Your Complete Guide To Variable Capital Companies (VCCs) In Singapore

With the introduction of Singapore’s new VCC Act, there has been a buzz not only in the city-state, but throughout the Asia-Pacific region. VCCs are a potential game-changer for Singapore’s assets and wealth management industry. But now, what is a Variable Capital Company, and how is it going to help YOU?

“The Variable Capital Company (VCC) is a new innovative corporate structure for all types of investment schemes (funds) constituted under the Variable Capital Companies Act.” The Act took effect on 14 Jan, 2020. VCC not only complements the existing suite of investment fund structures available in Singapore, but also offers more operational flexibility through trusts, limited partnerships, or private limited companies.

Variable Capital Companies (VCCs) At A Glance (Key benefits)

• A VCC has a variable capital structure that provides flexibility in the issuance and redemption of its shares.
• A VCC can be set up as a single standalone fund or an umbrella fund with two or more sub-funds. Each sub-fund holds a portfolio of segregated assets and liabilities.
• A VCC can be used for both open-ended and closed-end fund strategies.
• Fund managers may incorporate a new VCC or re-domicile their existing overseas investment funds with comparable structures by transferring their registration to Singapore as a VCC.
• VCCs must maintain a register of shareholders. You don’t need to make them public. If requested only, this register must be disclosed to public authorities upon request for regulatory, supervisory and law enforcement purposes.
• Fund managers can set up investment funds across both traditional and alternative strategies and as open-ended or closed-end fund strategies.

Why Should YOU Form A Variable Capital Company?

Let me give you enough and good reasons to make you start thinking.

Among  a lot of benefits mentioned above that you can take advantage of from a VCC, including the redomiciliation, open-ended and closed ended investments, umbrella funding and flexibility of funding strategies, there are also some tax benefits that you can be aided with. This is called looking at the Queen when she enters.

• A VCC has access to more than 80 tax treaties in the country. So it is not burdened by the same capital requirements of an open-end fund in Singapore.
• An umbrella VCC will only need to file a single corporate income tax return (CIT) to the Inland Revenue Authority of Singapore (IRAS). How great is this!
• Income from a VCC can be exempt from tax if it qualifies for the government’s Enhanced Tier Fund (ETF) Scheme.
• The VCC could qualify for the tax exemptions for startups scheme (SUTE) and get a 75 percent tax exemption on the first S$100,000 (US$73,000) of chargeable income during the first consecutive three years. The next S$100 thousand of chargeable income can receive a 50 percent tax exemption. 
• The entity can recover goods and services tax (GST) on expenses occurred in Singapore.

Advantages Of Variable Capital Companies Over Private Limited Companies

• A VCC may change its share capital without seeking investors’ approval and can therefore give investors the right to freely invest, redeem or withdraw their capital from the VCC; such transactions can in fact be made every day.
• The constitution and returns of a VCC will not be accessible to the public but must be submitted to the Registrar of VCCs.
• The new structure’s register of members is not accessible to the public. Only the fund manager, a custodian, certain public authorities, or a person permitted by court order may have access to the register of members. A shareholder may only obtain information relating to himself or herself.
• As mentioned above, the VCC can be established as an umbrella fund.

Additional Requirements For A VCC

• The VCC capital must always be equal to its net assets.
• It must have a Singapore-based licensed or regulated fund manager (unless an exemption has been obtained from the relevant authorities).
• The VCC must have its office registered in Singapore and must appoint a Singapore-based company secretary.
• The VCC must appoint a qualified custodian.
• VCCs must follow the existing Securities and Futures Act (SFA) requirements for investment funds.
• The VCC must be audited by a Singapore-based auditor on an annual basis and must present its financial statements in compliance with IFRS, Singapore FRS, or US GAAP accounting standards.

VCC Grant Scheme (VCCGS)

MAS launched a 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. This scheme is valid till 15 January 2023.

Grant Details

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.

Project Eligibility

This grant is open to Qualifying Fund Managers that have incorporated VCCs or re-domiciled a foreign corporate entity to Singapore as a VCC. The following conditions apply:

• The set up of the VCC cannot be simultaneously funded by other government grants/incentives with respect to the same set of qualifying costs and commitments
• Each applicant may only apply for the VCCGS for work done in relation to a maximum of three (3) VCCs that have been successfully incorporated or re-domiciled
• Qualifying expenses must be paid to Singapore-based service providers for work done in Singapore in relation to the incorporation and registration of VCCs and their sub funds
• A Qualifying Fund Manager may not claim co-funding under the grant scheme solely for registration of sub-funds (without the accompanying incorporation or transfer of registration of a VCC). However, a Qualifying Fund Manager may claim qualifying set up costs incurred for the registration of sub-funds as part of the set up of an umbrella VCC and
• Applicants should formally submit their applications within three (3) months from the date on the notice of incorporation or notice of transfer of registration issued by ACRA (for a newly incorporated VCC) or within three (3) months from the date of ACRA’s approval of the VCC’s evidence of de-registration (for a foreign corporate entity re-domiciled to Singapore as a VCC).

Funding 

70% co-funding of qualifying expenses listed below, capped at $150,000 per VCC.

• Legal services
• Tax services
• Administration or regulatory compliance services

Re-domiciliation Of A Fund Under VCC

In conjunction with a re-domiciliation, a foreign corporate entity will simply transfer its place of incorporation instead of setting up a new entity. Re-domiciliation does not affect the obligations, liabilities, or rights of the foreign corporate entity and enables it to retain its corporate history, track record and goodwill. Once the re-domiciliation is effective, the foreign corporate entity will be a Singapore variable capital company limited by shares registered with the Accounting and Corporate Regulatory Authority of Singapore (ACRA).

Requirements

1. Authorized by original place of incorporation

   • The laws of the foreign corporate entity’s place of incorporation must allow the transfer of its incorporation and the foreign corporate entity must comply with the legal requirements at its place of incorporation in relation to the transfer of incorporation.

2. Structure

   • The foreign corporate entity must be a body corporate that comprises one or more collective investment schemes.

3. Solvency

   • At the date of the foreign corporate entity’s application for re-domiciliation (Application Date):
   • There must not be any ground upon which it may be found to be unable to pay its debts and, in the case of a foreign corporate entity that is a foreign umbrella fund, there must not be any ground upon which any of its collective investment schemes may be found to be unable to pay its debts, and
   • The value of the foreign corporate entity’s assets must not be less than the value of its liabilities (including contingent liabilities) and, in the case of a foreign corporate entity that is a foreign umbrella fund, the value of each of its collective investment schemes’ assets must not be less than the value of that collective investment scheme’s liabilities (including contingent liabilities).
     Additionally:
   • If the foreign corporate entity is intending to commence winding up within 12 months of the Application Date, it must be able to pay its debts in full within 12 months after the date of
     commencement of winding up and, in relation to a foreign umbrella fund which is intending to commence winding up of any of its collective investment schemes, the foreign corporate entity is able to pay the debts of that collective investment scheme in full within 12 months after the date of commencement of winding up; or
   • If the foreign corporate entity does not intend to commence winding up within 12 months of the Application Date, it must be able to pay its debts in full as they fall due during the 12 months immediately after the Application Date and, in relation to a foreign umbrella fund which is not intending to commence winding up of any of its collective investment schemes, the foreign corporate entity must be able to pay the debts of every collective investment scheme as they fall due during the period of 12 months immediately after the Application Date.

4. Good faith

   • The application for the transfer of registration must not be intended to defraud existing creditors of the foreign corporate entity and must be made in good faith.

5. Others

   • In relation to the foreign corporate entity, or (in the case of a foreign corporate entity that is a foreign umbrella fund) any of its collective investment schemes, there is no receiver, or receiver and manager, judicial manager, or liquidator who has been appointed or any compromise or arrangement with any person being administered, and there are no proceedings to appoint a receiver, receiver or manager, judicial manager or liquidator, or to place the foreign corporate entity or any of its collective investment schemes under any compromise or arrangement.

Hope you enjoyed this introductory guide to VCCs in Singapore. If you want to know more about the setting up of a VCC or registering a fund management entity or a family office in Singapore, feel free to reach out to us and our specialists will be happy to guide you. 

Here are some reference sites which could be useful.

1. The Acra Website
2. The Monetary Authority of Singapore
3. The Lexology Website

Hope this was informative.

Contact us for more information or queries about this topic or any related topic(s) at BlueBox. We would be happy to help!