This Guide provides an outline of the key aspects of a Variable Capital Company (“VCC“) and its related framework.
The VCC is a novel fund structure in Singapore that permits many collective investment schemes to be housed under the canopy of a single corporate entity. Where sub-funds are concerned, VCCs allow them to be segregated and ring-fenced from one another.
Key features of VCCs
Distributions
A VCC’s shareholders are entitled to dividends and distributions from the VCC’s assets and/or investments. A VCC has the power to pay dividends from both its profits and its capital (without the need for shareholder approval). Furthermore, VCCs do not have capital maintenance obligations.
Members of a VCC can also redeem their shares in the VCC without the need for shareholder approvals. Save for certain situations specified in the VCC Act, VCCs must guarantee that their paid-up capital is equivalent to their net asset value at all times.
Classes of Shares
Management Shares and Participating Shares are two classes of shares that VCCs can issue. Management Shares often grant voting rights and, in certain situations, the right to receive payments and dividends. The rights to receive payments and dividends are provided for by the Participating Shares. Voting rights are normally not granted to Participating Shares, except in cases where the rights of the holders of Participating Shares are at stake.
Privacy
In general, the VCC’s constitution must set out all of the shareholders’ rights. To protect confidentiality, the constitution will not be made public, albeit a copy must be filed with the Accounting and Corporate Regulatory Authority (“ACRA“). Similarly, while VCCs are required to record member registrations, the register of members is not required to be made public. This applies to the VCC’s financial statements as well. These features allow investors to preserve their anonymity.
Financial Statements
A VCC’s financial statements may be prepared using a variety of accounting standards, including US GAAP, Singapore Financial Reporting Standards, and International Financial Reporting Standards.
Ring-fencing
To safeguard investors, the VCC Act (No. 44 of 2018) requires that each sub-fund’s assets and liabilities be segregated from all other sub-funds of the VCC. This shields each sub-fund from another’s liabilities since one sub-fund’s assets cannot be used to pay off another sub-fund’s liabilities. Furthermore, with respect to winding up, each sub-fund will be independently wound up.
Economies of Scale
Umbrella VCCs and sub-funds are considered as a single legal entity. Thus, the board of directors, service providers, and professional services may be pooled across the sub-fund(s), resulting in cost reductions and improved economies of scale.
Re-domiciliation
Existing foreign-domiciled funds with structures similar to the VCC can be re-domiciled as VCCs in Singapore. This can be accomplished by filing an inward re-domiciliation application with ACRA. The re-domiciliation can only be completed if the foreign jurisdiction’s outward re-domiciliation processes are fully complied with.
Collective Investment Schemes
VCCs generally operate as collective investment schemes (“CIS”s) and will be treated as such by the Monetary Authority of Singapore (“MAS”). There are several types of CISs, as described below.
A VCC consisting of a CIS that is offered to the public at large (Authorised Schemes) must have at least 3 directors. This includes 1 independent director. VCCs that consist of Restricted or Exempted CISs only require a minimum of 1 director.
As a general rule, offers of interest in a CIS to retail investors in Singapore must be authorised or recognised by MAS. This applies to schemes established in Singapore, which must be authorised, and schemes established outside Singapore, which must be recognised. However, Restricted Schemes are CISs not required to be authorised or recognised as the offer is only made to accredited investors and other relevant persons. Exempted Schemes are offers which include (i) small offers, meaning the total amount raised within 12 months is SGD 5 million or less, (ii) private placement offers, being made to no more than 50 persons within 12 months and (iii) offers targeted at accredited or institutional investors. As such, Exempted Schemes are CISs where authorisation or recognition are not required as well.
Tax implications
A VCC shall be treated as a corporation and a single entity for the purposes of taxation. This means that the VCC only has to file one set of income tax returns with Singapore’s tax body, the Inland Revenue Authority of Singapore (“IRAS“). VCCs can also make use of Singapore’s extensive network of double taxation treaties. To benefit from the double taxation treaties, the VCC must obtain a certificate of residence from IRAS.
Generally, a fund manager engaged in fund management services in Singapore creates a taxable presence for the fund. As such, the fund’s revenue and earnings from its Singapore-based fund activities are potentially taxable in Singapore in the absence of a tax treaty or tax incentive. Nevertheless, Singapore’s tax regulations provide for tax exemptions which fund managers can utilise to reduce the tax burden.
VCC Grant Scheme
The Monetary Authority of Singapore (“MAS“) introduced the VCC Grant Scheme, effective from 16 January 2020, under which MAS would co-finance up to 70% of qualified expenditures paid to Singapore-based service providers. The VCC Grant Scheme is slated to be in effect until 15 January 2023.
This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. If you require any advice or information, please speak to a practicing lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of Interstellar Group Pte. Ltd. accepts or assumes responsibility, or has any liability, to any person in respect of this article.