Understanding VCCs in Singapore: a guide for investors

21 October, 2024

Singapore Private Clients

Singapore's Variable Capital Company (VCC) has emerged as a dynamic and innovative corporate structure designed to cater to the evolving needs of investment funds. This versatile framework offers a unique blend of flexibility, efficiency, and regulatory oversight, making it an attractive option for fund managers seeking to establish or re-domicile their funds in Singapore.

In this comprehensive guide, Yvonne Ang, Associate Director, and Novia Lu, Commercial Director, provide the key features, benefits and requirements of a VCC and explore how this structure can be tailored to accommodate various fund types, from private equity and venture capital to hedge funds and real estate investments.

What is a Variable Capital Company (VCC) in Singapore?

A Variable Capital Company (VCC) is a versatile corporate structure designed for investment funds in Singapore. Established under the Variable Capital Companies Act of 2020, VCCs offer a unique framework for managing multiple, segregated collective investment schemes (sub-funds) within a single legal entity. This structure provides flexibility and efficiency for fund managers.

To ensure regulatory compliance, all VCCs must be managed by a Permissible Fund Manager. The oversight of VCCs falls under the purview of the Accounting and Corporate Regulatory Authority (ACRA), which administers the VCC Act and related regulations. Additionally, the Monetary Authority of Singapore (MAS) oversees the VCCs' anti-money laundering and counter-financing of terrorism obligations.

What are the key features of a Singapore VCC?

A Singapore VCC offers several distinct features that make it an attractive option for investment funds:

Separate legal personality: A VCC has a legal identity separate from its directors, shareholders, and fund managers. This provides a layer of protection for the company's assets and liabilities.
Members (shareholders): VCCs are owned by members, commonly referred to as shareholders. These members have ownership rights and participate in the company's governance.
Board of directors: A VCC is governed by a board of directors responsible for overseeing the company's operations and making strategic decisions.
Permissible fund manager: To ensure regulatory compliance, VCCs must be managed by a Permissible Fund Manager, a licensed entity with specific qualifications.
Fund structure flexibility: VCCs can be established as single standalone funds or as umbrella funds with multiple sub-funds. Each sub-fund operates independently, with its own assets and liabilities, providing flexibility in managing different investment strategies.
Member register confidentiality: While VCCs are not required to publicly disclose their member register, they must provide this information to public authorities upon request for supervisory and law enforcement purposes.
Anti-money laundering (AML) & counter-financing of terrorism (CFT) compliance: VCCs are subject to AML/CFT regulations and must engage an eligible financial institution to conduct necessary checks and implement measures to comply with the VCC AML/CFT Notice.
Flexible share issuance & redemption: VCCs have the ability to issue and redeem shares without requiring member/shareholder approval, offering greater flexibility in managing capital.
Dividend flexibility: Unlike traditional companies, VCCs can pay dividends out of capital, not just profits, providing more options for distributing returns to investors.
Accounting standards: VCCs can choose to use either Singapore accounting standards or recognised international standards like International Financial Reporting Standards (IFRS) or US Generally Accepted Accounting Principles (US GAAP) for their financial reporting.
Substance requirement: To demonstrate a genuine presence in Singapore, VCCs must maintain a registered office, appoint a Singapore resident company secretary and auditor, and have at least one resident director.

What are the benefits of using a Singapore VCC?

A Singapore VCC offers several advantages for investment funds:

Economies of scale: The umbrella VCC structure allows for cost-effective management of multiple sub-funds by utilising common service providers. This can result in significant savings on fund administration expenses.
Tax incentives: VCCs can benefit from various tax incentives, including the Onshore Fund Tax Exemption Scheme, the Enhanced Tier Fund Tax Exemption Scheme, and the Venture Capital tax exemption, which are available for fund management companies.
Flexible dividend payouts: Unlike other company structures, VCCs have the flexibility to pay dividends from both capital and profits, providing more options for distributing returns to investors.
Risk mitigation: The umbrella structure of a VCC enables sub-fund segregation, ensuring that the assets and liabilities of each sub-fund remain separate. This helps to mitigate risks and protect investors.
Privacy: VCCs are not required to publicly disclose their member register, providing a level of privacy for investors.
Re-domiciliation: Existing overseas funds can be re-domiciled to Singapore, allowing them to take advantage of the country's extensive network of double taxation agreements, tax incentives, and the absence of capital gains tax.

What is the Variable Capital Companies Grant Scheme (VCCGS)?

The VCC Grant Scheme (VCCGS) was initially launched on January 15, 2020, and was initially scheduled to expire on January 15, 2023. Recognising its benefits to the Singapore fund management industry, the scheme was extended for an additional two years, ending on January 15, 2025.

