Singapore has further enhanced its credentials as an international fund management centre with the launch of the Variable Capital Company (VCC) in January 2020. The VCC is a corporate vehicle tailored for use as a collective investment scheme. It is a multi-purpose tool that incorporates best in class features from other leading fund domiciles to create an attractive proposition for investors and Singapore fund managers alike.
What are the VCC's key features?
- It can be used either as a standalone entity or as an umbrella entity with multiple sub-funds, each with segregated assets and liabilities.
- It can be used for traditional or alternative fund strategies – there are generally no restrictions on the investment strategy used.
- It can be set up as either an open-ended or closed-ended fund.
- It will need to demonstrate its proof of substance via a Singapore registered office, a Singapore resident company secretary and auditor, and at least one resident director. It will also need to be managed by a Singapore-based licensed or regulated fund manager (unless exempted under the applicable regulations).
What are the VCC's advantages?
- It is able to vary its share capital without having to seek shareholders' approval. This provides greater flexibility to an investor to enter into or redeem its investment as and when it wishes to.
- It can also pay dividends using its capital, in contrast to a company which generally can only pay dividends out of profits.
- Its register of members is not publicly accessible, unlike that of a Singapore company. However, such information will still need to be disclosed to regulatory and law enforcement authorities upon request.
- An umbrella VCC with multiple sub-funds can benefit from economies of scale and cost efficiencies that could be provided by using a single set of service providers and board of directors, for example.
- In an umbrella VCC, cross sub-fund investments are permitted.
- Sub-funds may be wound up independently of each other, ensuring the ring-fencing of assets and liabilities between sub-funds.
- As a corporate entity, it has access to Singapore's network of over 80 double-tax treaties. This simplifies its investment holding structure, resulting in cost-savings and a reduction of the administrative burden.
- It may make an election under the US "check the box" rules to be treated as a "pass-through" entity for US federal tax purposes. This makes it a more attractive proposition for US taxable investors.
- Foreign corporate entities set up as funds can be inward re-domiciled as VCCs. As certain offshore domiciles are coming under greater scrutiny from regulators, re-domiciliation may prove advantageous for certain Singapore managers.
- The Monetary Authority of Singapore will co-fund up to 70% of "eligible expenses" paid to Singapore-based service providers, up to a cap of SGD 150,000. This helps to reduce the burden of establishment costs linked to the formation of a VCC.
If you would like to hear more about the VCC regime, please do not hesitate to contact the team.