Singapore VCC: creating new opportunities for asset managers
With the introduction of the Variable Capital Company (or VCC), Singapore is creating the opportunity for local fund managers to have their fund structure domiciled locally as well. This is expected to enhance Singapore’s position as an investment fund hub, having both fund managers and fund structures based in the city-state.
The VCC regime is comparable with corporate fund structures already available in major investment fund hubs (such as the Cayman Islands and Luxembourg) and therefore might remove the need for a Singapore-based fund manager to have an overseas fund structure, resulting in cost and time efficiencies. As such, Singapore aims to position itself as a full service fund jurisdiction.
The VCC regime is expected to come into force at the end of 2019 by way of the Variable Capital Companies Act 2018, along with other related laws and regulations. It can be used for traditional as well as alternative investment strategies. This new addition of the VCC grants fund managers thus greater flexibility in organizing their fund structures (which previously did only exist to a lesser extent with existing fund structures as the regular company, the limited partnership and the trust).
The most important features of the VCC are:
- Usable for both open-end and closed-end fund structures having different investment strategies (including hedge funds, private equity funds and real estate funds)
- It can be structured as a stand-alone fund or an umbrella fund with sub-funds that can be easily added or removed (and the assets and liabilities of each sub-fund are legally segregated from those of other sub-funds and of the VCC itself)
- Within an umbrella fund, one sub-fund can be open-end while the other sub-fund is closed-end
- Foreign corporate fund structures can be redomiciled to Singapore as VCCs
- VCCs can have a single shareholder or hold a single asset (and can therefore be used for master-feeder structures)
- Details of a VCC’s shareholders need to be filed with the company registrar (ACRA) along with other details, but will not be available publically
- For Singapore tax purposes, VCCs will be treated as a single entity and VCCs can benefit from the Singapore Resident Fund (Section 13R) and the Enhanced Tier Fund (Section 13X) tax incentive schemes, resulting in all income from designated investments being essentially tax free
The main requirements for a VCC are:
- A VCC must be managed by a Singapore-based fund manager licensed or registered (or exempted) by the Monetary Authority of Singapore (or MAS)
- At least three directors are required for authorised collective investment schemes (one of which must be a director of the fund manager, one of which must be independent and one of which must be a Singapore resident) and one director is required for non-authorised collective investment schemes (who must be a director of the fund manager and a Singapore resident)
- The capital must be equal to the net assets (thus allowing for periodical subscriptions and redemptions)
- Financial statements must be presented in accordance with IFRS, SFRS, US GAAP or RAP 7 (the latter for authorised collective investment schemes only)
In relation to service providers:
- Each VCC must have a registered office in Singapore as well as a company secretary based in Singapore
- Financial statements must be audited by a Singapore-based auditor
- A local administrator in Singapore is required in order to be eligible for the applicable tax incentive schemes
- For authorized collective investment schemes and certain non-authorised collective investment schemes, a custodian must be appointed (but this is not required for private equity funds or real estate funds)
The VCC offers a great opportunity for fund managers to locate their fund structure in Singapore and profit from an established jurisdiction with on the one hand a robust regulatory framework and a pro-business-minded regulator as well as on the other hand dedicated service providers in all fields ranging from legal and tax advisers, auditors, custodians to administrators. Limitations to existing Singapore fund structures are more or less resolved and it is therefore expected that the VCC will further strengthen Singapore’s position as an investment fund hub, both in Asia and globally.
If you are interested in learning more about the VCC or wish to know how Circle Partners can become your partner for all matters VCC, please get in touch here.