Investment and Finance

Variable Capital Companies: the Future of Investment in Singapore

3/31/2021 8:00:00 AM
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Singapore has become one of the best places to start new businesses in Asia. Thanks to its economic and political stability, investors worldwide are becoming more interested by the day, learning all the benefits that come while starting a new business venture in the so-called “Monaco of the Far East.” The country has been taking interesting measures to attract people and companies alike into investing in the country, promoting laws and initiatives that create new opportunities for individuals that want to explore new business ventures. 

One of Singapore’s options is the Variable Capital Companies (VCC). In order to encourage individuals from all around the world to manage their investment funds and other assets in the country, Singapore has established this new legislation, which is under the supervision of the Monetary Authority of Singapore (MAS). This newly created investment structure allows individuals to ease the process of starting new business ventures or relocating foreign investments into Singapore. It facilitates investment fund domiciliation and structuring while diversifying these investments into various sub-funds to explore multiple business opportunities. 

The Parliament passed the VCC Act in October 2018, and it was officially put into effect in January 2020. By August of that same year, more than 110 VCCs were constituted in the country, with many more being in process of registration. This kind of structure is not new, as Mauritius and the Cayman Islands already have it. Yet, it has become fascinating for investors in Singapore that want to succeed with their investment funds. 

Given the many characteristics that have encouraged foreign business people to start their financial ventures in Singapore (such as low tax rates, political stability, and legal security), VCCs are just another improvement to investors’ options of managing their investment funds in the country. These are some of the benefits that come with starting a VCC in Singapore:

  • In a VCC structure, individuals can issue or redeem their shares without needing other shareholders’ permission. This enhances individuals’ flexibility to manage their funds and provides new options to meet dividend payment commitments. 
  • As we briefly mentioned above, VCCs can be constituted as standalone funds or umbrella structures. The latter will consist of a fund with various sub-funds that can exist independently while sharing the costs of maintenance and the same service provider.
  • VCCs do not have to make the information of their shareholders public. While it is required to maintain the record of the shareholders and financial statements and present them before governmental authorities, like MAS, this information can be kept from the public, protecting the privacy of the shareholders and giving them the anonymity that they need.
  • VCCs can hold multiple assets within the structure, whether as a standalone entity or an umbrella structure. Nonetheless, if the shareholders choose to incorporate their VCC as an umbrella containing various sub-funds, investors can segregate assets and liabilities through each subfund. This allows different asset classes to be held under the same parent entity (the main fund), eliminating the possibility of risk contagion.
  • The MAS introduced an interesting and attractive subsidy to invite investors to be part of their VCCs. This financial aid will reduce the costs of incorporating and registering VCCs, related to the service providers needed to set up the investments funds.

What are the main characteristics of the VCC structure?

There are various characteristics that you should know about when it comes to the creation of a VCC structure. Here we summarize some of the most important:

  • Legal Standing:

-The VCC has separate rights and duties, different from its directors and shareholders.

-For Umbrella VCCs, each sub-fund is considered as the same legal entity as its VCC. However, the government considers each sub-fund’s property holdings as a separate legal person, which means that VCCs can sue in the name of one of its sub-funds.

-This kind of investment fund facilitates a global corporate re-domiciliation to a Singapore address under a VCC structure.

  • VCCs Ownership:

-Shareholders act as the owners of the VCC. The VCC act does not contemplate a maximum of shareholders for these investment funds, requiring just one individual.

-If a shareholder wants to sell its shares, he/she can sell those shares to the VCC itself.

-Directors of the VCC can change its constitution without other members’ consent, as long as it does not benefit or affect any of them. 

  • Security Types:

-Each share issued by the VCC represents a unit of the collective investment scheme (CIS).

-The members of the VCC are also unitholders of the same CIS.

Umbrella VCC: a new possibility for investment funds

Under the Umbrella structure, fund managers can separate assets into various sub-funds within the same VCC. This allows segregating each asset into different sub-funds in order to invest and hold a portfolio of discrete investments that are separated while being in the same VCC. 

Another benefit for investors that may choose to constitute a VCC under the umbrella structure is that each sub-fund will use the providers of the same service that are needed for the main structure of the VCC, guaranteeing cost efficiency throughout all the sub-funds contained within the umbrella.

Lastly, standalone and umbrella VCCs both can enjoy flexibility in the issuance and redemption of shares at net asset value, as well as the option to pay dividends out of capital. Both kinds of VCCs can also apply to tax exemption schemes, which are available to funds under the Singapore Resident Fund (SRC) scheme and the Enhanced Tier Fund (ETF) scheme if they meet certain conditions required to enjoy these benefits.

