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Why the New Singapore Variable Capital Company is a Fund Structure Game Changer

Agencies
·4-min read

Mike Sim, President and CEO of Entail Holdings Pte. Ltd.

On 15 January 2020, the Monetary Authority of Singapore and the Accounting and Corporate Regulatory of Singapore launched the variable capital company (VCC), a new corporate structure under which investment funds can be created. The VCC is regulated under the Variable Capital Companies Act 2018 (VCC Act), and is a new corporate structure for all types of collective investment schemes in Singapore. Under the VCC Act, foreign corporate entities may also be re-domiciled to Singapore, provided that the relevant conditions are satisfied.

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As the CEO of Entail Holdings Pte. Ltd. (Entail Holdings) a leader in the international fund management industry in Singapore, I have seen how the VCC structure has benefitted our clients, and I am happy to share some of the features of the VCC structure with you.

A VCC can be set up as a standalone entity or as an umbrella entity with multiple sub-funds. Each sub-fund may have different investment objectives and strategies, investors, assets and liabilities.

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[1] The graphics used in this article are extracted from the PwC Singapore publication titled “The Singapore Variable Capital Company — The game changer for asset management in Asia Pacific”. For more information, please visit https://www.pwc.com/sg/en/asset-management/singapore-variable-capital-company.html

The new VCC framework has features which are on par with other global leading fund structures, such as those available in Luxembourg, Ireland, and Mauritius. I am optimistic that the VCC framework will elevate Singapore’s position as an attractive fund domicile centre.

[2] The graphics used in this article are extracted from the PwC Singapore publication titled “The Singapore Variable Capital Company — The game changer for asset management in Asia Pacific”. For more information, please visit https://www.pwc.com/sg/en/asset-management/singapore-variable-capital-company.html

In the above diagram, we highlight some of the critical features of the VCC structure.

Some of the benefits of a VCC include the following:

  • improved tax and operational efficiencies (including, the US “check the box” election);

  • financial statements of the VCC are not required to be made public;

  • a VCC can be set up for different types of funds, including traditional mutual funds, private equity, hedge funds, and even real estate funds;

  • a VCC may be used as a pooling and investing vehicle, thereby dispensing multi-tiered fund structures;

  • a VCC can be utilised to list funds as information listing and trading purpose; and

  • the VCC structure is now an option for the wealth management industry.

Beneficial Tax Structures

Under the Income Tax Act (Chapter 134), the tax structure for standalone VCCs will be the same as a Singapore company with regard to the Enhanced Tier Fund (ETF) Scheme and Singapore Resident Fund (SRF) scheme.

The new umbrella VCC provisions have significant benefits and are distinctive. Certain economic conditions will apply at the level of the umbrella VCC and not at the level of the sub-funds. An umbrella VCC has only one set of economic terms applicable under the current ETF and SRF schemes.

For all VCCs there are several tax and operational benefits, including:

  • availability of Goods and Services Tax (GST) remission for the VCC (even when it is not GST registered)

  • Availability of a Certificate of Residence

  • A withholding tax exemption

  • The 10% concessionary tax rate under the Financial Sector Incentive — For the Fund Manager

  • No approval for additional sub-funds that are within the same investment scope (i.e notification process)

In my view, the new VCC framework is not a radical departure from the existing fund structures that fund managers and investors are familiar with, but rather, this product is evolutionary in nature, in that the VCC draws (and builds) on certain attractive features found in existing frameworks used in other fund jurisdictions. This is a masterstroke, and one which will cement Singapore’s status as a fund hub, both in Asia and the world beyond.

The VCC is bringing Singapore to the forefront of the investment world and is opening up many new options for fund managers to structure their investments. In addition, the VCC structure may now be used in conjunction with existing Singapore incentives such as immigration and business programs, making Singapore an enticing location for investors who wish to set up their investment hub.

Entail Holdings has a long history of helping investors and fund managers. We are available to answer all of your VCC formation questions — click here!

[i] Disclaimer: The views and opinions expressed in this article are those of the author and do not represent the official policy, position or views of any agency or department of the Singapore government (including the Monetary Authority of Singapore and the Accounting and Corporate Regulatory of Singapore) or PwC Singapore.