Under the extended VCCGS, the Financial Sector Development Fund (FSFD) provides co-funding of up to 30% of qualifying expenses incurred for Singapore-based services related to the incorporation or registration of a Variable Capital Company (VCC) in Singapore. This grant is capped at a maximum of S$30,000 per application.

What are the tax treatments for a Singapore VCC?

Income Tax

Company status: Variable Capital Companies (VCCs) are treated as companies under the Companies Act for income tax purposes.
Tax residency: A VCC is considered a Singapore tax resident if it is controlled and managed within Singapore during the calendar year. This also applies to its sub-funds.
Certificate of residence (COR): VCCs can apply for a COR to avoid double taxation. The COR is issued in the name of the umbrella VCC, including the sub-fund names.

Distributions

Dividend exemption: Dividends paid by a Singapore tax resident VCC to its shareholders are generally exempt from tax.

Income

Tax incentives: VCCs enjoy the same tax incentives and deductions as Singapore companies. However, they are primarily eligible for incentives related to venture companies, income from investments managed by Singapore fund managers, and income from Singapore-managed investments.
Expense deductions: There are specific expenses that VCCs cannot deduct for tax purposes.
Group relief: VCCs cannot transfer or receive losses under the Group Relief System.
Umbrella VCC income: The chargeable or exempt income of an umbrella VCC is the aggregate of its sub-funds' income, which is determined at the sub-fund level.

Goods & Services Tax (GST)

Sub-Fund Basis: Each sub-fund is treated as a separate person for GST purposes.
GST Registration: Sub-funds must register for GST if their taxable supplies exceed S$1 million in the current or previous year.
GST Charges and Claims: Sub-funds must charge and account for GST on their taxable supplies and can claim input tax on expenses incurred for their benefit.
GST Remission: VCCs may qualify for GST remission if they meet specific income tax concession criteria and are managed by a qualifying Singapore fund manager.

Stamp duty

Intra-VCC Transactions: Transactions between sub-funds of a VCC are subject to stamp duty as if they were separate entities.

Tax incentives

Eligibility: Various tax incentives are available to VCCs based on factors such as fund type, size, investment commitments and local spending.
Requirements: To qualify for tax exemptions, VCCs must be tax residents, have a Singapore-based CMS licensed fund manager, and meet certain fund administration and reporting requirements.

What are the requirements for setting up a Singapore VCC?

When establishing a Variable Capital Company (VCC) in Singapore, the first step is to determine the desired structure: a non-umbrella VCC (single fund) or an umbrella VCC (multiple sub-funds).

Next, appoint the necessary officers:

Resident director: At least one resident director is required. This can be a representative or a director of the VCC's fund manager. VCCs comprising Authorised Schemes have additional director requirements.
Resident secretary: A resident company secretary is also mandatory.
Permissible fund manager: Appoint a licensed fund management company regulated by the Monetary Authority of Singapore (MAS).

Finally, decide on the VCC's constitution. You can choose to use the standard VCC model constitution or have a customised constitution drafted by a Singaporean lawyer.

How does the VCC structure benefit different types of funds in practice?

The VCC structure offers a versatile framework for a variety of fund types, providing tailored solutions to meet specific investment needs and objectives.

Private Equity and Venture Capital Funds

Flexibility: VCCs enable funds to pursue diverse investment strategies, catering to different risk profiles, country exposures, and investment maturities.
Customisation: Sub-funds can be structured to target specific industries or sectors, allowing for greater flexibility in both open-ended and closed-ended mandates.

Family Offices

Efficient Management: VCCs simplify the management of family wealth across generations and jurisdictions.
Confidentiality: Assets can be segregated based on beneficiaries or asset classes, ensuring privacy and confidentiality.

Mutual Funds

Streamlined operations: VCCs facilitate efficient trading, portfolio rebalancing, and distributions, making them ideal for open-ended mutual funds.

Hedge funds

Diversification: Hedge funds can adopt multiple strategies through various sub-funds, catering to different risk appetites and investment goals.

Real estate funds

Risk mitigation: VCCs provide a structure for holding and managing segregated real estate assets, reducing contagion risks and protecting investors.

Infrastructure funds

Administrative efficiency: VCCs streamline the administration of infrastructure investments, allowing for segregation based on projects, asset types, or risk profiles.

Renewable energy funds

Project-based management: VCCs offer a suitable structure for managing renewable energy investments, enabling categorisation based on projects, energy sources or geographical regions.

How can Ocorian help?

Our team in Singapore work with structures across the full investment spectrum, from private equity and real estate funds, to infrastructure and the new Singapore Variable Capital Company (VCC). We remove the burden of regulatory, marketing and distribution rules to enable our clients to focus on managing their core business. Our global private client team of experts will collaborate with you to create a tailored family investment structure that aligns with your specific needs and goals.

Contact Ocorian's private client team for more information on using the VCC structure for your family investment.