On 1 October 2018, Parliament passed into law the Variable Companies Act 2018 (VCC Act), which provides for the incorporation, operation and regulation of the Variable Capital Companies (VCC).
VCCs are a new corporate structure which investment fund managers (and family offices) can choose to utilise to manage their funds. On a policy-level, the VCC was introduced to attract and encourage the domiciliation of funds in Singapore.
Since the VCC framework was implemented on 14 January 2020, more than 160 VCCs have been incorporated in Singapore (as at December 2020).
This article will explain:
- What is a VCC?
- The regulatory and compliance requirements to set up a VCC
- The VCC incorporation steps
- Key Features of the VCC
- The income tax treatment of a VCC
- The VCC Grant Scheme
What is a VCC?
The VCC is a novel company structure tailored for investment funds. The only purpose for which a VCC may be used is as one or more Collective Investment Schemes (CIS), in the form of a body corporate.
A CIS is an arrangement where investors pool together assets to be managed by a dedicated fund manager, with the purpose of reaping the profits or income arising from the assets.
Regulatory and Compliance Requirements
For the purposes of incorporation, the VCC must comply with the following legal and regulatory requirements:
- A registered office address in Singapore;
- A regulated (licensed or registered) fund manager must be appointed;
- At least one director who is ordinarily resident in Singapore and either a director or qualified representative of the regulated fund manager; and
- The directors of the VCC must comply with the “fit and proper” requirements prescribed by the Monetary Authority of Singapore (MAS).
Following incorporation, the VCC will need to adhere to the following requirements:
- A qualifying Singapore resident individual must be appointed as corporate secretary within 6 months from incorporation. If the VCC has only 1 director, the director cannot also be the company secretary;
- A Singapore-based qualifying accounting entity must be appointed within 3 months from incorporation;
- Annual general meetings must be held within 6 months after the end of the Financial Year End (FYE);
- Annual returns must be filed within 7 months after the end of the FYE; and
- The VCC must adhere to the Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) requirements prescribed by the MAS.
VCC Incorporation Steps
The incorporation of a VCC is a two-step process which requires separate applications to:
- Obtain a name for the VCC; and
- Incorporate the VCC
Below is a summary of the steps as well as the information required for the name application and incorporation processes.
The first step would be to register the chosen name for the VCC via the online Name Application form. A non-refundable filing fee of S$15 will be payable for registration of a new VCC name. The applicant is required to furnish the following information:
|1||Proposed VCC name
A search on the ACRA Register should be conducted to see if the proposed VCC name is available.
|2||Details of proposed VCC officers
For the purposes of incorporation, the proposed VCC officers’ personal identification details, contact details, residential address, and UEN number (where applicable) will need to be submitted to ACRA.
Once the application has been approved, the chosen name will be reserved for 120 days, within which the VCC must be incorporated. If the VCC is not incorporated within such time, the name approval will lapse, and a new name application will need to be submitted for incorporation.
|1||Selecting a registered office address and working hours
Details of the VCC’s registered office address as well as the working hours of the VCC will need to be provided.
|2||Preparing a constitution
The constitution for the VCC must be provided during the incorporation application. This constitution will be lodged with ACRA but will not be publicly available.
|3||Decide on the VCC’s Financial Year End (FYE)
The date of the first FYE of the VCC, which will determine when corporate filings and taxes will be due must be submitted.
|4||Collate a list of subscribers
The list of subscribers (who are the investors of the investment fund and to-be shareholders of the VCC) as at the point of the application, as well as their personal identification details and email addresses, will be required.
Once the relevant documents (including the transaction number of the VCC’s approved name application) has been obtained, an incorporation application may be submitted via this online form (a corporate services firm may be engaged to submit the application). The incorporation application costs $8,000 (excluding any fees charged by the corporate services firm).
Another point to note is that all proposed directors, company secretaries and subscribers must provide copies of their consent/declarations at the point of submission. This is regardless of whether the application is submitted through a corporate services firm. The consent/declaration forms can be found on the ACRA website. These forms serve two main functions:
- To ascertain that each individual has consented to assume his/her respective roles; and
- For the proposed directors to declare that they qualify as “fit and proper persons” under the VCC Act.
Ordinarily, an application will take up to 14 days to be processed, but may require up to a month if the particular application needs to be referred to another government agency for approval.
If the application is approved, the VCC has been successfully incorporated in Singapore, and a Unique Entity Number (UEN) will be issued to the VCC. Thereafter, if the VCC is an umbrella fund, sub-funds must be registered within 7 days of forming those sub-funds. Registration of sub-funds can be done using this online form, where registration costs $400 per sub-fund.
