On January 15, 2020, the Monetary Authority of Singapore (MAS) and the Accounting and Corporate Regulatory Authority (ACRA) launched a new, flexible corporate structure under which investment funds can be created.
Considered to be a game changer in the asset management industry, the VCC provides a flexible corporate structure for investment funds to be domiciled in Singapore, a local domicile for Asia-Pacific based fund managers working alongside their partners in regions like Luxembourg, Ireland, the U.K. and the U.S.
So how will the VCC work?
The new structures will be incorporated under the VCC Act and administered by the Accounting and Corporate Regulatory Authority of Singapore (ACRA). The Variable Capital Company (VCC) is constituted under the Variable Capital Companies Act which took effect on 14 Jan 2020 under subsidiary legislation also administered by ACRA.
Funds set up under the VCC framework need to be operated by permissible managers regulated or registered by MAS, with MAS also providing guidance on anti-money laundering and counter terrorism oversight.
As with Luxembourg SICAVs, VCC fund managers will be able to setup individual funds or umbrella structures, under which multiple sub-funds can be created, each tailored to a unique investment objective and, indeed, investor base.
What does the VCC structure look like?
The funds themselves will have a flexible capital structure, meaning shares can be issued and redeemed according to investor activity. The manager also has the option to set up VCCs as both open- or closed-ended funds. Dividend payments will be made out of the fund’s capital, giving managers the flexibility to meet dividend payment obligations.
Under the VCC framework, it’s recommended that a fund’s capital should equal the value of its net assets, providing flexibility in the distribution and reduction of capital. The structure should have at least one member, to align with the minimum number of members required for companies under the Singapore Companies Act.
In addition, while VCCs must also maintain a register of shareholders, they do not have to be publically disclosed (with the exception of authorized requests for regulatory, supervisory and law enforcement purposes).
From a tax perspective, umbrella VCC structures need only file a single Corporate Income Tax (CIT) return, regardless of the number of sub-funds under the umbrella. Tax incentives under sections 13R and 13X of the Income Tax Act will be extended to VCCs when qualifying conditions are fulfilled: this will apply to umbrella structures too.
Who can set up a VCC fund?
To qualify for a VCC, fund managers need to be Singapore-based, licensed or regulated in Singapore (unless exempted under Singapore regulations), with a registered office and company secretary based in the country. Singapore-based auditors and administrators will also need to be appointed.
Fund managers may also incorporate new VCCs or re-domicile their existing investment funds with comparable structures by transferring their registration to Singapore as VCCs.
From a governance perspective, non-authorised schemes will need at least one Singapore-based director, while authorised schemes will need three local directors. At least one director of the VCC must be a director of the fund manager, or be a qualified representative. In either scenario, the individual must pass a fit and proper persons test.
Should you consider VCC?
If you’re looking to set up a structure in country ranked as one of the world’s most competitive economies, and want the flexibility and potential cost savings that the structure affords, then you should consider Singapore’s VCC.
To make the VCC even more appealing, the Monetary Authority of Singapore (MAS) recently launched a grant scheme to help fund managers with costs. MAS will co-fund up to 70 per cent of eligible expenses paid to Singapore-based service providers.
To learn more about setting up fund and investment structures in Singapore, contact our Asia-Pacific Managing Director, Agnes Chen at agnes.chen@cscgfm.com or visit our website (www.cscgfm.com) to learn about our fund administrative and SPV services.