Singapore VCCs: A Quick Guide for Investors

Singapore’s Variable Capital Company (VCC) has become a dynamic and inventive organizational form to meet the changing demands of investment funds. This adaptable structure presents a compelling combination of flexibility, efficiency, and regulatory monitoring for fund managers looking to set up or re-domicile their funds in Singapore.

For fund managers aiming to streamline operations and reduce costs, Corporate Outsourcing and Vendor Strategies provides valuable insights on how strategic outsourcing can benefit fund structures like the VCC, enhancing efficiency and scalability.

This extensive tutorial will cover the main characteristics, advantages, and prerequisites of a VCC. We will also examine how this structure may be modified to suit different fund types, such as hedge funds, real estate investments, private equity, and venture capital.

 

In Singapore, what is a Variable Capital Company (VCC)?

For investment funds in Singapore, a flexible corporate structure called a Variable Capital Company (VCC) was created under the 2020 Variable Capital Companies Act. VCCs provide a special structure for overseeing several distinct collective investment schemes (sub-funds) under one legal organization. For fund managers, this structure offers efficiency and flexibility.

A Permissible Fund Manager is required to oversee all VCCs to guarantee regulatory compliance. The Accounting and Corporate Regulatory Authority (ACRA), which oversees the VCC Act and its implementing regulations, is responsible for supervising VCCs. The Monetary Authority of Singapore (MAS) is also in charge of the VCCs’ responsibilities for counter-financing terrorism and anti-money laundering.

 

What are a Singapore VCC’s salient characteristics?

A Singapore VCC is a desirable choice for investment funds due to its many unique features:

• Separate legal personality: A VCC’s legal personality differs from its fund managers, directors, and shareholders. As a result, the company’s assets and obligations are further protected.
• Membership (shareholders): Members, also known as shareholders, own VCCs. They participate in the governance of the business and have ownership rights.
• Board of directors: A VCC is run by a board of directors that directs business operations and formulates strategic plans.
• Permissible fund manager: A licensed organization with particular requirements must oversee VCCs to maintain regulatory compliance.
• Flexibility in fund structure: VCCs can be set up as umbrella funds with several sub-funds or as a single, stand-alone fund. With its own assets and obligations, each sub-fund functions autonomously, offering flexibility in managing various investment approaches.
• Confidentiality of member register: VCCs are not obligated to make their member registers publicly available but to give them to public authorities upon request for law enforcement and supervision purposes.
• Compliance with anti-money laundering (AML) and counter-financing of terrorism (CFT) regulations: VCCs are required to work with an appropriate financial institution to carry out the required due diligence and implement the VCC AML/CFT Notice.
• Flexible share issuance and redemption: VCCs can issue and redeem shares without the consent of members or shareholders, which gives them more freedom in capital management.
• Dividend flexibility: VCCs have more alternatives for allocating returns to investors since, unlike traditional businesses, they can pay dividends from capital and profits.
• Accounting standards: VCCs can use Singaporean accounting standards or internationally recognized standards such as US GAAP or International Financial Reporting Standards (IFRS) for their financial reporting.
• Substantial requirement: In order to exhibit a legitimate presence in Singapore, VCCs must have at least one resident director, maintain a registered office, and designate a Singapore resident company secretary and auditor.

 

What advantages come with utilizing a Singapore VCC?

A Singapore VCC provides investment funds with several benefits:

• Economies of scale: By leveraging shared service providers, the umbrella VCC structure enables the economical administration of numerous sub-funds. This can save a lot of money on fund administration costs.
• Tax breaks: VCCs are eligible for several tax breaks offered to fund management firms, such as the Onshore Fund Tax Exemption Scheme, the Enhanced Tier Fund Tax Exemption Scheme, and the Venture Capital tax exemption.
• Flexible dividend payouts: VCCs offer excellent alternatives for allocating returns to investors because, unlike conventional company structures, they can pay dividends from capital and profits.
• Risk reduction: A VCC’s umbrella structure permits sub-fund segregation, guaranteeing that each sub-fund’s assets and liabilities stay distinct. Investors are protected, and risks are reduced.
• Privacy: Investors have some privacy because VCCs cannot make their member lists publicly available.
• Re-domiciliation: By re-domiciling existing foreign money to Singapore, they can benefit from the nation’s vast network of double taxation agreements, tax breaks, and capital gains tax exemption.

Variable Capital Companies Grant Scheme (VCCGS): What is it?

The VCC Grant Scheme (VCCGS) was first introduced on January 15, 2020, and its original expiration date was January 15, 2023. In recognition of its advantages to the Singaporean fund management sector, the program was extended for a further two years, finishing on January 15, 2025.