Key Features of the VCC
A VCC may operate as a stand-alone entity, or as an umbrella entity with multiple sub-funds which remain separate. For VCCs operating as umbrella entities, there is the benefit of accruing cost savings as the sub-funds can have a common management and service providers (e.g. common fund manager, auditor).
Administrative functions such as the holding of general meetings (for the various sub-funds) can also be done together under the VCC, if established as an umbrella entity.
A VCC may change its share capital without seeking shareholder approval, thus providing operational flexibility in the distribution and reduction of capital. Consequently, the VCC can pay dividends out of capital, instead of just out of profits as is the case with companies.
This is advantageous because it makes it easier for fund managers to meet dividend payment obligations and also means that shareholders can expect to receive dividends more consistently. Moreover, due to the operational flexibility of a VCC, shareholders can also enjoy the flexibility of entering and exiting the investment fund easily, through the subscription and redemption of shares in the VCC.
Like any other company, VCCs are expected to keep a record of their shareholders, in the form of a shareholder register. However, unlike other companies, VCCs do not need to disclose their shareholder registers to the public, offering privacy to the shareholders. That being said, disclosure to authorities upon request is still required for regulatory, supervisory and law enforcement purposes.
VCC Income Tax Treatment
On 28 August 2020, the Inland Revenue Authority of Singapore published an e-Tax guide providing clarification on the tax framework for VCCs.
Whether as a standalone or an umbrella vehicle, the VCC will be regarded as a company for income tax purposes. This means that only one corporate income tax return has to be filed with the Inland Revenue Authority of Singapore (IRAS).
Just like any other company, VCCs pay income tax at the flat corporate tax rate of 17% on chargeable income. Certain tax exemption rules have also been extended to VCCs. For example, the “specified income” derived by the VCC from “designated investments” such as shares, securities, and derivatives, but not immovable property, are exempt from tax.
In order to qualify for these tax exemption schemes, VCCs would have to meet certain requirements, which can be found in sections 13H, 13R and 13X of the Income Tax Act.
Sections 13H, 13R and 13X tax exemption schemes
|13R – Onshore (Singapore Resident Company) Fund Tax Exemption Scheme||13X – Enhanced Tier Fund Tax Exemption Scheme||13H – Fund Management Inventive (must have a focus on Venture Capital investments in Singapore)|
|Fund’s Residence||Must be tax resident of Singapore||No restrictions||No restrictions|
|Fund Manager||Singapore-based and holding a Capital Markets Services (CMS) licence or expressly exempted from holding a CMS licence or as otherwise approved|
|Investors||Non-qualifying investors would need to pay a penalty to the Singapore tax authorities||No restrictions||Accredited and Institutional only|
|Assets Under Management||No restrictions.||Minimum of S$50 million at the point of application (committed capital concession available for real estate, infrastructure, private equity, debt and credit funds)||Minimum of S$10 million in venture capital investments only, i.e. 80% of the fund’s portfolio should be in companies less than 10 years old|
|Fund Expenditure||At least S$200,000 in financial year||At least S$200,000 local business spending in a year||Local business spending of at least S$100,000 multiplied by the incentive tenure, to be met by the end of the incentive tenure|
Goods and Services Tax
As for Goods and Services Tax (GST), under an umbrella structure, each sub-fund will be regarded as a separate entity (as a sub-fund makes independent sale and purchase decisions based on its respective investment mandate) and are liable to fulfil their GST obligations.
A non-umbrella VCC or sub-fund of an umbrella VCC will be liable for GST registration if the value of its taxable supplies or services (acquired from overseas suppliers) exceeds S$1,000,000 during the previous calendar year or is expected to exceed S$1,000,000 for the next 12 months.
VCC Grant Scheme
Additionally, in order to encourage more investment funds to choose VCCs, the Monetary Authority of Singapore (MAS) has launched a VCC Grant Scheme, which commenced in January 2020 and will operate until 15 January 2023.
Under this scheme, MAS will co-fund up to 70% of eligible expenses paid to Singapore-based service providers for the incorporation or registration of a VCC. This co-funding is capped at $150,000 per application, and to be limited to 3 VCCs per fund manager.
Authors: Mr Mike Chiam and Mr Nicholas Kwa.
Disclaimer: This update is provided to you for general information and should not be relied upon as legal advice.
For further information on the above, please contact our Corporate Advisory team here.