The VCC — Shining the Spotlight on Singapore
“The introduction of this corporate structure, known as the variable capital company or VCC, will be a game-changer for Singapore’s fund management industry” — Indranee Rajah, Singapore’s Second Minister for Finance.
Singapore has long been recognized as a leading financial hub due to its low corporate taxes, stable economy and minimal regulatory interference. What had long been missing was an investment structure that offers the flexibility and cost efficiencies of competing domiciles. Singapore has finally addressed this gap with the launch of the VCC framework on 14 January 2020.
The VCC is not an entirely new concept; Singapore’s VCC framework bears striking similarities to those offered in prominent global fund hubs of Ireland, Luxembourg, the Cayman Islands, and Mauritius. Taking a backseat has worked in Singapore’s favor. By studying and adapting the best features of VCCs in other leading jurisdictions, Singapore’s VCC framework is able to cater to the specific needs of the city-state’s fund managers and accommodate existing fund structures. The new framework gives Singapore a competitive advantage by offering flexibility, co-location benefits and cost efficiencies that are sure to attract even more international funds.
Singapore is already a prominent fund management hub with approximately 900 registered fund managers handling over US$2.5 trillion in assets. The last five years have seen strong growth, particularly in the alternatives sector with private equity and venture capital assets achieving a compound annual growth rate of 24% at the end of 2018. That equates to S$219 billion in assets in private equity and venture capital alone, far outperforming the traditional growth sector, which saw 11% growth. The new VCC framework is expected to accelerate the next phase of Singapore’s growth and cement the city-state’s position as a leading domicile for international funds.
We take a look at the new VCC framework, outline the key benefits and requirements so you can decide if it is the right entity for your fund.
- The VCC is a new legal entity form and investment fund structure.
- It can be used for both traditional and alternative fund strategies, open ended or closed-ended.
- It can be set up as a stand-alone fund or an umbrella entity with multiple sub-funds.
- Foreign funds can be re-domiciled as a Singapore VCC.
- Benefits include flexibility, co-location and cost-efficiency.
What is the VCC?
The VCC is a new legal entity form for investment funds that provides a flexible alternative to Singapore’s existing suite of fund structures.
What can a VCC be used for?
A VCC can be used for both traditional and alternative fund strategies, closed-ended or open-ended.
How can a VCC be structured?
A VCC can be set up as a stand-alone fund or an umbrella entity with multiple sub-funds. This allows for the segregation of portfolios, assets, and liabilities.
Can foreign funds be re-domiciled?
The framework supports the inward re-domiciliation of foreign funds. Existing foreign funds structured as VCC’s or as a VCC-comparable structure can be easily re-domiciled in Singapore. Foreign corporations will need to convert to a VCC structure before re-domiciling, or alternatively, incorporate a new VCC in Singapore.
Who are the fund regulators?
The VCC is regulated under the Variable Capital Companies Act (the “Act”). The Accounting and Corporate Regulatory Authority (ACRA) oversees the establishment and administrative functions and the Monetary Authority Singapore (MAS) oversees the anti-money laundering and countering finance of terrorism obligations.
What are the Benefits of a VCC?
The VCC framework was designed to take the best-in-class features of existing structures in leading domiciles and apply them to the Singapore landscape. The benefits of a VCC structure are explained below.
A key feature of VCC’s is that they offer a flexible share capital and fund structure. Unlike corporations that require dividends to be distributed from profits, VCC’s can pay dividends out of capital. VCC’s also allow for the variation of share capital without having to seek shareholders’ approval. There is no need to comply with solvency tests or corporate resolutions for the issuance or redemption of shares, providing shareholders with greater flexibility and fluidity in entering and exiting a fund.
While VCC’s are obliged to maintain a register of shareholders, neither this register nor the VCC’s financial statements are generally required to be made available to the public. This particularly beneficial to family offices where there is a preference for greater confidentiality.
VCC’s can be set up as single funds or as umbrella funds with several sub-funds each holding a portfolio of segregated assets and liabilities. While the sub-funds may have different investment objectives and investors, they can share a board of directors and have the same fund manager, auditor, and administrative functions — enabling the VCC to reduce costs and achieve economies of scale.
A VCC structured as an umbrella fund need only file a single corporate tax return, regardless of the number of sub-funds.
VCC’s can also avail the same tax incentives applicable to funds under Section 13X and 13R of the Income Tax Act and may qualify for exemptions and schemes such as the Singapore Startup Tax Exemption and the Variable Capital Companies Grant Scheme.
Attracting global investors
Catering to the needs of global investors, VCC’s may adopt internationally recognized accounting standards, namely, the US Generally Accepted Accounting Principles (US GAAP) and International Financial Reporting Standards (IFRS), in the preparation of their financial statements. VCC’s are also eligible for the ‘check the box’ election, further catering to the needs of US tax residents.
What are the requirements of a VCC?
A VCC must fulfill the following requirements:
- Share capital equal to the Net Asset Value.
- Sufficient mandatory Singapore substance — At least one Singaporean resident director for non-authorized schemes and at least three for authorized schemes, a Singapore registered office, MAS-licensed fund management company must be appointed, a Singapore based company director, and a Singapore based auditor.
- The VCC must have a constitution.
- All directors must be fit and proper persons and comply with Singapore AML/CFT requirements.
As the VCC structure is a new entry into Singapore’s suite of fund structures, it is important to have professionals guide you through the unchartered territory.
Originally published at https://origin-x.legal on March 10, 2020.