In January 2020, the Variable Capital Companies Act came into effect paving the way for the first incorporations of Variable Capital Companies (VCC) as a response to the increasingly mature fund and wealth management industry in Singapore. VCCs are designed to complement the previously structures of offshore investment funds with a flexible onshore alternative.
A VCC is a company which has a variable capital structure in that it provides flexibility in the issuance and redemption of its shares from reserves and capital. The VCC concept was introduced into Singapore to allow the bringing onshore of funds previously held offshore in investment holding trusts and funds. Although Singapore is a very popular jurisdiction for the management of investment funds the actual assets have invariably been in offshore entities – in Cayman Islands, Bahamas, Mauritius or BVI.
The VCC structure in Singapore seeks to address the flexibility issue while retaining the tax efficiency of offshore funds managed from Singapore under previous arrangements. A VCC can either be set up as a new incorporation or as a redomiciliation of an entity from overseas into Singapore. In fact, the first 20 funds set up in Singapore under the VCC Act were redomiciliation of existing offshore companies. The new VCC is proving to be very popular – after 3 months of the legislation being in place, 41 VCCs had been set up in Singapore.
ACRA oversees the establishment and compliance aspects of the VCC, the MAS regulates both the Anti Money Laundering and Counter Terrorism Financing compliance through the Fund Manager and the Securities and Futures Act governs the share offerings of a VCC.
An additional level of flexibility is that a VCC can be a standalone fund or an umbrella entity overseeing multiple sub funds which have different investment strategies and investors.
Features of a VCC are:
- The VCC can be for fund strategies that are open ended (taking investor contributions and allowing redemptions on an on-going basis) or closed ended (investors need to invest within a certain time frame at the inception of the VCC and may only withdraw their capital at the end of the life of the VCC, usually a set time period);
- Entry and exit from the VCC is allowed at the Net Asset Value of the fund, as calculated at the entry or redemption date;
- Distributions may be made out of capital (rather than retained reserves);
- There is no obligation to make the financial statements publicly available, nor is there a need to publicly disclose shareholders;
- A VCC is not subject to shareholders approval or a declaration of solvency prior to a repayment/redemption of capital taking place which facilitates the smooth outflow of capital.
Incorporation of a VCC
ACRA has a specific form that must be completed to apply for registration, this Is normally completed by a registered filing agent (like acclime.com). The application needs to be accompanied by a non-refundable fee of S$8,000. If a company is being redomiciled to Singapore as a VCC, the application fee to ACRA is $9,000. Each sub fund under a VCC has a further registration fee of $400. Registration of a VCC will take up to 14 days. A transfer in can take longer, up to 60 days.
Some of the requirements to register a VCC include:
- There must be at least one director who is ordinarily resident in Singapore
- At least one director (who may be the same person as the resident director) must be either a director or a qualified representative of the fund manager of the VCC
- The manager of the funds of the VCC must be managed by a Registered Fund Management Company (RFMC) or a Licensed Fund Management Company (LFMC)
- The VCC must have a Singapore resident company secretary
- The VCC must comply with Anti-Money Laundering/Counter-Financing of Terrorism (“AML/CFT”) legislation, which is supervised by MAS for compliance and may be outsourced to the Fund Manager
- The VCC Is subject to an annual audit by a Singapore based auditor
- The VCC must appoint a qualified custodian
- The VCC, must have an AGM unless certain dispensation requirements are met – either the Directors give 60 days notice (of no AGM) to all members or the audited financial statements are sent to all members within five months of year end. Members representing 10% or more of the voting rights may, nonetheless, demand that a meeting be held
- The VCC must file its annual return with ACRA in the same way that a normal company does – within seven months of the VCC’s year end
Registered fund management company
A Registered Fund Management Company (RFMC) can have up to 30 accredited and institutional investors and S$250 million of assets under management. It’s requirements are:
- Having a minimum base capital of S$250,000 with financial resources that are in excess of its total risk requirements
- Have a minimum of two full-time Singapore based employees each with at least five years of relevant experience, one of whom is appointed CEO
- Pay the stipulated fees to the MAS both for the application and annually
A new application for an RFMC may take between four and six months.
Taxation benefits
A VCC is eligible for the tax concessions offered under sections 13R and 13X of the Singapore Income Tax Act. These provisions exempt from tax any income derived from designated investments. Designated investments include shares, bonds, securities and derivatives but exclude immovable property in Singapore. The fund must spend over S$200,000 in expenses each year to be eligible for the concession. This $200,000 spend is for funds under the VCC as a whole, not a fund by fund requirement (in the case of Umbrella funds). Under the 13X exemption, a minimum fund size of $50 million is required. Again, this applies to the VCC as a whole in the case of a number of sub funds, rather than to each sub fund.
These concessions are available for Umbrella schemes as well as stand alone funds. Allowances and deductions will be allowed at the sub-fund level and then consolidated into a single income tax return for the VCC. The VCC is also eligible for the start-up concessional tax rates (exemption on 75% of first $100,000 of income and 50% of next $100,000) as well as corporate tax rebates.
The current GST remissions will apply to a VCC, as will any exemptions from withholding tax.
As a Singapore resident company, a VCC is eligible for the benefits of the 80 Double Tax Treaties that Singapore has signed with other countries.
MAS VCC grant scheme
In order to assist the setting up of VCCs in Singapore, the Government introduced a grant scheme which is administered by the MAS. Under the scheme, the Government will fund 70% of eligible expenses paid to a Singapore Corporate Services provider for the incorporation and registration of a VCC. The grant is capped at $150,000 per VCC. The scheme is funded by the Financial Sector Development Fund and is operational till January 2023.
If you are contemplating setting up a VCC, speak with Acclime. We can assist with the administrative aspects of a VCC and have excellent relationships with law firms and fund managers. We can combine our expertise to help you set up and run your VCC efficiently.
