Family offices and the Variable Capital Company (VCC)
The Monetary Authority of Singapore (MAS) has introduced an alternative fund framework, the Variable Capital Company (VCC), to encourage more funds to be domiciled in Singapore and enhance the jurisdiction’s value as an international fund management centre. VCC came into operation in Singapore on 14 January 2020 and allows the set-up of collective investment schemes, whether open-end or closed-end. VCC provides an alternative to Singapore’s existing structures, namely, Unit Trusts, Limited Partnerships, Limited Liability Partnerships and Companies. VCC is essentially a fund management vehicle with attractive tax incentives and other benefits. You can read our previous article on VCC here.
Under the current Act, a VCC must be managed by a Permissible Fund Manager. Permissible Fund Managers include those with a capital market services licence for fund management, or exempt financial institutions or registered fund managers. This precludes other entities such as single-family officers from managing a VCC as they are not required to be licensed in Singapore. MAS is looking at potentially expanding the definition of permissible fund managers to allow single family officers to manage a VCC.
A family office is a private wealth management advisory firm that has been set up by a family to oversee day to day administration and management of assets and investments with the goal of preserving wealth and transferring it to the next generation. Family officers may take the form of a single-family office that manages assets for, or on behalf of, one family or multi-family office that manages assets for, or on behalf of, many families. Family officers are exempted from the requirement to hold a capital market services licence for fund management under two exemptions: the related corporation exemption or a case-by-case regulatory exemption.
Allowing VCCs to be managed by single family officers will expand the range of available structures for single family offices which will directly benefit the Singapore fund ecosystem and establish Singapore firmly as a hub for family offices. There are several key benefits of single-family offices managing a VCC. First, and the most significant benefit is that VCC allows segregation of assets under sub-fund level. Assets of one sub-fund cannot be used to discharge liabilities of another sub fund, therefore preventing the commingling of assets between sub funds. Second, the VCC allows foreign funds structured similar to a collective investment scheme to redomicile to Singapore via the CISNET registration of restricted Singapore Scheme, Singapore Foreign Scheme or Recognised/Authorised Scheme.
Third, the VCC provides cost efficiency. The umbrella funds generate cost efficiencies by maintaining sub funds under the same umbrella VCC and can share the same directors and other service providers, such as fund administrators. Finally, single-family offices, by managing their own VCCs, can qualify for the MAS VCC Grant Scheme wherein MAS will co-fund up to 70% of qualifying expenses for the establishment of a VCC. This is capped at S$150,000 per application.
The Singapore Government has put in place a number of tax incentive schemes for funds managed by family offices both offshore and onshore. These require a Singapore manager that is either licensed or exempt from licensing. A single family office is deemed as an exempt entity and is able to enjoy the tax exemption incentives. The two key tax exemptions are the Singapore Resident Fund Scheme (Section 13R of the Income Tax Act) and Enhanced-Tier Fund Tax Exemption Scheme (Section 13X of the Income Tax Act). Family offices that set up funds under the VCC, will continue to enjoy the tax exemptions.
How can Argus help?
We are an experienced regulatory consulting firm who can assist financial institutions with their compliance requirements in Singapore. We can provide a comprehensive solution to VCCs in the following ways:
- Incorporate VCCs by assisting with structuring and advising from the perspective of tax, legal, regulatory and operational requirements of the VCC.
- Assist with VCC drafting policies and procedures and VCC manager compliance.
- Assist with fund manager licence application and providing outsourced compliance support.
For more information, please contact us today at email@example.com.