The Singapore Variable Capital Companies Act (the "VCC Act") – which implements the new Singapore corporate fund vehicle with variable capital (the "VCC") – became an Act of Parliament on 31 October 2018 and is anticipated to come into force in late 2019.
The VCC has been eagerly anticipated by fund managers in Singapore since it was first consulted on by the Monetary Authority of Singapore (the "MAS") in 2017. It is expected to be a compelling alternative to the fund structures currently available in the jurisdiction.
Ease of use
For Singapore-based fund management companies that have historically used, or are exploring the use of, Singapore domiciled fund pooling vehicles for either open-end or closed-end funds, the VCC offers a number of improvements to the commonly used existing structures, namely the unit trust, private company limited by shares and limited partnership.
With the introduction of the VCC, Singapore-based fund managers now have a corporate fund entity that (i) can utilise Singapore’s extensive network of double taxation agreements, and (ii) is not subject to the usual capital maintenance rules that complicate the use of a Singapore company as an open-end fund.
The VCC Act also provides a statutory basis for a VCC to have multiple sub-funds, with each sub-fund’s assets and liabilities being segregated from the other sub-funds within the VCC. This opens up the possibility that a VCC with sub-funds can be used (in lieu of multiple separate Singapore private companies) as a holding vehicle to segregate investments. A VCC can also act as an umbrella fund vehicle and in contrast to a Singapore unit trust with sub-trusts, a VCC is a corporate entity and does not require the appointment of a trustee.
It is also possible that Singapore-based fund management companies may seek to re-domicile their existing offshore corporate funds as VCCs in Singapore, given the re-domiciliation mechanisms in the VCC Act.
While the precise re-domiciliation mechanics will be implemented in subsidiary legislation and are currently being considered by the MAS, the current indications are that, unlike with re-domiciliation of companies under the Singapore Companies Act, no minimum requirement for assets, revenue or employees will be applied to an offshore corporate fund vehicle looking to re-domicile into Singapore as a VCC. The primary requirement is that the fund vehicle seeking re-domiciliation should be solvent.
Situating both fund vehicles and fund managers in the same country would be expected to increase administrative convenience and operational efficiency, at a minimum, as the associated service providers (such as fund administrators and corporate service providers) would likely all be located in Singapore.
Furthermore, this would result in a reduction in overlapping or duplicative regulatory and other requirements, which may otherwise be imposed separately on the fund vehicle and the fund manager. In particular, with regards to AML, while VCCs are subject to the Singapore AML regime, the MAS has proposed that VCCs be required to appoint a Singapore regulated entity (such as a Singapore regulated fund management company) to carry out the necessary AML checks and measures on behalf of the VCCs. Given that such checks and measures are, in substance, largely identical to that which are already required of Singapore regulated fund management companies, it is expected that any duplication of work can be better minimised.
Additionally, on a day-to-day basis, the corporate filings and other obligations imposed on the VCC under the VCC Act are administered by the Accounting and Corporate Regulatory Authority (which is the regulator and registrar that also administers all companies and limited partnerships in Singapore), and not the MAS. Based on the currently available information, the MAS is only intended to be responsible for administering the AML obligations of a VCC (which are in any case expected to be discharged by the appointed Singapore regulated entity) and it is not expected that there will be substantial day-to-day direction and oversight from the MAS in respect of the operation of a VCC that is organised as a private fund.
For completeness, we would highlight that in the case of a VCC seeking authorisation to be offered to the retail public in Singapore, additional oversight from the MAS would be expected. For example, such a VCC would be required to appoint a regulated custodian to hold the assets of the VCC and would also be subject to certain additional proposed obligations under the Code of Collective Investments Schemes.
Key highlights of the VCC
- A cellular VCC with sub-funds can share a board of directors and common service providers (e.g. custodian, auditor);
- VCCs will not require shareholder approval to issue or redeem shares and the requirement to hold AGMs can be waived;
- VCCs may redeem shares and pay dividends out of capital;
- VCCs have the option of keeping their books and records in accordance with certain specified accounting standards (namely SFRS, IFRS, US GAAP);
- The register of members of the VCC will not be open to inspection by the public and there is no requirement under the VCC Act for the constitution of the VCC to be publicly available;
- A foreign fund structured as a corporate entity can be re-domiciled to Singapore as a VCC;
- VCCs will be subject to their own AML/CFT requirements (proposed to be set out in a specific AML/CFT notice for VCCs) and it is proposed that VCCs will be required to engage certain specified MAS-regulated Singapore entities to conduct the necessary checks and perform the necessary measures for the VCC to comply with the majority of the obligations under the VCC AML/CFT notice;
- A VCC can only be managed by certain regulated entities in Singapore; namely, a holder of a MAS-issued capital markets services licence for fund management, or certain classes of entities exempt from the licensing requirement but which are nonetheless regulated by the MAS (e.g. registered fund management companies, banks licensed under the Singapore Banking Act or companies licensed under the Singapore Insurance Act).
Notably, this requirement means that currently (i) Singapore fund managers who fall outside the prescribed group (e.g. family offices and real estate managers exempt from licensing) and (ii) fund managers licensed by foreign regulatory authorities would not have direct access to use of VCCs (though they can potentially act as sub-managers);
- From a tax angle, the Ministry of Finance has consulted on the proposed treatment of VCCs with regard to Singapore income tax, Singapore stamp duty and Singapore goods and services tax. Current indications are that the existing Singapore income tax exemptions (namely the Singapore Resident Fund Tax Exemption Scheme under Section 13R of the Income Tax Act and the Enhanced-Tier Fund Tax Exemption Scheme under Section 13X of the Income Tax Act) would be extended to VCCs.
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