The Financial Sector Development Fund (FSFD) offers co-funding of up to 30% of eligible costs for Singapore-based services associated with the registration or incorporation of a Variable Capital Company (VCC) in Singapore under the enhanced VCCGS. This grant has a cap of S$30,000 per application.

 

What are a Singapore VCC’s tax treatment options?

Income Tax

• Company Status: Variable Capital businesses (VCCs) are regarded as businesses under the Companies Act for income tax purposes.
• Tax residency: A VCC managed and controlled in Singapore during the calendar year is considered a Singapore tax resident. This holds for its sub-funds as well.
• Certificate of residence (COR): VCCs can apply for a COR to prevent double taxes. The umbrella VCC and the sub-fund names are used to issue the COR.

Distributions

• Dividend exemption: Generally, dividends given to shareholders by a Singapore tax resident VCC are tax-free.

Income

• Tax incentives: VCCs are eligible for the same deductions and tax breaks as Singaporean businesses. However, the primary sources of their eligibility are revenue from investments managed by Singapore fund managers, income from Singapore-managed investments, and incentives associated with venture enterprises.
• Expense deductions: VCCs cannot deduct some expenses for tax purposes.
• Group relief: Under the Group Relief System, VCCs cannot receive or transfer losses.
• Revenue from umbrella VCCs: The total revenue of an umbrella VCC’s sub-funds, calculated at the sub-fund level, is its chargeable or exempt income.

Tax on Goods and Services (GST)

• Sub-Fund Basis: Every sub-fund is regarded as an independent individual for GST purposes.
• GST Registration: If sub-fund taxable supplies in the current or prior year total more than S$1 million, they must register for GST.
• GST Charges and Claims: Sub-funds can claim input tax on costs made for their benefit and must charge and account for GST on their taxable supplies.
• GST Remission: If VCCs are managed by a qualified Singapore fund manager and satisfy specific income tax concession requirements, they may be eligible for GST remission.

Duty on stamps

• Intra-VCC Transactions: Like transactions between other entities, transactions between a VCC’s sub-funds are subject to stamp duty.

Tax breaks

• Eligibility: VCCs can take advantage of several tax incentives depending on their fund type, size, investment commitments, and local expenditures.
• Requirements: To be eligible for tax exemptions, VCCs must have a Singapore-based CMS-licensed fund manager, be tax residents, and fulfil specific fund administration and reporting criteria.

 

What prerequisites must be met to establish a Singapore VCC?

The first stage in forming a variable capital company (VCC) in Singapore is to choose between an umbrella VCC (many sub-funds) or a non-umbrella VCC (single fund).

Next, designate the required officers:

• Resident director: A minimum of one resident director is necessary. This could be a director or a representative of the VCC’s fund management. Additional director requirements apply to VCCs that are part of Authorized Schemes.
• Resident secretary: Additionally, a resident corporate secretary is required.
• Permissible fund manager: Select a licensed fund management firm under the Monetary Authority of Singapore’s (MAS) jurisdiction.

Lastly, the constitution for the VCC should be chosen. A Singaporean lawyer can design a customized constitution for you, or you can utilize the standard VCC model constitution.

 

In practice, how do various fund types benefit from the VCC structure?

The VCC structure provides a flexible foundation for various fund types, offering customized solutions to satisfy specific investing goals and demands.

Funds for Venture Capital and Private Equity

• Flexibility: VCCs allow funds to pursue various investment strategies by accommodating varying risk profiles, country exposures, and investment maturities.
• Customization: Sub-funds can be set up to focus on specific sectors or industries, giving both closed-ended and open-ended mandates more flexibility.

Offices for families

• Effective Management: VCCs make it easier to manage family wealth across countries and generations.
• Confidentiality: By separating assets according to beneficiaries or asset classifications, privacy and confidentiality are guaranteed.

Mutual Funds

• Streamlined operations: VCCs are perfect for open-ended mutual funds since they make trading, portfolio rebalancing, and payouts more efficient.

Funds for hedges

• Diversification: To accommodate varying risk tolerances and investment objectives, hedge funds might implement several techniques through several sub-funds.

Funds for real estate

• Risk reduction: By offering a framework for owning and administrating distinct real estate assets, VCCs lower the possibility of contagion and safeguard investors.

Money for infrastructure

• Administrative effectiveness: VCCs simplify the administration of infrastructure investments by enabling segregation according to projects, asset types, or risk profiles.

Funds for renewable energy

• Project-based management: VCCs provide an appropriate framework for managing investments in renewable energy by allowing for classification according to projects, energy sources, or geographic areas.

Contact the staff at  GERAI LTD to learn more about using the VCC structure for your family’s investment.