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 Is Singapore's variable capital company structure a game changer?

Is Singapore's variable capital company structure a game changer?

17 September, 2020

What are the pros, cons and practical considerations of the VCC structure?

The introduction of Singapore’s new Variable Capital Company (VCC) provides clear opportunities for investment fund structuring and domiciliation, explains Jay Moghe, Director - Head of Asia Pacific Sales and Business Development, as he reflects on our webinar exploring the pros, cons and practical considerations of the new VCC structure.

Launched on 15 January 2020, the Variable Capital Company (VCC) is Singapore’s latest investment fund innovation. It has been introduced with the aim of increasing the city-state’s attractiveness as a competitive asset management hub in the Asia-Pacific region.

How does a VCC facilitate domiciliation of investment funds in Singapore?

A VCC facilitates domiciliation of investment funds in Singapore across traditional and alternative fund vehicles for both open- and closed-ended types. In addition, corporations that are set up as funds in other jurisdictions can also be inwardly re-domiciled as VCCs.

As well as pooling and investment vehicles, VCCs can be used for private equity funds, real estate funds, hedge funds, venture capital and multi-family offices.

Since launch, more than 110 Singapore VCCs have already been set up, with numerous others already underway. However, as Brandon Tee, Head of Corporate Law Practice at WMH Law, pointed out in our recent Ocorian webinar, 'Singapore's new VCC structure – pros, cons and practical considerations', the VCC isn't a new structure conceptually speaking. “There are variants of similar structures in other jurisdictions such as the Cayman Islands, BVI and Hong Kong,” he explains. “Singapore is late to the party, but we have it now.

What are the advantages of the VCC structure for investment funds?

There are a number of advantages offered by this new structure for investment funds, including the option of being set up as either a standalone VCC or as an umbrella VCC with sub-funds. 

Importantly, the umbrella VCC structure constitutes one legal entity. As such, fund managers are able to segregate assets into different sub-funds held within the same entity and then use each sub-fund to invest and directly hold a portfolio of discrete investments. As the assets of each sub-fund under the umbrella are separated from each other, the liabilities of a sub-fund can only be discharged from its assets and not out of the assets of the other sub-funds. 

What’s more, there are cost efficiencies to be had from using common service providers across the umbrella and its sub-funds for fund managers that choose to structure their VCC in that way.

Both forms of VCC also enable flexibility in the issuance and redemption of shares at net asset value as well as the option to pay dividends out of capital. Confidentiality is also maintained as the share registry and audited accounts are not made public.

Lastly, VCCs can be eligible for tax exemption schemes, which are available to funds under the Singapore Resident Fund (SRC) scheme and the Enhanced Tier Fund (ETF) scheme, where qualifying conditions are met.

Pearlyn Chew, Tax Director at KPMG, provides an example: “The 13X [ETF] scheme requires a minimum fund size of S$50m to apply for a tax incentive. Now, if you set up an umbrella VCC with multiple sub-funds, the economic requirements will be tested at the umbrella level, meaning they will aggregate the sub-funds, so it’s easier to meet the requirements.”

How does the VCC structure help to provide important substance?

Brandon Tee argues that the Singapore VCC stands up well against other jurisdiction offerings as it has mandatory Singapore substance – including a Singapore registered office, Singapore resident company secretary and auditor, and at least one resident director among other things. Although if it is a Monetary Authority of Singapore [MAS] authorised fund, it must have at least three directors. “It’s an onshore structure built for substance,” he says.

Tee also believes that the ability to market the Singapore VCC should be better than many competitors as “MAS is seen as the gold standard, from a financial standpoint, in Asia”.

According to Tee, a lot of his clients are moving out of the Cayman Islands and Mauritius following changes in the tax laws there. He believes that this is due to the benefits of an onshore structure versus an offshore structure.

How Ocorian's expertise and presence in Singapore can help with the set up of VCCs

However, part of the substance is that you need a Singapore-based investment manager. At Ocorian we have instances where people have wanted to set up VCCs, then they look to the requirements and they say ‘Hold on, I don’t have a manager. What should we do here?’. With expertise and presence in the region, this is something Ocorian can assist with.

Pearlyn Chew also stresses that one major advantage from a tax perspective is that in Singapore a VCC is able to get a certificate of residence. This, in turn, provides access to more than 80 tax treaties that Singapore has with Asia-Pacific and Europe. “Compared to some other jurisdictions, Singapore is tax neutral in the location itself and we have the advantage of being able to access free trade agreements and tax treaties,” she explains.

In comparison to the incentives offered to investors in Hong Kong, which is a natural competitor to Singapore, she argues that the tax incentives offered to VCCs are easier to receive and broader in scope.

For those wishing to take practical steps to establish a VCC, the incorporation process itself, together with opening a bank account, are areas where there can be delays. “On average, the fastest you can set up a VCC with sub-funds is six weeks, including the bank account opening, but it can be anywhere from that to two to three months,” explains Brandon Tee.

On the plus side, however, the Singapore regulator, MAS, does offer to reimburse up to 70 per cent of the set-up costs for up to three VCCs until 2023, capped at S$150,000 per VCC regardless of whether you set up an umbrella VCC or standalone version. Though, according to Pearlyn Chew, this must be applied for within three months of incorporation.

Bryan Goh, CEO of the Tsao Family Office, has taken the plunge and is in the process of setting up a VCC. He believes more powerful branding would help. “If the VCC can be eligible for UCITS it would be very useful for bringing the Singapore standard into Europe,” he says.

It’s probably too early to assess whether the Singapore VCC is a game changer, but it does appear to make the city-state a more attractive destination as an investment funds hub. 

How do I set up a VCC? 

Ocorian provides a full range of fund administration and associated services across all investment structures and work with fund managers of all sizes, from all over the world. Our team of experts can help you establish and administer your VCC structure so you can take advantage of Asia's growth markets.

For more information about KPMG Singapore, please contact:

For more information about WMH Law Corporation, please contact: