New variable capital companies framework introduced to bolster finance industry

On 15 Jan (Wednesday), the Variable Capital Companies (VCC) framework was officially announced by the Monetary Authority of Singapore (MAS) and the Accounting and Corporate Regulatory Authority (ACRA) in an effort to get more fund managers to domicile in the country.

“The VCC is a new corporate structure that can be used for a wide range of investment funds and provides fund managers greater operational flexibility and cost savings…It will encourage more funds to be domiciled in Singapore and enhance our value as an international fund management centre,” according to the MAS-ACRA statement.

Under the framework, there is more flexibility for fund managers for the payment of dividends, sharing issuance and redemption while allowing cost efficiencies through the incorporation of multiple funds under a single VCC. This is subject to the appropriate division of liabilities and assets in each sub-fund.

As for tax, an umbrella VCC needs to file a single return regardless of the number of sub-funds because it is considered as a single entity. In addition to this, tax exemption is also possible for VCCs.

Fund managers could also constitute investment funds as VCCs as close-ended or open-ended funds, as well as across both alternative and traditional strategies.

By shifting their registration to Singapore as VCCs via the ACRA’s online application process, foreign fund managers can re-domicile existing investment funds with comparable structures.

To mark the official introduction of the new framework, a sum of 20 investment funds as VCCs have been re-domiciled or incorporated as VCCs by a group of 18 fund managers. Last September, they also participated in a VCC pilot programme.

According to the MAS-ACRA statement, “These investment funds comprise venture capital, private equity, hedge fund and Environmental, Social, and Governance (ESG) strategies, demonstrating the viability of the VCC framework across diverse use cases.”

MAS has also launched a VCC Grant Scheme in an effort to hasten industry adoption of VCC by lightening to costs involved in registering and incorporating VCC.

Singapore-based service providers for the VCC setup will be assisted by MAS with their co-funding initiative of up to 70 per cent of the eligible expenses paid under the VCC Grant Scheme. However, this is subjected to a maximum of three VCCs per fund manager and a cap of S$150,000.

The Financial Sector Development Fund (FSDF) will help fund the grant scheme for up to three years.

MAS assistant managing director, Benny Chey remarked that“The VCC marks a significant chapter in the development of Singapore as a full-service international fund management and domiciliation hub,” as they will be more choices of investment fund vehicles for investors and fund managers to utilise.

“Fund managers will also be able to extract cost savings from centralising their fund management and domiciliation activities in Singapore and structuring their funds more efficiently…The VCC framework also creates new opportunities for Singapore-based fund service providers such as legal and tax advisors, accountants, fund administrators and fund custodians.” He further added.

In October 2018, the bill to enable the VCC was officially passed.