Setting Up a Variable Capital Company in Singapore

You Can Set Up a Variable Capital Company in Singapore

Singapore has created another fund framework to encourage investors to domicile their funds in Singapore. By doing this, it enhances the jurisdiction’s value as an international fund management centre. The Variable Capital Company started its operation on January 14, 2020, allowing collective schemes to be set up, whether closed-end or open-end. It provides an alternative to the existing structures of Singapore,e such as limited partnerships, unit trusts, companies, and limited liability partnerships. Which are commonly offered through Singapore incorporation services.

If you want to know more about the VCC Singapore representative office set-up, read on:

What is a Variable Capital Company?

It is a legal entity that is mainly for Singapore’s investment funds. According to its name, there will be a flexible capital structure for funds where an investor’s shares are redeemable and shareable.

Currently, these types of funds are adaptable in the VCC structure:

• These standalone and umbrella funds have multiple funds holding different kinds of assets.
• Alternative and traditional fund strategies that involve close-ended and open-ended funds.
• Restricted and retail funds.

The flexibility of redeeming shares based on the net asset value (NAV) of the fund, dividends paid from the capital instead of profits in companies, and umbrella fund cost efficiency with different sub-funds are the main attractions of the VCC. Due to the domestication, funds can benefit from lower taxes and other advantages Singapore offers to the fund management sector. VCC funds’ cost savings and flexibility would attract foreign domiciled funds to look for domiciliation in Singapore.

 

Main Benefits of VCC:

• The member register is not accessible publicly, unlike a Singapore company. However, this information should be shared with law enforcement and regulatory authorities by request.
• An umbrella VCC with different funds benefits from scale economies and cost efficiencies that can come from using 1 set of service providers and directors.
• Since it is a corporate entity, it can access the 80 double-tax treaties of Singapore. This simplifies an investment holding structure, saving costs and reducing administrative burden.
• It can vary the share capital without looking for the approval of shareholders. This gives more flexibility to investors who want to go into or redeem their investments when they want to.
• It pays dividends using capital, the opposite of a company that can only normally pay dividends from profits.
• Cross-sub-fund investments can be made in an umbrella VCC.
• Sub-funds could independently wound up with each other, ensuring ring-fencing of the sub-funds assets and liabilities.
• It could make an election in the US “check the box” rules that they can be part of the US federal tax purposes.
• Therefore, US-taxable investors consider this an attractive proposition.
• The Monetary Authority of Singapore co-funds the eligible expenses of up to 70% that go to the service providers in Singapore. This has a cap of SGD 150,000 and lessens the cost of establishments linked to forming a VCC.

VCC Incorporation Requirements

• The Net Asset Value (NAV) must always equal the share capital.
• The VCC name should have the VCC suffix.
• Approval of your VCC name should be done before incorporation.
• These are mandatory:
  • There should be at least 1 Singapore resident director in case of unauthorized schemes and at least three directors for the authorized schemes.
  • A MAS-licensed fund management company (FMC) should be chosen unless an exemption exists.
  • At least one director should be a representative or director of the FMC.
  • 1 Singapore resident secretary.
  • 1 Singapore resident auditor.
  • At least one shareholder, whether it is a foreign, corporate, or local individual entity.
  • 1 registered office in Singapore.
  • 1 proposed VCC constitution.
  • Upon registration, the registrar should be given the financial year-end (FYE).
  • The registration fee is S$8,000, which you must pay to ACRA. For a Sub-Fund registration, the fee is S$400 for each.

 

Tax

A licensed fund manager in Singapore must control it to ensure that a VCC counts as a tax resident by the Inland Revenue Authority of Singapore (IRAS) and other important tax authorities.

A VCC is a single entity and company for taxes, which allows VCCs to be included in the Singaporean network treaties and double tax agreements (DTA). It mitigates the effect of taxes, which includes the withholding tax other jurisdictions apply. This is the main difference between a Singapore VCC and a structure set up in jurisdictions offshore, like the British Virgin Islands and the Cayman Islands, that cannot access the DTAs.

Tax incentives are available to Singapore-based funds, specifically the Singapore Resident Fund and Enhanced Tier Fund schemes. These extend to the VCCs, with the Financial Sector Incentive Scheme and remission for funds from the goods and services tax (GST).
 

 

What is the VCC ‘constitution’?

The constitution contains the following:

• VCC’s main characteristics.
• The rules and regulations on its governance are written there.
• Describe its operations and how they will be done.
• It describes the rights and responsibilities of directors, shareholders, and secretaries.

The constitution must be copied during the VCC incorporation/registration. The constitution should be given to the Registrar, but it is not available to the public. However, upon request, it should be available for law enforcement and supervisory purposes as part of the process for company registration in Singapore.

The processing time normally takes up to 14 days.

If you want to open a VCC in Singapore, contact 3E Accounting for the Singapore representative office set-up. They will help you until you can successfully open your company.