Singapore set for Variable Capital Company fund structure

The launch of the new Variable Capital Company (VCC) fund structure in Singapore was brought a step closer with the enactment of the Variable Capital Companies (Miscellaneous Amendments) Bill on 3 September.

The Singapore government is targeting a launch date of year-end 2019 for the VCC, which is set to complete Singapore’s status as a full-service fund jurisdiction by providing funds with an alternative to the existing structures available – unit trusts, limited partnerships, limited liability partnerships and companies.

The VCC is a new corporate entity that can be set up as a standalone fund, or an umbrella entity with multiple sub-funds that may have different investment objectives, investors as well as assets and liabilities. If set up as an umbrella entity, each sub-fund’s assets and liabilities will be segregated and ring-fenced to ensure there is no potential contagion risk.

The VCC is therefore similar to the UK’s open-ended investment company structure or the protected cell company or segregated portfolio company structures in jurisdictions like Guernsey or the Cayman Islands.

VCCs can be used for both traditional funds and alternative funds and can be used for retail investors or for restricted class investors. This will provide fund managers with much greater flexibility in respect of domiciling a fund in Singapore without the limitations imposed by the Company Act.

As part of the 2018 Singapore Budget Statement, the Ministry of Finance announced that a VCC would be treated as a company and a single entity for tax purposes. As a Singaporean entity, a VCC should therefore enjoy protection against the risk of double taxation in all of the 86 countries with which Singapore has currently concluded tax treaties.

Compliance burdens are also eased because a VCC only needs to file a single Corporate Income Return (CIR) with the Inland Revenue Authority of Singapore (IRAS), even if the VCC is set up as an umbrella structure with multiple sub-funds.

The VCC framework allows for inward redomiciliation, such that funds structured as VCCs in other jurisdictions will be able to redomicile in Singapore. VCCs will also enjoy the tax incentives and treatments that are available to current investment funds that are domiciled in Singapore. Subject to conditions, the Financial Sector Incentive extended to fund management companies and Goods and Services Tax (GST) remission for funds will apply to the VCCs.

A VCC must appoint a fund management company that is licensed or registered by the Monetary Authority of Singapore (MAS), or is an exempt financial institution in Singapore. Proof of substance must also be demonstrated. A VCC will be required to have a Singapore registered office, and a company secretary, auditor and at least one director that are resident in Singapore.

The introduction of the VCC, combined with Singapore’s excellent fund management capabilities, robust regulatory framework and favourable tax regime, is expected to further solidify its position as the primary fund management hub in the region.