You Can Set Up a Variable Capital Company in Singapore
Singapore creates another fund framework to encourage investors to domicile their funds in Singapore. By doing this, it enhances the value of jurisdiction as an international centre for fund management. The Variable Capital Company started its operation on January 14, 2020, that allows collective schemes to be set up, whether they are closed-end or open-end. It provides an alternative to the existing structures of Singapore such as limited partnerships, unit trusts, companies, and limited liability partnerships.
If you want to know more about the VCC Singapore representative office set up, read on:
What is a Variable Capital Company?
It is a legal entity that is mainly for Singapore’s investment funds. According to its name, there will be a flexible capital structure for funds where the shares of an investor are redeemable and shareable.
Currently, these types of funds are adaptable in the VCC structure:
- These standalone funds and umbrella funds have multiple funds that hold different kinds of assets.
- Alternative and traditional fund strategies that involve close-ended and open-ended funds.
- Restricted and retail funds.
The flexibility of redeeming shares based on the Net Asset Value (NAV) of the fund and dividends paid from the capital instead of profits in companies and umbrella funds cost-efficiency with different sub-funds are the main attractions of the VCC. Due to the domiciliation, funds can benefit from the lower taxes and other advantages that Singapore offers to the fund management sector. The cost savings and flexibility of VCC funds would attract foreign domiciled funds to look for domiciliation in Singapore.
Main Benefits of VCC:
- The member register is not accessible publicly, unlike a Singapore company. However, this information should be told to the law enforcement and regulatory authorities by request.
- An umbrella VCC with different funds is beneficial from scale economies and cost efficiencies that can come from using 1 set of service providers and directors.
- Since it is a corporate entity, it can access the 80 double-tax treaties of Singapore. This makes an investment holding structure simple, which results in saving costs and reducing administrative burden.
- It can vary the share capital without looking for the approval of shareholders. This gives more flexibility to investors who want to go into or redeem their investment when it wants to.
- Its pays dividends using the capital, which is opposite of a company that can only normally pay dividends from profits.
- Cross sub-fund investments can be done in an umbrella VCC.
- Sub-funds could independently wound up of each other, which ensures ring-fencing of the assets and liabilities within the sub-funds.
- It could make an election in the US “check the box” rules that they can be part of the US federal tax purposes.
- Therefore, US taxable investors have this as an attractive proposition.
- The Monetary Authority of Singapore co-funds the eligible expenses up to 70% that goes to the service providers in Singapore. This has a cap of SGD 150,000 and lessens the cost of establishments that is linked to forming a VCC.
VCC Incorporation Requirements
- The Net Asset Value (NAV) must always be equal to the share capital.
- The VCC name should have the VCC suffix.
- Approval of your VCC name should be done before incorporation.
- These are mandatory:
- There should be at least 1 Singapore resident director in case of unauthorized schemes and are at least 3 directors for the authorized schemes.
- Unless there is an exemption, a MAS-licensed fund management company (FMC) should be chosen.
- At least 1 director should be a representative or director of the FMC.
- 1 Singapore resident secretary.
- 1 Singapore resident auditor.
- At least 1 shareholder whether it is foreign, corporate, or local individual entity.
- 1 registered office in Singapore.
- 1 proposed VCC constitution.
- Upon registration, the registrar should be given the financial year-end (FYE).
- The registration fee is S$8,000 which you must pay to ACRA. In case of a Sub-Fund registration, the fee is S$400 for each.
To make sure that a VCC counts as a tax resident by the Inland Revenue Authority of Singapore (IRAS) and other important tax authorities, a licensed fund manager in Singapore must control it.
A VCC is a single entity and company for the purpose of taxes, which allows VCCs in the network treaties of Singapore and double tax agreements (DTA). It mitigates the effect of taxes, which includes the withholding tax other jurisdictions apply. This is the main difference from a Singapore VCC and a structure set up in the jurisdictions offshore like the British Virgin Islands, and the Cayman Islands that cannot access the DTAs.
Tax incentives are available to funds based in Singapore, specifically the Singapore Resident Fund Scheme and Enhanced Tier Fund Scheme. These extend to the VCCs, with the Financial Sector Incentive Scheme and remission for funds coming from the goods and services tax (GST).
What is the VCC ‘constitution’?
The constitution contains the following:
- VCC’s main characteristics.
- The rules and regulations on its governance are written there.
- Description of its operations and how they will be done.
- Says what the rights and responsibilities of directors, shareholders, and secretary are.
There must be a copy of the constitution during the VCC incorporation/registration. The constitution should be given to the Registrar and it is not available for the public to see. However, it should be available upon request for law enforcement and supervisory purposes.
The processing time normally takes up to 14 days.