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Updated: Jul 25, 2022


In this article, we will walk you through what is a variable capital company (VCC), why VCC is so attractive, who may be interested to set up a VCC and how to set up a VCC in Singapore.

I. What is a Variable Capital Company

A Variable Capital Company (VCC) is a new corporate structure for investment funds that was introduced in Singapore on 14 January 2020.

The introduction of the VCC structure in Singapore complements the suite of existing investment fund structures and increases the attractiveness of Singapore as a jurisdiction in which to domicile funds by offering greater convenience and flexibility to fund managers and investors alike.

The sole purpose of a VCC is for investment, specifically for the carrying out of collective investment schemes (CIS) and may be used in both open-end and close-end funds.

  • An open-end fund is one which is always open to investment. Investors are free to redeem or withdraw from the fund at any time.

  • A close-end fund is a fund where investors will not be allowed to redeem or withdraw from the fund at will.

Any capital injected by investors into a VCC fund is placed into a common pool and each investor is then allocated shares in accordance to their individual investment.

II. Types of VCC Fund Structures

The VCC structure allows for great flexibility. They can be set up to comprise of just offshore vehicles, onshore vehicles, or a combination of both.

They can also be set up with just a single shareholder, or to only hold a single asset.

A VCC fund can also be set up with a master-feeder structure. In such a structure, investors invest their moneys into the feeder fund. This feeder fund will in turn invest all or a substantial amount of its assets into a master fund that acts as the investment holding company which will make the investments.

The typical VCC fund structures are as follows:

(a) Stand-alone (single fund) VCC

A VCC can be set up as a stand-alone fund in which investors will pool their moneys into. This VCC will then make the investments.

(b) Umbrella (multiple sub-fund) VCC

An umbrella fund is a VCC consisting of multiple sub-funds. Investors can invest their moneys into specific sub-funds under this umbrella VCC. Each sub-fund will then make the investments.

Each sub-fund in an umbrella fund acts as a separate legal entity and therefore can be wounded up separately to ensure the ring-fencing of each sub-fund’s assets and liabilities.

Such an umbrella structure allows all the sub-funds in the VCC to share the same board of directors and service providers (e.g., fund administrator, fund manager etc.).

III. Benefits of using a VCC structure

The VCC structure may allow qualifying funds to benefit from the tax incentive schemes under the Income Tax Act (ITA).

A VCC-structured fund may be able to qualify for the following:

(a) The Singapore Resident Fund Scheme (SRF) under s.13R ITA.

(b) The Enhanced-Tier Tax Fund Scheme (ETF) under s.13X ITA.

These tax incentive schemes allow for tax exemptions on “specified income” (including gains) derived by the fund from “designated investments”, which includes a wide range of investments including stocks, shares, securities and derivatives.

The umbrella VCC structure possesses certain advantages when applying for such tax incentive schemes as the conditions to qualify for such tax incentive schemes will be applied at umbrella level instead of at sub-fund level, which can potentially make these conditions easier to meet. For example, the SGD 50 million Assets Under Management (AUM) condition under the ETF will be applied at umbrella level (taking the aggregate AUM of all the sub-funds) instead of being applied at the individual sub-fund level.

A VCC may also qualify for concessionary corporate tax rates under the Financial Sector Initiative – Fund Management Award (FSI-FM). Under the FSI-FM, any income derived by a Singapore fund manager from managing or advising a qualifying fund may be taxed at a concessionary 10% instead of the usual corporate tax of 17%. Your fund manager may be able to apply for and qualify for the FSI-FM, which will be awarded for a minimum of 5 years.

There is also a Variable Capital Companies Grant Scheme (VCCGS), launched by the Monetary Authority of Singapore (MAS), co-funds certain qualifying expenses paid to Singapore-based service providers for work done in Singapore in relation to the incorporation or registration of a VCC.

Such a qualifying VCC can receive up to 70% co-funding (capped at $150,000 per VCC) for the following expenses:

(a) Legal services

(b) Tax services

(c) Administration or regulatory compliance services.

