In recent years, the Singaporean government has been taking steps to further enhance its business environment by introducing new regulatory frameworks that cater to the needs of specific industries. One such initiative is the Singapore Variable Capital Company (VCC) framework.
WHAT IS SINGAPORE VARIABLE CAPITAL COMPANY (VCC)?
A Variable Capital Company (VCC) is a unique and flexible corporate structure in Singapore that is specifically designed for investment funds. The VCC framework was introduced in January 2020 by the Monetary Authority of Singapore (MAS) as part of its ongoing efforts to enhance the country’s fund management industry.
A VCC is a type of company that can issue and redeem shares without requiring shareholder approval. This means that a VCC can adjust its capital base quickly and efficiently in response to changes in market conditions, which is particularly important for investment funds that need to be able to move quickly in response to market opportunities.
KEY FEATURES OF THE VARIABLE CAPITAL COMPANY
A Variable Capital Company (VCC) is a type of investment company that offers a flexible capital structure, allowing the issuance and redemption of shares as needed. Additionally, fund managers can pay dividends out of capital, giving them the freedom to meet their dividend payment obligations.
VCCs can be established as a standalone fund or an umbrella fund with multiple sub-funds, each containing its own set of assets and liabilities. By using common service providers across the umbrella and its sub-funds, fund managers may be able to save costs.
VCCs are suitable for both open-ended and closed-end fund strategies. Fund managers can either create new VCCs or transfer their existing overseas investment funds to Singapore as VCCs with similar structures.
While the register of shareholders does not need to be public, VCCs must keep a record of shareholders that can be disclosed to public authorities if requested for regulatory, supervisory, or law enforcement purposes.
BENEFITS OF THE VARIABLE CAPITAL COMPANY
The Variable Capital Company (VCC) offers several benefits to investors, asset managers, and other market participants. Some of the benefits of the VCC in Singapore include the following:
Flexibility
VCCs can be established for a variety of investment objectives, asset classes, and fund sizes. This flexibility allows investors to structure their funds according to their unique needs and preferences.
Tax efficiency
VCCs in Singapore are exempted from tax on income derived from qualifying investments. This means that investors can potentially save on tax expenses, making VCCs an attractive investment option.
Enhanced regulation
The VCC framework provides a robust regulatory regime that ensures investor protection and transparency. The Monetary Authority of Singapore (MAS) regulates VCCs to maintain high standards of corporate governance, risk management, and compliance.
Reduced cost
VCCs are cost-effective compared to other investment structures. They are not subject to stamp duty on share transfers and are exempted from various taxes, such as withholding tax on dividends and interest payments.
Additional Requirements for a VCC
In addition to the standard regulatory requirements for investment funds in Singapore, such as complying with the Securities and Futures Act (SFA) and the Monetary Authority of Singapore (MAS) regulations, there are some additional requirements for VCCs in Singapore.
These include:
- A VCC must appoint a locally-based fund manager who holds a Capital Markets Services (CMS) licence under the SFA.
- A VCC must appoint a local fund custodian to hold and safeguard the fund’s assets.
- A VCC must maintain a registered office in Singapore and must have at least one director who is ordinarily resident in Singapore.
- A VCC must file annual audited financial statements with the MAS.
- A VCC must comply with specific ongoing reporting requirements, such as submitting periodic reports to the MAS and maintaining accurate and up-to-date records of its investors.
- A VCC must adhere to the investment restrictions and other requirements set out in its offering documents and the SFA.
Tax Issues
The Variable Capital Company (VCC) is a relatively new investment fund structure in Singapore, and there are some tax issues that VCCs may need to consider.
The following are some key tax issues that VCCs in Singapore should be aware of.
- Tax residency: A VCC is considered a Singapore tax resident if its central management and control are exercised in Singapore. As a Singapore tax resident, the VCC will be subject to Singapore tax on its worldwide income, including capital gains and dividends.
- Withholding tax on distributions: If a VCC distributes its income to its investors, it may be required to withhold tax on those distributions. The withholding tax rate depends on the type of income and the residency status of the investor.
- Tax exemptions and incentives: VCCs may be eligible for certain tax exemptions and incentives, such as the tax exemption for specified income derived by qualifying funds, which includes dividends, interest, and gains from the disposal of certain types of investments. VCCs may also be eligible for the enhanced tier of the Financial Sector Incentive Scheme, which provides tax incentives for fund management activities.
- Transfer pricing rules: VCCs that have related party transactions with non-resident entities may need to comply with Singapore’s transfer pricing rules. These rules require transactions between related parties to be conducted at arm’s length and may require the VCC to prepare transfer pricing documentation to support its pricing decisions.
- Goods and Services Tax (GST): The provision of management services to a VCC may be subject to GST in Singapore. VCCs may need to consider whether they must register for GST in Singapore and whether they are eligible for any GST exemptions or zero-rating.
Note: It’s important for VCCs to carefully consider these tax issues and seek professional advice to ensure compliance with Singapore’s tax laws and regulations.
The VCC Grant Scheme:
The VCC grant scheme provides funding to eligible fund managers to help them establish new VCCs or convert existing investment funds into VCCs. The scheme aims to encourage the growth of the asset management industry in Singapore by providing support to funding managers who are looking to establish VCCs in the country.
The grant is available to fund managers who meet the following criteria:
- The fund manager must be licensed or registered with MAS to carry on fund management activities in Singapore.
- The fund manager must have a track record of at least five years in managing funds.
- The fund manager must have assets under management (AUM) of at least S$1 billion (or equivalent in foreign currency).
The grant will cover up to 70% of the eligible expenses incurred by the fund manager in establishing or converting a VCC. Eligible expenses include legal and tax advice, regulatory fees, and other professional services related to establishing or converting a VCC.
The maximum grant amount per VCC is S$150,000, and a fund manager can apply for up to three VCCs under the scheme.
To apply for the grant, fund managers must submit a detailed proposal outlining their plans for the establishment or conversion of a VCC. The proposal should include information on the investment strategy, target investors, and the expected size of the VCC.
The VCC grant scheme is part of the government’s broader efforts to develop Singapore as a hub for asset management in Asia. The plan is expected to attract more fund managers to Singapore and provide them with the support they need to establish VCCs in the country. With the VCC structure’s flexibility and tax advantages, a grant scheme is an attractive option for fund managers looking to expand their business in Singapore.
HOW TO SET UP A VARIABLE CAPITAL COMPANY IN SINGAPORE?
Setting up a VCC in Singapore is relatively straightforward, and can be done through the Accounting and Corporate Regulatory Authority (ACRA). Here’s a step-by-step guide on how to set up a Variable Capital Company in Singapore:
Step 1: Decide on the Type of VCC
Before you start setting up a VCC, you need to decide on the type of VCC that you want to establish. There are two types of VCCs in Singapore: a single standalone VCC and an umbrella VCC.
A single standalone VCC is a legal entity that has its assets and liabilities, while an umbrella VCC is a legal entity that has several sub-funds, each with its assets and liabilities.
Step 2: Choose a Name for Your VCC
Once you have decided on the type of VCC you want to establish, the next step is to choose a name for your VCC. Your VCC’s name should not be identical or similar to any existing businesses or registered trademarks in Singapore.
Step 3: Appoint a Director
You need to appoint at least one director for your VCC, who must be a natural person and at least 18 years old. The director can be a Singapore citizen, Singapore Permanent Resident, or a foreigner with a valid work pass.
Step 4: Decide on the Capital Structure of Your VCC
The capital structure of your VCC will determine the shareholding and management structure of the company. You can have different classes of shares and different rights attached to those shares. You can also have different levels of voting rights for different shareholders.
Step 5: Draft the Constitution of Your VCC
Your VCC’s constitution is a legal document that outlines the rules and regulations governing the management and operation of your company. The constitution must comply with the Singapore Companies Act and the Variable Capital Companies Act.
Step 6: File the Incorporation Documents with ACRA
Once you have drafted the constitution and appointed the director, you need to file the incorporation documents with ACRA. You will need to submit the following documents:
- Memorandum and Articles of Association
- Declaration of Compliance with the Variable Capital Companies Act
- Consent to Act as Director
- Consent to Act as Corporate Secretary
- Identification and Address Proof of the Director
- Identification and Address Proof of the Shareholders
Step 7: Register for Relevant Licences
If you plan to manage funds or provide investment advisory services, you need to register with the Monetary Authority of Singapore (MAS) and obtain the relevant licences.
SUB-FUNDS REGISTRATION
To register sub-funds under an umbrella structure for your VCC, it is necessary to register with the ACRA. Even if the sub-fund is not considered a unique entity, registration is still required. To register, you need to provide the name of the umbrella VCC and the desired name of the sub-fund, along with the formation date.
It is important to note that if the MAS requires the sub-fund to be renamed, a new name must be provided. The registration process can take up to 14 days and involves a fee of S$400. Additionally, it is important to understand that this process is only applicable to an umbrella VCC, and a non-umbrella VCC does not require this registration.
If you want to register your company in Singapore, then contact Relin Consultants now!
FOREIGN FUNDS TRANSFER TO SINGAPORE
To transfer funds to a VCC in Singapore, you will need to follow the guidelines set out by the Monetary Authority of Singapore (MAS). Here are the steps you should take:
- Choose a VCC: You must select a VCC that meets your investment objectives. You can search for a list of VCCs on the MAS website or work with a licensed financial advisor to help you select a VCC that suits your investment goals.
- Open an account with the VCC: Once you have selected a VCC, you will need to open an account with the fund. This process will require you to provide some personal and financial information, including your name, address, and source of funds.
- Choose a currency for your investment: You can choose to invest in the VCC in a variety of currencies. If you are transferring funds from a foreign country, you may need to convert your funds to the currency of the VCC.
- Transfer your funds to the VCC: Once you have opened an account with the VCC and selected your currency, you can transfer your funds to the VCC’s designated bank account. The VCC will provide you with the bank account details and any other information you need to make the transfer.
- Monitor your investment: Once you have transferred your funds, you can monitor the performance of your investment through the VCC’s online portal or through regular reports that the VCC provides.
In conclusion, the Singapore Variable Capital Company (VCC) is a flexible and attractive structure for fund managers and investors alike. It offers a streamlined and cost-effective way to set up and manage investment funds in Singapore, with the ability to easily adjust the fund’s capital structure to meet changing investment needs. The VCC also provides a level of regulatory and tax certainty, making it an ideal choice for both local and international investors.