How to set up a VCC?

Setting up and registering a VCC is quite straightforward, similar to the incorporation of any standard company in Singapore. This process is even simpler in comparison with the setup of traditional investment funds when it comes to requirements. This makes VCCs attractive to existing structures such as limited liability partnerships, limited companies, or trusts, as it will also allow diversifying the assets managed by these investment funds. 

In short, these are the steps that you need to follow in order to set up a VCC:

  • VCC Name Application Online: First and foremost, you must submit the company name, as well as the VCC proposal. Your application must include all relevant directors’ and shareholders’ proof of residential address, ID type, ID number, nationality, and in-principle approval. This process can take up to 14 days. You will receive a transaction number after you send your application.
  • Apply for VCC Incorporation: In order to apply for the incorporation of your VCC, you have to present the following documents:

-Address of the registered office for the VCC.

-A copy of the VCC constitution.

-Permissible Fund Manager, as well as subscriber’s details.

-The VCC transaction number that you acquired during the first part of the process.

-Hours in which the VCC will operate.

If you want to set up your VCC as an umbrella structure, you must register each sub-fund with the Accounting and Corporate Regulatory Authority (ACRA). This governmental institution requires a particular form to be filled in order to register each sub-fund, as well as submission of the following information:

  • The name of the umbrella VCC.
  • The name for each sub-fund.
  • The date of the formation of each sub-fund.

For standalone or umbrella VCCs, you should take into consideration the following requirements:

  • You must pay a fee of S$8000 to the ACRA (non-refundable) to register your VCC. For Umbrella VCCs, applicants are required to pay a fee of S$400 for each sub-fund.
  • At least one of the VCC directors must be a current Singaporean resident.
  • One or more directors must also be a Qualified Representative or directors of its fund manager.
  • If one of the shareholders or directors is a foreigner, they must use a Corporate Service Provider (CSP) to register the VCC.

Once you comply with these requirements, you have to wait between 14 and 60 days to get your business profile, including a Unique Entity Number (UEN) for your VCC. The UEN is needed to carry out any transaction with a government agency.

Do you have questions?

The VCC Grant Scheme

The MAS has created the VCC Grant Scheme, which will help fund managers settle the costs related to a VCC setup. This scheme, provided by the government, will help fund managers with the costs of establishing a new VCC or when making a change from a regular investment fund to a VCC, matching up to 70% of the company expenses. 

Fund managers will receive a grant of S$150.000 for each application, and each individual can register up to 3 VCCs, making it a total of S$450.000 per fund manager. This scheme will last until January 2023, so you have two more years to benefit from this financial help provided by Singapore’s government.

Are VCCs subject to tax exemptions?

VCCs have to comply with statutory and headline taxes (which currently have a 17% tax rate), and if they are registered as an umbrella structure, sub-funds have to provide a single income tax return under the parent fund. Shareholders do not have to be taxed for their obtained dividends.

One of the main reasons that attract fund managers to VCCs is its companies’ ability to be eligible to tax exemptions in two tax schemes: The Enhanced Tier Fund Scheme (13X) and the Singapore Resident Fund Scheme (13R). Under these tax schemes, certain specified incomes are subject to tax exemptions. Futures, forex transactions, immovable properties located overseas, and qualifying unit trusts are some of the activities that are exempted from taxes for VCCs as if they were regular Singapore companies.

Are you interested in establishing your VCC?

As you may have realized, a VCC is an ideal platform for fund managers that want to manage their investment funds while having the possibility to manage their assets with many benefits. Some of these benefits can be saving money thanks to cost reduction in service providers fees and tax exemptions. 

Disclaimer: The information contained in this article is for informational purposes only and does not constitute financial advice or recommendations. Investing in financial products or cryptocurrencies involves risks, and you should be aware of the potential risks involved before investing. The content on this website is not intended to be a solicitation or offer to buy or sell any financial products or services. The information provided does not take into account your specific investment objectives, financial situation, or needs, and should not be relied upon as a substitute for professional financial advice. You should seek independent advice from a financial advisor or other professionals before making any investment decisions. Please be aware that the legal status of cryptocurrencies and other financial products may vary in different jurisdictions and may be subject to regulation. It is your responsibility to ensure compliance with any relevant laws and regulations governing the sale and marketing of financial products and services in your jurisdiction.

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