More information on the VCCGS is available on the MAS website.

The VCC structure offers administrative convenience.

Previously, a new fund would have to be structured and set up. Under an umbrella VCC structure, only a single legal entity needs to be maintained and multiple sub-funds can be consolidated under a single umbrella VCC. This allows for shared common services providers across all sub-funds (e.g., auditor, custodian, fund administrator and fund manager).

Certain administrative functions such as the holding of general meetings and preparation of prospectuses for multiple sub-funds may also now be consolidated.

The VCC structure offers greater options for investors and sponsors.

The convenience and ease of setting up sub-funds allows fund managers to offer a more diverse range of investments to investors through the setting up of multiple sub-funds that cater to a wider range of investor profiles. This provides investors with a greater variety of options to choose from in line with their individual investment objectives and risk appetite.

The ability to quickly add sub-funds can enable a sponsor/asset owner can easily seed its own sub-fund with its assets, find 3rd party investors and monetise its assets. The fund manager’s already established fund structure under an existing umbrella VCC can be used to essentially create and ‘lease’ out a new sub-fund should such a need arise.

IV. Basic requirements and rules for setting up a VCC

There are certain basic requirements and rules governing VCCs. These are as follows:

(a) A registered office in Singapore.

(b) Board of directors responsible for the governance of the VCC's operations. Different requirements apply depending on the type of scheme:

(i) For restricted schemes, there must be at least 1 Singapore resident director.

(ii) For authorised schemes, there must be at least 3 directors, at least 1 of whom is a Singapore resident director.

(c) The appointment of a Singapore-based permissible fund manager.

(d) The appointment of a Singapore-based company secretary.

(e) The appointment of a Singapore-based auditor which must prepare the VCC’s financial statements in accordance with a single accounting standard (e.g., IFRS, Singapore FRS, or US GAAP) across all sub-funds. (Note: Where there are sub-funds, each sub-fund must prepare separate financial statements)

V. Creation of a VCC

A VCC may be constituted by converting a foreign CIS or by local incorporation.

Existing overseas funds which have a corporate structure equivalent to that of a VCC may redomicile as a VCC in Singapore by registration with ACRA and notifying the relevant foreign authorities of the de-registration as an overseas fund accordingly. One such example of an overseas fund which may redomicile as a Singaporean VCC are segregated portfolio companies incorporated in the Cayman Islands.

A local VCC can be incorporated in the following ways:

(a) by submitting the application for incorporation online via the VCC portal; or

(b) by engaging the services of a registered filing agent / corporate service provider who will submit the application.

Breakdown of the online application process

VI. Who may be interested in a VCC?

Individuals and/or entities that wish to take advantage of the following:

(a) potential tax exemptions under the SRF and ETF tax exemption schemes.

(b) potential grant provided by the VCCGS to offset incorporation costs.

(c) the legal segregation of assets and liabilities of each sub-fund, minimising exposure to risk.

(d) the pooling of investors according to their investment objectives and the ability to manage and allocate monies across different asset classes in a way that is most appropriate for each individual investor;

(e) open-ended structures where redemptions and re-allocations can be carefully managed to ensure liquidity due to the ability to redeem capital from VCCs at its net asset value without the need to adhere to stringent capital maintenance requirements;

(f) potentially lower corporate tax rates; and

(g) Administrative savings from using shared common service providers across all the sub-funds in an umbrella VCC structure.

VII. Documents required/ Service Providers to a VCC

You may wish to engage legal adviser to assist in the incorporation of the VCC, including preparing the constitution governing the VCC to suits your needs and goals before the incorporation of the VCC. The other essential documentation to establish a VCC includes private placement memorandum and subscription agreement.

Other than legal adviser, the fundamental service providers for a VCC include, a licensed fund manager, fund administrator, auditor and tax advisers.

VIII. More information

Please feel free to contact us if you wish to know more about setting up a VCC in Singapore.

Prepared by Avant Law LLC


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