A new, flexible and innovative corporate vehicle known as Variable Capital Company (VCC) was introduced on 15 January 2020. VCCs provides a unique alternative that complements what is already available in Singapore. Available structures are unit trusts, limited partnerships, limited liability partnerships, and companies. Fund managers around the globe have taken notice with an interest in the new structure in Singapore for their existing funds in Singapore or transferring funds domiciled overseas to Singapore. As of 14th July 2020 there are 86 VCCs incorporated in Singapore and the number is growing exponentially.
What is a Variable Capital Company (VCC)?
A VCC is a corporate vehicle that gives investment funds the flexibility to set up as either open-ended or closed-ended funds adopting both traditional and alternative strategies. The VCC structure in Singapore allows for foreign corporate fund entities set up in a similar structure can be re-domiciled in Singapore.
The key features of a VCC are its flexibility for fund managers in the issuance and redemption of its shares, paying dividends out of the capital in order to meet distribution obligations of the fund. Furthermore, fund managers can structure the VCC as a single standalone fund or as an umbrella fund with two or more sub-funds that each holds a portfolio of segregated assets and liabilities. VCC structure is meant for use only by the wealth management and fund management industry.
How to Set Up a VCC
In order to set up your VCC, one would have to obtain approval from the the Accounting and Corporate Regulatory Authority (ACRA) of Singapore, in terms of incorporating the VCC under the Variable Capital Companies Act 2018.
The requirements of a VCC include adhering to the regulations set out by the MAS to prevent money laundering or financing terrorism.
In addition, the fund manager of the VCC has to be MAS licensed and registered.
In order to set up the VCC, firms are required to have a minimum of one Board of Directors who is a resident in Singapore.
If they would like to set up a VCC with an authorized scheme, firms are required to have a minimum of 3 directors – 1 Board of Directors has to be independent of the business relationship, fund manager, and all shareholders of the VCC.
Furthermore, if the VCC is not exempted or restricted 1, they would require an authorized custodian.
1 Requires approved trustee as custodian only.
An umbrella VCC is a VCC with two or more sub funds with segregated assets.
Sub-funds are required to register with ACRA and abide by the VCC act which states that the assets and the liabilities of each sub-fund are independent of each other and the umbrella VCC. A significant benefit of an umbrella VCC is its operational convenience and associated cost-efficiency. Umbrella VCCs are generally more cost-efficient as their business spending and fund size is a collective amount in combination with the other sub-funds.
Advantages of the VCC Structure
- Confidentiality – Financial Statements are not required to be made public.
- Flexible – Flexibility in issuing and redemption of shares coupled with the ease of paying dividends.
- Cost Efficient 2 – More evident if it is an umbrella VCC .
- Tax Exemption under Section 13X and 13R of the Income Tax Act.
- Only 1 corporate income tax form needs to be filed with IRAS.
- Access to 86 tax treaties, which Singapore has concluded with several countries around the globe.
VCC for Wealth Management Pooling
Singapore is well known as a major center for fund management in Asia, fund assets managed in Singapore reportedly grew at 15% annually since 2012, reaching $3.3 trillion in Singapore dollars (US$2.4 trillion) by the end of 2017. However, much of that money was domiciled outside of Singapore. As an added incentive, the Monetary Authority of Singapore (MAS) has allocated a US$5 billion fund to private market investments to sweeten the trend.
Using a VCC compared to traditional structures is a game changer for Singapore. The VCC is a structure that is well thought out and offers many benefits. This makes Singapore very competitive with other global investment hubs. Since January 2020, there has been a substantial number of VCCs set up by fund managers with many more upcoming investment funds
To further incentivize fund managers, MAS has offered a reimbursement of VCC launch of up to 70% of the cost with a cap of S$150,000 per VCC with a limit of three VCCs per applicant. This grant is set to end on 15 January 2023.
Singapore has been preparing to join the Asia Region Funds Passport cross-border scheme in order to extend their reach. Their current reach is via the ASEAN CIS for Malaysian and Thailand retail investors and the Master Feeder Structure or Private Placements for European retail investors.
Singapore is a jurisdiction with a good reputation as a global financial hub. In addition, Singapore is known to have a high level of business ethics, governance, and transparency. This gives foreign investors who seek to establish a VCC (as a sponsor), assurance of fair treatment and more opportunities to expand their investments with confidence.
Envysion Wealth Management VCC
Envysion Wealth Management set up its first VCC in early 2020
Envysion Global Investments VCC is an umbrella VCC which is sponsored and managed by Envysion Wealth. It can create additional sub-funds with some sub-funds dedicated to our family office clients. This gives Envysion Wealth the flexibility to set up various sub-funds for in-house bespoke investment strategies and to house assets for other family office clients. Through our network of providers in audit, fund administration, corporate secretary, and law firms; Envysion Wealth provides solutions for family offices looking to set up (sponsor) their own VCC at a reasonable cost. In addition, Envysion Wealth’s CMS license enables the firm to fulfil the role as the Fund Manager for the such dedicated client funds under its management
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