Singapore VCC: Variable Capital Company

VCC is a legal entity form or structure for investment funds. Why is it an attractive option for investment funds:

  • Fund structure flexibility: VCCs can be established as single standalone funds or as umbrella funds with multiple sub-funds. Each sub-fund operates independently, with its own assets and liabilities, providing flexibility in managing different investment strategies.
  • Member register confidentiality: While VCCs are not required to publicly disclose their member register, they must provide this information to public authorities upon request for supervisory and law enforcement purposes.
  • Anti-money laundering (AML) & counter-financing of terrorism (CFT) compliance: VCCs are subject to AML/CFT regulations and must engage an eligible financial institution to conduct necessary checks and implement measures to comply with the VCC AML/CFT Notice.
  • Flexible share issuance & redemption: VCCs have the ability to issue and redeem shares without requiring member/shareholder approval, offering greater flexibility in managing capital.
  • Dividend flexibility: Unlike traditional companies, VCCs can pay dividends out of capital, not just profits, providing more options for distributing returns to investors.
  • Privacy - Register of members of a VCC and the financial statements will not be disclosed to the public.
  • Availability of tax incentives - tax incentives (Section 13O and 13U) apply under the umbrella level, so each sub-fund does not have to individually satisfy the pre-requisites of the tax incentives.

Requirements of a VCC

  1. The VCC must be managed by an entity that is licensed by the Monetary Authority of Singapore (“MAS”) under a capital markets services licence for fund management, a registered fund management company or a Permissible Fund Management (exempted FI under Section 99(1)(a)-(d) of the Securities and Futures Act (Cap. 289).
  2. The capital of a VCC will always be equal to its net assets, providing flexibility in the distribution and reduction of capital.
  3. It will require a Singapore based licensed or regulated fund manager (unless exempted under the regulations.
  4. It must have at least one Singapore resident director or the director can be the fund manager.
  5. It must have its registered office in Singapore and must appoint a Singapore-based company secretary.
  6. It must be subject to audit by a Singapore-based auditor and must present its financial statements as per IFRS, Singapore FRS or US GAAP.

Benefits & Tax Incentive Schemes

Benefits of VCC

Tax Benefits: VCCs can enjoy Tax Incentive Schemes (13O & 13U)

Investor Privacy: No public access to VCC financial statements and investors / shareholders' registers and details

Share Capital Flexibility: A VCC may freely redeem shares at NAV & pay dividends out of its capital

Greater Economies of Scale (Operations & Tax)

  • Quantitative conditions for tax benefits apply to the umbrella VCC as a whole instead of individual sub-funds. Easier for investors to meet these requirements.
  • Umbrella VCCs only need to file a single corporate income tax return

Segregation of Assets & Liabilities Between Sub-Funds

  • Ring-fencing to protect the assets of investors in different sub-funds

Greater Flexibility in Meeting Investors' Needs

  • An umbrella VCC facilitates a wide variety of structures suitable for various use cases

Tax Incentive Schemes

Income Tax Act (Cap. 134 of Singapore). Tax is exempt for specified income derived from designated investments. Exemptions currently extended to 31 December 2029

Section 13O: Onshore Fund Tax Exemption Scheme

Requirements

  • Fund's Legal Form: Singapore Company
  • Fund's Residence: Singapore Tax Resident
  • Fund manager must be Singapore-based and hold a CMS licence or exempt from holding one
  • Asset Under Management: At least S$5million in designated investments at the end of each Financial year. (FYE 2027 and thereafter)
  • Fund Expenditure: Tiered local spending from S$200K-S$500K per year in Singapore based on AUM in designated investments at the end of each Financial year
  • Must employ at least 2 investment professionals

Section 13U: Enhanced-Tier Fund Tax Exemption Scheme

Requirements

  • Fund's Legal Form: Company, Trust, Limited Partnerships
  • Fund's Residence: Singapore based or offshore
  • Fund manager must be Singapore-based and hold a CMS licence or exempt from holding one
  • Asset Under Management: At least S$50 million in designated investments at the end of each Financial Year
  • Fund Expenditure: Tiered local spending from S$200K to S$500K per year based on AUM in designated investments as at end of each Financial Year.
  • Must employ at least 3 investment professionals

Umbrella VCC Structure & Key Characteristics

Segregated Assets & Liabilities

  • Ring-fencing to protect the assets of investors in different sub-funds
  • Each sub-fund can hold a single or a group of vessels to be managed according to that sub-fund's strategy

Investor Privacy

No public access to VCC financial statements and investors / shareholders' registers and details

Investment Asset Class Restrictions

The following asset classes are restricted for the purpose of VCC Tax Incentive Schemes:

  1. Singapore Real Estate
  2. Commodities
  3. Cryptocurrencies

Each VCC sub-fund can have its own investment committee to make investment decisions for the entity. The committee includes the VCC's directors and the sub-fund's owners

VCC Sub-Fund Set-Up Cost & Timeline

VCC And Sub-Fund Set-Up Cost (One-Time)

Onboarding, Corporate Secretary, Legal, Fund Admin, Tax Advisory Fees

USD 85,000 - 100,000

VCC And Sub-Fund Operational Cost (Recurring)

Corporate Secretary, Fund Admin, Tax Consulting, Audit, Directors' Fees

USD 65,000 - 85,000

Key Deliverables

  1. VCC's Incorporation with ACRA
  2. Sub-Fund's registration with ACRA
  3. VCC's Private Placement Memorandum
  4. Sub-Fund's Supplemental Agreement
  5. Subscription Agreement
  6. Redemption Forms
  7. FATCA & CRS Forms
  8. Tax Opinions

VCC And Sub-Fund Set-Up Timeline (Conservative Estimate)

Week 1 to Week 10:

  • Weeks 1-5: Incorporation of VCC and registration of Sub-fund (~5 weeks)
  • Weeks 3-6: Drafting of Supplemental Agreement
  • Weeks 4-7: Supplemental Agreement Review
  • Weeks 5-8: Bank Account Opening
  • Weeks 6-9: Fund Admin Set-up & Support
  • Weeks 8-10: Fund Launch & KYC

Disclaimer

Whilst every effort has been made to ensure that the details contained herein are correct and up-to-date, it does not constitute legal or other professional advice. We do not accept any responsibility, legal or otherwise, for any errors or omissions.