the Second Schedule to the Securities and Futures [Licensing and Conduct of Business] Regulations),
- or a person exempted under the Section 99(1)(a), (b), (c), or (d) of the Securities and Futures Act [Cap. 289] from the requirement to hold a capital markets services licence to carry on business in fund management (i.e. a bank licensed under the Banking Act [Cap. 19]),
- a merchant bank approved under the Monetary Authority of Singapore Act [Cap. 186],
- a finance company licensed under the Finance Companies Act [Cap. 108],
- or a company or cooperative society licensed under the Insurance Act [Cap. 142].
What is a Variable Capital Company?
It is a company, or an alternative form of a corporate vehicle, that is incorporated under the purview of the Variable Capital Companies Act 2018. The organisation structure of a VCC is for all types of Collective Investment Schemes (CIS), which encompasses the company, limited partnerships and unit trust structures.
This means a Variable Capital Company is able to host open-end funds, closed-end funds, conventional funds and alternative funds. Existing corporate vehicles under the Companies Act are faced with many limitations in terms of reduction of capital and distribution of dividend – something that the VCC is not restricted by.
What is the VCC Grant Scheme?
To further strengthen the pull of this new project, the MAS launched the Variable Capital Companies Grant Scheme (VCCGS) under the Financial Sector Development Fund (FSDF) to co-fund qualifying expenses paid to Singapore-based service providers for work done in Singapore, in relation to the incorporation or registration of a VCC.
The VCCGS is valid until 15 January 2023. Funding can reach up to 70% of the company’s expenses. Qualifying expenses include legal services, tax services, and administration or regulatory compliance services. Co-funding is capped at S$150,000 per VCC.
Here are the Grant details as listed by the MAS.
|Applicant Eligibility||Qualifying Fund Managers that have incorporated a VCC or have successfully re-domiciled a foreign corporate entity to Singapore as a VCC, and have obtained a notice of incorporation or transfer of registration from ACRA.|
Key features of the VCC
1. Investor types
- open to retail investors, or
- open to restricted class investors (accredited investors) – such VCCs can adopt various prescribed internationally accepted accounting standards like US GAAP, ASC Standard or IFRS
2. Types of funds
- can be set up as a single standalone fund
- can be an umbrella fund with two or more sub-funds, each holding a portfolio of different assets and liabilities, but using common service providers across the umbrella and its sub-funds
3. Fund strategies
- traditional and alternative
- open-ended – offered through fund companies that sell shares directly to investors with no limit on the number of shares issued
- closed-end – has a fixed number of shares that are issued and is overseen by a fund manager or brokerage firm and are listed on the stock exchange
4. Fund structures
- more flexible than existing investment fund structures under the Companies Act
- all types of Collective Investment Schemes including private limited firms, trusts and limited partnerships
5. Investment portfolio
- can be a standalone fund (comprises a single investment portfolio)
- can be an umbrella entity (with multiple sub-funds that may have different investment objectives, investors as well as assets and liabilities)
- redeemable without shareholders’ approval
- before shares can be offered, a prospectus must be filed with the MAS, the MAS must approve the VCC and an approved trustee must be appointed as the custodian of the VCC assets
- payable from the capital thus offering greater flexibility than corporations
8. Register of shareholders
- must be maintained in a VCC but need not be made public
- must be disclosed to public authorities upon request for regulatory, supervisory and law enforcement purposes
Advantages of the VCC
1. Benefits that a VCC structure has over current CIS in Singapore
- Economy of scale: Because the VCC can be used as an umbrella entity, it is possible to have only one register of shareholders as well as the same Fund Manager and other statutory assignments for all the sub-funds, thereby improving cost efficiency.
- Fund managers can re-domicile existing overseas investment funds simply by transferring their registration as a Singapore VCC.
- Dividends can be paid out of the capital without having to wait for revenue to be generated.
2. Tax benefits of VCC
- An umbrella VCC needs to file only one (1) corporate income tax return (CIT) to the Inland Revenue Authority of Singapore (IRAS).
- Goods and services tax (GST) on expenses occurred in Singapore can be recovered.
- Leverage on Singapore’s tax treaties for better cross-border investments. There are more than 80 double tax agreement (DTA) treaties in force, granting a VCC foreign tax credit. (on condition it fulfills criteria of the DTA).
- Income of a VCC that is chargeable to tax at the prevailing corporate tax rate can enjoy a partial exemption under the partial tax exemption scheme or where applicable, the Start-Up Tax Exemption scheme (“SUTE” scheme) for the first 3 consecutive Years of Assessment:
- 75% tax exemption on the first S$100,000 of chargeable income
- 50% tax exemption on the next S$100,000 of chargeable income
- Enhanced Tier Fund (ETF) Scheme – Income and gains from designated investments of a VCC can be exempt from tax if it fulfills these two criteria:
- Minimum fund size of S$50 million at the point of application; and
- Annual local business spend of at least S$200,000.
- Singapore Resident Fund (SRF) Scheme – Income and gains from designated investments of a VCC can be exempt from tax if it fulfills: Annual business spend (need not be local) of at least S$200,000.
3. Other advantages of the VCC
- Exemption from solvency tests and corporate resolutions: Enables seamless capital movement and flexibility for shareholders to enter or exit a fund easily via shares subscription and redemption.
- Register confidentiality: VCCs are not required to reveal the log of shareholders to the public.
VCC considerations for foreign companies
The framework is open to any fund to be incorporated as a VCC as long as the company fulfills all the criteria set up for its incorporation. See the section ‘Requirements of a VCC’.
VCC considerations for re-domiciling funds
The framework allows for inward re-domiciliation. As such, funds structured as VCCs in other jurisdictions can easily re-domicile in Singapore, enabling the company to tap into Asian markets without losing their identity and legacy.
If they are not already structured as a VCC, the foreign domiciled funds constituted as a firm can be converted into a VCC first, or incorporate a new VCC in Singapore.
How to incorporate a VCC
Requirements of a VCC
- Appoint at least one director who is ordinarily resident in Singapore who must be either a Director or Qualified Representative of the fund manager;
- Appoint a Singapore regulated and licensed Fund Manager (the entity cannot be self-managed);
- Have a registered office in Singapore;
- Appoint a Singapore-based company secretary and Singapore-based auditor;
How to apply
Fund managers may incorporate new VCCs or re-domicile their existing overseas investment funds with comparable structures by transferring their registration to Singapore as VCCs. A foreign corporate entity that wishes to be domiciled in Singapore as a VCC can submit application forms within (3) months from the date of ACRA’s approval of the VCC’s evidence of de-registration.
How a corporate service provider can assist
One of the requirements for the registering of a VCC in Singapore is appointing a Singapore-based company secretary. A local corporate service provider such as Intime Accounting comes with corporate secretarial services, dedicated to carrying the role of company secretaries.
In addition to that, the corporate service provider can help both Singaporean and foreign firms transfer smoothly into this very beneficial corporate structure by offering:
- Expertise in navigating the VCC Act as well as all other statutory requirements, Acts and Laws.
- Collation and submission of all necessary documentation for the incorporation of the VCC ahead of deadlines
The Variable Capital Company and its Act are too comprehensive for this article to cover every single detail. For a more in-depth understanding of how funds and sub-funds of a VCC are addressed, it would be best to contact a Singapore corporate service provider or the relevant authorities.