Singapore’s new fund structure – requirements for the Variable Capital Company (VCC)

      Singapore introduced an alternative fund framework, 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 which allows set up of collective investment schemes, whether open-end or closed-end. 

      The VCC provides an alternative to Singapore’s existing structures, namely, unit trusts, limited partnerships, limited liability partnerships and companies. VCC is regulated under the Variable Capital Company Act 2018 and The Accounting and Corporate Regulatory Authority (ACRA) is the administrating authority for the VCC Act except in relation to anti-money laundering/countering the financing of terrorism (AML/CFT) which is supervised by the Monetary Authority of Singapore (MAS).

      Since the launch of VCC, there has been an increasing interest by fund managers to set up their funds in Singapore. We have highlighted some key points to consider when setting up VCC structures in Singapore and what are the basic requirements of VCC .

      Basic Requirements of VCC

      1. Permitted Use of VCC

      The VCC can be used as a vehicle for collective investment scheme, both retail and non-retail funds and can be used for both open-ended and closed-end funds.

      2. Capital of VCC

      The capital of VCC will always be equal to its net assets therefore providing flexibility in the distribution and reduction of capital.

      3. Licenses Fund Managers

      The VCC must have a MAS licensed, registered or exempted fund manager to manage the assets that comprises of the VCC.

      4. Shareholding

      The VCC may be incorporated with only one member. This is to allow VCCs to be used in fund structures with only a single member but with many underlying investors.

      5. Directors

      Except for VCCs consisting of Authorised Scheme(s) (generally a fund offered to Singapore retail investors), VCC may have only one director. The director must be ordinarily resident in Singapore and be either a director of the manager of the VCC or a qualified representative of the manager. If VCC has more than one director then each of these requirements must be met by separate persons. Director of VCC must be fit and proper as well.

      6. AML/CFT

      VCC must comply with Anti Money Laundering / Countering of Financing of Terrorism (“AML/CFT”) procedures.

      Operational considerations

      Umbrella VCCs and sub-funds are deemed as single legal entity and as such, board of directors, administrative, accounting and compliance functions can be centralised at the umbrella fund level which provides for greater economies of scale and cost savings.  Despite not being a legal person separate from the umbrella VCC, a sub-fund may wound up separately  as if it were a legal person. An umbrella VCC may also be sued in respect of a sub-fund and exercise rights of set-off as between its sub-funds as if each sub-fund were a legal person.

      A Variable Capital Company (VCC) is required to maintain registers of its members. The register of members, constitution and financial statements of a VCC are not required to be made available for public inspection, thus offering privacy to the investors.

      At least one director of VCC must be either a Qualified Representative or director of its fund manager.

      It is important to note that any sub-funds that are established under the umbrella fund will have to be registered within seven days.

      In terms of disclosures, umbrella VCC is required to disclose to contractual counterparties (whether written or oral) in respect of any sub-fund the fact that the assets and liabilities of the relevant sub-fund are segregated.

      Existing foreign domiciled funds with similar structures  to the VCC may be re-domiciled in Singapore as VCC but submitting an application for transfer to ACRA and notifying the foreign authorities of the de-registration.

      Capital consideration

      VCCs may issue shares and redeem fully-paid (and not unpaid) shares without the need for shareholders’ approval and no solvency tests are needed. This facilitates seamless movement of capital and enhances the efficiency of an investment fund structured as a VCC.

      VCCs may pay dividends out of capital and VCCs must ensure the paid-up capital of the VCC is at all times deemed to be equal to the net asset value of the VCC.

      Accounting and audit consideration

      Assets and liabilities of each sub-fund are to be segregated such that the assets of one sub-fund cannot be used to discharge the liabilities of another sub-fund. Each sub-fund must be wound up separately to ensure that the ring-fencing of each sub-fund’s assets and liabilities applies during insolvency. For common assets and liabilities, including shared costs incurred by umbrella VCCs for the sub funds, the VCC manager needs to establish a fair method of allocation between the sub-funds.

      The same procedures as a Singapore Company with regards to accounting will apply to VCC.

      An umbrella VCC must maintain separate records and financial statements for each sub-fund. Each VCC must have audited financial statements for each financial year/period which gives true and fair view of the financial performance of the standalone CC or in the case of an umbrella VCC, for each sub-fund. There is no statutory restriction on investment cycles but all sub-funds of an umbrella fund must have the same accounting period.

      For a Variable Capital Company (VCC) that is a parent company, the VCC must have its consolidated financial statements of the group audited for each financial year/period.  For a VCC that is a parent company, which is an umbrella VCC with sub-funds being its subsidiaries, the investments in the sub-fund are to be measured at Fair Value Through Profit and Loss. The umbrella fund does not need to present consolidated financial statements.

      VCCs have the flexibility to use not just Singapore Financial Reporting Standards but also Internal Financial Reporting Standards and US Generally Accepted Accounting Principles.

      Tax consideration

      VCC is a deemed as single corporate tax payer and files a single tax return to the authorities in Singapore. Accordingly Enhanced-Tier Fund (ETF) Scheme and Singapore Resident Fund (SRF) Scheme under the Income Tax Act will apply to standalone VCC similar to how it would apply to a Singapore company. VCC must fulfil (among other things) the following economic conditions for ETF:

      • the applicant fund must have a minimum fund size of S$50 million at point of application; and
      • the fund must have an annual local business spend of at least S$200,000.

      Similarly for SFR, the fund must have an annual business spend (need not be local) of at least S$200,000.

      For umbrella VCCs, the conditions above will be applied at the VCC level and not the sub-fund level. This is beneficial for fund managers who previously had to meet the economic conditions at each Singapore company level to qualify for the incentives.

      Under the SRF scheme, a financial penalty is levied on an investor who beneficially owns, together with their associates, more than a prescribed percentage of the issued securities in an approved fund. The percentage ownership of an investor and their associates of an umbrella VCC that has been approved under this tax incentive scheme is to be calculated across all sub-funds.

      Current GST remissions will apply to the VCC.

      Transactions carried out between sub-funds of a single VCC will be liable to stamp duty (if applicable) as if the sub-funds were separate legal entities. A transfer from one sub-fund to another of shares in a private limited company or of immovable property will be subject to stamp duty. Transfers between the umbrella VCC and the sub-funds will be treated the same way.

      AML/CFT consideration

      The MAS is responsible for the administration of the Act on the Prevention of Money Laundering and Terrorism and Financing, and has the power to issue directions and regulations in relation to AML/CFT to VCC. The VCC is required to conduct customer due diligence measures and maintain records on transactions and information obtained through the conduct of due diligence measures on the investors.

      The VCC may delegate their AML/CFT obligations to the fund manager or to not more than one eligible financial institution such as a licensed bank in Singapore. Any outsourcing arrangements that VCC enters into, will also have to comply with the Guidelines on Outsourcing. VCC remains ultimately responsible for fulfilling its AML/CFT obligations.

      Constitution Consideration

      To incorporate a VCC, the proposed shareholders must submit constitution of the proposed VCC. The Singapore Academy of Law has promulgated two model constitutions, one for open-ended funds and another for closed-end funds. Constitution document is kept relatively broad and generic as most of the detailed terms of a VCC are documented in the offering document of the VCC.

      Constitution document must contain certain provisions such as the following:

      • value of paid-up capital of Variable Capital Company (VCC) is deemed to be at all times equal to net asset value
      • shares of VCC must be issued, redeemed and repurchased at an amount representing in proportionate share of the VCC’s net asset value (subject to any adjustments for fees and charges provided for in the constitution), except for certain closed-end funds listed on a securities exchange.


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