Singapore Launches New Fund Vehicle

On 15 January 2020, Singapore launched the Variable Capital Company (VCC) framework, providing a new corporate vehicle for funds. Funds can now be incorporated or redomiciled in Singapore as VCCs under the Variable Capital Companies Act. Similar to an ordinary company, a VCC has a board of directors and has shareholders. Funds can be formed using a VCC regardless of whether they are closed-ended or open-ended, or whether they adopt a standalone structure or an umbrella structure with multiple sub-funds. Upon commencement of operation of the VCC framework, the first VCCs were successfully incorporated in Singapore on 15 January 2020.

Advantages

The VCC offers numerous advantages to fund managers:

1. Umbrella structure: VCCs can be structured as umbrella funds with multiple sub-funds, and the sub-funds are able to share common resources, such as a board of directors, fund manager, auditor and custodian notwithstanding differences in investment strategies, assets and shareholders. This allows for rationalisation of functions and greater cost efficiency. Sub-funds can be constituted and wound up by the VCC separately and independently of the VCC itself and the assets and liabilities of each sub-fund are segregated at the sub-fund level as a matter of Singapore law.

2. Payment of dividends: Unlike ordinary companies, VCCs are not limited to paying dividends out of profits and so are able to pay dividends out of capital.

3. Capital structure: Unlike ordinary companies, the value of the paid up share capital of VCCs is equal to its NAV and the capital maintenance rules applicable to ordinary companies are not applied to the VCC. This is particularly useful for open-ended funds since investors can freely exit their investment in the VCC by having the VCC redeem its shares.

4. Share rights: Unlike an ordinary company, a VCC has more flexibility in specifying in its constitution the share rights of its shareholders (whether economic, voting or otherwise), including excluding entirely any right to vote at a meeting of the VCC.

5. Confidentiality: While VCCs must maintain a register of shareholders, unlike an ordinary company, this register need not be made available to the public. However, this register must be disclosed to public authorities upon request for regulatory, supervisory and law enforcement purposes.

Grants for VCCs

MAS has launched a generous VCC Grant Scheme to motivate the funds industry to more quickly adopt the VCC framework locally. This scheme will partially defray the costs of setting up a VCC by part-paying up to 70% of eligible expenses, where these are paid to Singapore-based service providers for certain qualifying expenses. Each fund manager is allowed to claim up to SGD150,000 per application, subject to a maximum of three VCCs per manager.

Tax Exemption

The commonly available Singapore tax exemption schemes for funds, as set out under section 13X and section 13R of the Income Tax Act, will be extended to the VCC and for umbrella VCCs, these tax incentives will be granted at the umbrella level.

Model Constitution

To encourage the incorporation of new funds as a VCC and to assist in the re-domiciliation of overseas funds as VCCs in Singapore, the Singapore Academy of Law has developed two VCC model constitutions – one each for open-ended funds and closed-ended funds. The model constitutions are accessible here.

Resources

Download an industry note in relation to the VCC from the Second Minister for Finance, Ms Indranee Rajah

The MAS media release in relation to the launch of the VCC framework is available here

Contact

For more information, please do not hesitate to reach out to Jek Aun Long.