exempted funds in Singapore
With the recent shifts in financial markets like Hong Kong, Singapore is poised to be the new financial centre of Asia — a bridge between Asian and Western financial markets.
With the launch of the Variable Capital Company (VCC) fund structure in 2020, there has been an increasing interest in multi family offices setting up offshore funds in Singapore as opposed to countries like Cayman Islands. This is in part, due to the increasing demand from high net worth families for greater asset protection by having it in offshore tax havens, yet Singapore is uniquely poised to offer one of the a well regulated and financially secure havens within Asia. The VCC opens a toolbox for international multi family offices to manage their clients money out of Singapore
Why Singapore instead of traditional offshore havens?
Singapore is an established financial city with abundant international financial service/market providers, venture capital and private equity firms set up with licenses granted by the Monetary Authority of Singapore (MAS). This gives assurances to investors and fund managers that their assets are secured and well safeguarded while being accessible in the APAC region.
Unlike offshore havens like Cayman and BVI, being domiciled in Singapore gives convenience access to the fund manager while having the chance to network with the deep pool of financial services available in Singapore. All while, getting to try some of the exquisite local cuisine, world-class hotels and travel destinations.
How to setup a fund structure in Singapore? Through the VCC
To establish a fund in Singapore, global family offices should utilize the VCC as it is the only corporate entity structure in Singapore tailored for funds as it efficiently facilitates investor subscriptions and redemptions, unlike a private limited company which cannot do so.
To operate a VCC structure in Singapore, a Singapore-based license fund manager is required to set up and manage the fund’s operations. While a firm can apply for a Singapore license to administer their fund, this process can be costly and time-consuming, with a physical presence and multiple regulatory requirements to fulfil in Singapore. Alternatively, family office fund managers can partner with a fund management company in Singapore that already holds a fund management license to incorporate and manage the fund’s governance and coordination on their behalf while the family office managers focus on the fund’s client relationships and investment strategy.
Two options to accessing a fund management license to set up a VCC fund structure:
Option 1) Setup your own company and obtain a fund management (FMC) license
To obtain an FMC license, you would have to set up a physical office in Singapore with at least two full-time employees based in Singapore. There are different types of FMC licenses available, such as the LFMC, RFMC, and VFMC accredited investor licenses. In addition, you will need to hire compliance, accounting, and auditing services to operate the company. This option allows for dedicated management of the VCC fund and is suitable for those looking to establish a physical office and With the recent shifts in financial markets like Hong Kong, Singapore is poised to be the new fund center of Asia — a bridge between Asian and Western financial markets.presence in Singapore.
Option 2) Outsource the license to an existing fund management company
Alternatively, you can outsource the license from an existing fund management company. This option has become an increasingly popular service provided by multi-family offices and other fund management firms. By tapping into the existing infrastructure of these companies, you can immediately begin setting up the Variable Capital Company (VCC) for your family office. This option is more cost and time-effective for new family offices, while also allowing for remote management overseas since they are already partnered with a Singapore-based licensed fund manager. Moreover, it offers the flexibility of obtaining their own license later, once their fund has grown, and they are ready to set up a physical office in Singapore.
Key Players in managing the VCC
- VCCs must be managed by a fund management company that is licensed by MAS (Monetary Authority of Singapore) unless exempted.
- They would act as the coordinator and overseer of services (legal/accounting) required for the running of the fund
- A licensed fund manager is also need to apply for the 13O/U tax exemptions for the VCC umbrella.
- In charge of NAV calculations, reviewing documentation, processing transactions and expenses.
- Liaising with and responding to query of investors about the administration of the funds. Preparing annual financial statements etc.
Other Service Providers:
- Legal/Tax Advisors: Providers professional advise on the best way to structure the assets with security and tax efficiency.
- Corporate Secretaries: Assists with the annual filings to the relevant authorities
- Auditors: A requirement of the fund to be audited by a third party firm.
Apply for Tax Exemption on the VCC
A majority of established VCCs in Singapore operate with the 13O/13U tax exemptions provided that they comply with the necessary requirements and are within their designated investments. VCC’s income from the family office investments would be treated for tax purposes in the same manner as all other income of the VCC which is assessed for tax (if any) at the umbrella level.
Tax exemption is generally a straightforward process after the VCC is incorporated, but the upkeep of the exemption is subject to certain conditions being met such as fund sizes and expenses requirements amongst others.
VCC regulatory requirements
- Has at least one director who is resident in Singapore; at least one director who is either a director or a qualified representative of the VCC’s fund manager
- a Singapore resident company secretary
- Subject to Anti-Money Laundering/Countering the Financing of Terrorism (“AML/CFT”) procedures, which would be supervised by MAS for compliance.
- Also subject to audit by a Singapore based auditor by which an annual return must be filed after its AGM and within seven (7) months after the end of its financial year.
Acquiring your own license in Singapore can be a costly process, as it requires having a physical office in Singapore with at least two full-time professionals who are based in Singapore. In addition, there is a need to hire compliance, accounting, and auditing service providers. The expenses associated with setting up a licensed fund management company and subsequently a VCC fund in Singapore could be upwards of US$100,000 in setup fees, with annual fees ranging from US$250,000 to US$400,000 depending on factors such as office rental, salaries and cost of service providers.
On the other hand, outsourcing to an existing licensed entity can be much more cost effective, as it does not require obtaining a license or a physical office and personnel in Singapore. The set-up fees for outsourced licensing arrangements typically see the VCCs overall costs start from US$60,000 with annual fees of around US$100,000 or more, which can vary on factors such as the size and complexity of the fund.
Connect with our partners
If you’re looking for fund managers to setup your VCC fund tailored towards your investment objectives, send us an inquiry at [email protected] or use the contact form below:
1: Why is Singapore becoming a popular destination for global funds?
A: Singapore is an established financial city with abundant international financial service/market providers, venture capital and private equity firms all set up with licenses granted by the Monetary Authority of Singapore (MAS). This gives assurances to investors and fund managers that their assets are secured and well safeguarded while being accessible in the APAC region.
2: How can families set up a fund in Singapore?
A: Families could apply for Singapore licenses in Singapore to administer their own fund, but this could be a highly costly and lengthy process with multiple regulatory hurdles. Instead, they may partner with a fund management company in Singapore that already has a CMS (Capital Markets Service) license to incorporate and manage the fund structure on behalf of the families.
3: Who are the VCC fund managers?
A: VCC funds must be managed by a fund manager (CMS) licensed by MAS (Monetary Authority of Singapore) unless exempted. They would act as the coordinator and overseer of services (legal/accounting) required for the running of the fund. These could include multi-family offices, and other CMS license holders.
4: What are the benefits of having a closed-ended vs open-ended fund?
A: A closed-ended fund is appropriate for those who need more time for their investments to mature. The number of investors in a closed-ended fund is fixed at the conclusion of the subscription deadline because it only accepts investors for a predetermined amount of time. Open-ended structure allows for periodic redemptions by investors the fund deals with more liquid investment methods.
5: What is the tax treatment for VCCs in Singapore?
A: A good portion of established VCCs in Singapore would have already applied for a 13O/13U and benefit from tax exemptions provided that they comply with the necessary requirements and are within their designated investments. VCC’s income from the family investments would be treated for tax purposes in the same manner as all other income of the VCC which is assessed for tax (if any) at the umbrella level.
6: What are the regulatory requirements for VCCs in Singapore?
A: VCCs in Singapore must have at least one director who is resident in Singapore, at least one director who is either a director or a qualified representative of the VCC’s fund manager, a Singapore resident company secretary, and must be subject to Anti-Money Laundering/Countering the Financing of Terrorism.