Re-domiciliation of investment funds to Singapore

We recently highlighted the launch in Singapore this year of the Variable Capital Companies (VCC) framework, a new corporate structure that can be used for a wide range of investment funds.

The VCC is designed to offer more flexibility to investment funds in Singapore by providing an umbrella-sub-fund structure and less rigid capital maintenance requirements. The VCC is therefore similar to the ‘protected cell’ and ‘segregated portfolio’ structures in offshore jurisdictions such as the Cayman Islands, the British Virgin Islands and Guernsey.

Singapore fund managers will be able to constitute investment funds as VCCs across both traditional and alternative strategies, and as open-ended or closed-end funds. 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.

We expect to see a significant number of new funds being launched in Singapore this year as a result of the VCC structure and we also expect that a large number of existing international funds to redomicile in Singapore from jurisdictions like the Cayman Islands. There are a number of good reasons for them to do so, including the opportunity to:

• Bring the structure onshore into a robust and well-regulated jurisdiction for investors;
• Access Singapore’s extensive network of Double Taxation Agreements, which are helpful for withholding tax purposes when exiting international investments made by the fund; and
• Establish real economic substance and/or tax residency for the fund in Singapore.

To further encourage industry adoption of the VCC framework in Singapore, MAS has launched a special VCC Grant Scheme. The grant scheme will help defray costs involved in incorporating or registering a VCC by co-funding up to 70% of eligible expenses paid to Singapore-based service providers. The grant is capped at S$150,000 for each application, with a maximum of three VCCs per fund manager.

Clients and fund managers will be further attracted by other tax incentives available to Singapore-based funds – notably the Singapore Resident Fund Scheme and Enhanced Tier Fund Scheme – which have been extended to VCCs, together with the Financial Sector Incentive Scheme for fund managers and the remission for funds from goods and services tax (GST).

A group of 18 fund managers participated in a VCC Pilot Programme that was initiated by MAS and ACRA in September last year. All of these fund managers have now incorporated or re-domiciled a total of 20 investment funds as VCCs, comprising venture capital, private equity, hedge fund and Environmental, Social, and Governance (ESG) strategies.

Sovereign is currently advising two international clients on potential VCC launches in late Q1 or early Q2 2020 and we anticipate many more enquiries.

In addition to incorporating the VCC and providing the necessary corporate secretarial support to the VCC, Sovereign can provide start-to-finish guidance on VCC set up and management to clients. This includes identifying and introducing clients to suitable professional intermediaries and assisting clients with these engagements.