Comprehensive guide to the newest corporate structure tailored for funds —VCCs in Singapore
Cayman Islands, Luxembourg and British Virgin Islands. What all these places have in common are that they are common offshore tax-havens for investment firms to domicile their funds in. Singapore having seen this opportunity, realised that they lacked the corporate structure to compete as an international financial hub. Thus on January 2020, they created the the Variable Capital Company (VCC) in Singapore which may qualify for tax exemption schemes in Singapore.
Singapore, apart from being a beautiful island and city, is famous for its financial regulations afforded to both retail and accredited investors. This gives fund subscribers the confidence that their money is well safeguarded with the necessary protections. Unlike an offshore island where certain fund offices may just be for holding mail, Singapore is very accessible where fund managers and subscribers can enjoy a great trip while having face to face access to the fund managers.
Prior to the establishment of the VCC in Singapore, funds had to be incorporated through normal company structures like private limited and partnership companies. This had many inflexibilities and administrative inefficiencies for managing a fund. Let’s take a look at the key features of the VCC that unlocks Singapore’s future as a financial hub.
What is the VCC?
VCC is an umbrella fund structure which allows a parent fund to deploy sub-funds under its umbrella. Each sub-fund’s assets and liabilities are segregated where each sub-fund can have its own name, manager, strategy and subscribers without affecting other sub funds.
A VCC key features can be summarised as:
- A customised corporate structure which alleviates the inefficiencies of traditional corporate structures tailored for funds.
- A corporate form that:
- Is regulated under or exempted from the Securities and Future Act
- Can create an open- or close-ended fund
- Has flexibility in either a mutual fund strategy for retail investors or alternative fund strategies for accredited or institutional investors.
- Flexibility in investing in public and private assets in any jurisdiction globally
- Currently a structure being used for private equity, venture capital, hedge funds, real estate, mutual funds and single and multiple family offices.
- Re-domicilation of existing foreign funds into Singapore
- May be granted tax exemption under 13O/U scheme.
Setup and Management:
Setup for a VCC typically requires engaging a fund manager and fund administrator in Singapore who would explain all the requirements and regulations required for running a VCC fund in Singapore. Here are some of the key aspects:
- VCCs must be managed by a fund manager 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
- 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.
VCCs can potentially qualify for
- Singapore Resident Fund Scheme (13O)
Exempt from tax on “specified income” derived from “designated investments” if the fund is an “approved company”. Must have a Singapore-based fund manager, and may be subject to a minimum fund size and spending requirements.
- Enhanced-Tier Fund Scheme (13U)
Unlike 13O, fund does not have to be incorporated or resident in Singapore in order to apply for 13U scheme but is subject to higher minimum fund sizes and spending requirements.
Compliance — Anti-money laundering(AML) and Countering Financing of Terrorism(CFT)
- Necessary documentation and checks must be done on both investors and fund directors as supervised by MAS for AML/CFT compliance.
- AML/CFT requirements are outsourced to the fund manager who is responsible for compliance requirements.
- VCC directors must be deemed fit and proper as accordance to MAS guidelines and at least one director is also a director of its fund manager.
Benefits of the VCC for:
Having a tailored corporate structure for funds has brought a host of benefits to both fund managers and subscribers in Singapore.
- Variable Capital Structure: VCC allows for the quick setup and deployment of sub-funds, each which could have their own strategy and subscribers.
- Distribution: Shares can be issued and redeemed freely without the calculation of NAVs or majority shareholder approval
- Privacy: VCC’s do not need to declare financial statements to the public.
- Outsourcing of governance, administration and compliance: Adminstrative affairs can be left to the fund manager which allows the fund creator to focus on the fund’s strategy and management.
- Privacy: List of subscribers is not made public and only to MAS when needed for legal enforcement.
- Regulation and Custodian: Subscribers can have faith that the money is secured and regulated by a licensed Singapore entity.
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.
Potential Structures of the VCC
The VCC can be structured to achieve a number of different objectives such as targeting different asset classes, jurisdictions, other funds or access to foreign markets. Here are some of the possible structures:
- Master Feeder
- Tiered Structure
- Europe Access
- Managed Accounts
- Listed Close-ended Funds, ETFs or Tokenizations
- Non-listed close-ended Funds
Costs of the VCC
Operating a VCC involves various service providers such as fund managers, administrators, legal, auditing and MAS fees. All included, setup fees could cost upwards of US$50,000 as well as annual fees of US$100,000 and above. These may vary depending on the complexity, AUM and scale of the fund.
Connect with our partners
If you’re looking for fund managers with VCC umbrellas to design your VCC sub-fund or umbrella, send us an inquiry at [email protected] or use the contact form below: