Singapore VCC

The Singapore Variable Capital Company – What is a VCC? “Success is a decision, dare to choose it.” – Jill Konrath Lets get to understand a VCC Variable Capital Company (VCC) is a new legal entity form/structure for all types of investment funds in Singapore. It is the latest corporate innovation in the city state that allows for separate and distinct from the legislation that governs existing Singapore Companies. This prevents the VCC from any unintended consequence arising from changes in Company Act. Traditionally, from our experience, fund managers have domiciled their investment vehicles offshore in jurisdictions such as the Cayman Islands. These jurisdictions were a tax haven for many investors as they sought relief from hefty capital gains tax. However, the Cayman Islands suffers from somewhat negative publicity. Launched in 2020, the Singapore VCC provides a much needed alternative jurisdiction for fund domiciliation. VCCs can hold a single asset and as such, is not required to diversify its investments unless required under the Securities and Futures Act. A VCC can be used as a vehicle for both traditional funds and alternative funds, such as hedge funds, private equity funds, real estate funds and infrastructure funds.  Find out about the important matters regarding a VCC. 1. What are the requirements of a VCC? The share capital of a VCC will always be equal to the net asset value of the VCC. Thereby providing flexibility in the distribution and reduction of capital A VCC cannot be self-managed. It must be managed by a Singapore-based fund management company duly registered or licenced by the MAS under the SFA (unless exempted under regulations) Existing Securities and Futures Act (SFA) requirements for investment funds will apply to VCCs It must have at least one Singapore resident director for non-authorised schemes and at least three directors for authorised schemes It must have its registered office in Singapore and must appoint a Singapore-based company secretary It must be subjected to audit by a Singapore-based auditor and must present its financial statements as per IFRS, Singapore FRS, or US GAAP 2. Sub-funds and VCCs VCC can be formed as a single standalone fund, or as an umbrella fund with two or more sub-funds, each holding different assets. The features of the sub-funds are as follows: Allows for multiple sub-funds and share classes  Provisions for segregation of assets and liabilities between sub-funds – such that the asset of one sub-fund may not be used to satisfy liabilities of another sub-fund  VCCs with multiple sub-funds must have the same fund manager for all sub-funds  Winding up of an individual sub-funds does not mean umbrella fund is wound up  A VCC will be required to disclose in contractual documents with third parties which sub-fund referred to  A sub-fund of a VCC may invest in other sub-funds of the same VCC Sub-funds provide fund managers with a cost-effective way of managing multiple funds under a single umbrella. While these sub-funds operate under 1 legal entity that is the VCC, the different funds have their own assets and liabilities. This provides an efficient way for fund managers to manage multiple funds. 3. What are the benefits of the VCC? By consolidating various assets under the fund structure, there will be economies of scale in terms of operational and tax efficiencies  Investor privacy as financial statements and investor details are not required to be made public  A VCC may issue shares of varying amounts and at times for payment of calls as agreed between its shareholders. VCC is allowed to freely redeem shares and pay dividends using its capital.  VCC allows for re-domiciliation of funds from other jurisdictions such as Cayman to onshore Singapore The Singapore Variable Capital Company – What is a VCC? “Success is a decision, dare to choose it.” – Jill Konrath Lets get to understand a VCC Variable Capital Company (VCC) is a new legal entity form/structure for all types of investment funds in Singapore. It is the latest corporate innovation in the city state that allows for separate and distinct from the legislation that governs existing Singapore Companies. This prevents the VCC from any unintended consequence arising from changes in Company Act. Traditionally, from our experience, fund managers have domiciled their investment vehicles offshore in jurisdictions such as the Cayman Islands. These jurisdictions were a tax haven for many investors as they sought relief from hefty capital gains tax. However, the Cayman Islands suffers from somewhat negative publicity. Launched in 2020, the Singapore VCC provides a much needed alternative jurisdiction for fund domiciliation. VCCs can hold a single asset and as such, is not required to diversify its investments unless required under the Securities and Futures Act. A VCC can be used as a vehicle for both traditional funds and alternative funds, such as hedge funds, private equity funds, real estate funds and infrastructure funds.  Find out about the important matters regarding a VCC. 1. What are the requirements of a VCC? The share capital of a VCC will always be equal to the net asset value of the VCC. Thereby providing flexibility in the distribution and reduction of capital A VCC cannot be self-managed. It must be managed by a Singapore-based fund management company duly registered or licenced by the MAS under the SFA (unless exempted under regulations) Existing Securities and Futures Act (SFA) requirements for investment funds will apply to VCCs It must have at least one Singapore resident director for non-authorised schemes and at least three directors for authorised schemes It must have its registered office in Singapore and must appoint a Singapore-based company secretary It must be subjected to audit by a Singapore-based auditor and must present its financial statements as per IFRS, Singapore FRS, or US GAAP 2. Sub-funds and VCCs VCC can be formed as a single standalone fund, or as an umbrella fund with two or more sub-funds, each holding different assets. The features of the sub-funds are as follows: Allows for multiple sub-funds and share classes  Provisions for segregation

The Singapore Variable Capital Company – Why is a VCC needed? “Keep your thinking Right and your business will Be Right.” – Zig Ziglar Current Challenges Prior to the establishment of VCC as a legal entity form/structure for investment funds, Singapore did not have any corporate form or vehicle that caters to specific needs of hedge funds, private equity funds, mutual funds, or real estate funds.  This resulted in many of the current fund structures set up in Singapore taking the form of trading or investment subsidiaries with fund pooling outside of the country.  Find out about the importance of a VCC. The current challenges faced by investors when using a Singapore corporation as an investment fund include: (1) Lack of variable capital structure – Singapore corporations are vehicles with fixed capital. Ideally, an investment fund should offer its investors/shareholders the ability to freely invest in and out of the structure through subscriptions and redemptions. Variable capital provision is critical to the operation of an investment fund.  (2) Solvency test – Funds set up as corporation are required to go through administrative processes such as solvency tests before the repayment of the capital. This can be challenging administratively and can result in legal liability issues for the board of directors and the company secretary. (3) Accounting classification of redeemable shares – Both the International and Singapore Financial Reporting Standards (IFRS and Singapore FRS) requires that funding instruments prima facie be classified as a “liability” when a Singapore fund is capitalised or invested in using redeemable preferred shares. This can pose as a challenge when conducting the required solvency test prior to the capital reduction/redemption exercise. (4) Distributions – Unlike a typical investment fund where redemptions would be funded at the net asset value of shares and units held, distributions from a Singapore corporation can only be made out of profit and not capital.  (5) Financial reporting – Other complications in financial reporting include the consolidation of underlying portfolios if certain shareholding thresholds are met.  (6) Privacy – Investor privacy can be an issue for private investors and institutions looking to invest in Singapore. As financial statements and shareholder list of Singapore corporations are to be made publicly available.  Hence, the VCC will make significant changes to tackle these challenges. Some of the key features of the VCC include – allowance of both entry into and exit from the fund at its net asset value, shareholder lists and financial statements will not be required to be made publicly available, the VCC will not be subjected to declaration of solvency, the VCC will be able to repay out of its net capital and classification of its shares as a liability would not have consequences following the relief from solvency test. The Singapore Variable Capital Company – Why is a VCC needed? “Keep your thinking Right and your business will Be Right.” – Zig Ziglar Current Challenges Prior to the establishment of VCC as a legal entity form/structure for investment funds, Singapore did not have any corporate form or vehicle that caters to specific needs of hedge funds, private equity funds, mutual funds, or real estate funds.  This resulted in many of the current fund structures set up in Singapore taking the form of trading or investment subsidiaries with fund pooling outside of the country.  Find out about the importance of a VCC. The current challenges faced by investors when using a Singapore corporation as an investment fund include: (1) Lack of variable capital structure – Singapore corporations are vehicles with fixed capital. Ideally, an investment fund should offer its investors/shareholders the ability to freely invest in and out of the structure through subscriptions and redemptions. Variable capital provision is critical to the operation of an investment fund.  (2) Solvency test – Funds set up as corporation are required to go through administrative processes such as solvency tests before the repayment of the capital. This can be challenging administratively and can result in legal liability issues for the board of directors and the company secretary. (3) Accounting classification of redeemable shares – Both the International and Singapore Financial Reporting Standards (IFRS and Singapore FRS) requires that funding instruments prima facie be classified as a “liability” when a Singapore fund is capitalised or invested in using redeemable preferred shares. This can pose as a challenge when conducting the required solvency test prior to the capital reduction/redemption exercise. (4) Distributions – Unlike a typical investment fund where redemptions would be funded at the net asset value of shares and units held, distributions from a Singapore corporation can only be made out of profit and not capital.  (5) Financial reporting – Other complications in financial reporting include the consolidation of underlying portfolios if certain shareholding thresholds are met.  (6) Privacy – Investor privacy can be an issue for private investors and institutions looking to invest in Singapore. As financial statements and shareholder list of Singapore corporations are to be made publicly available.  Hence, the VCC will make significant changes to tackle these challenges. Some of the key features of the VCC include – allowance of both entry into and exit from the fund at its net asset value, shareholder lists and financial statements will not be required to be made publicly available, the VCC will not be subjected to declaration of solvency, the VCC will be able to repay out of its net capital and classification of its shares as a liability would not have consequences following the relief from solvency test. Our Take The VCC does indeed avail entities in Singapore to relief from rules relating to the Singapore Companies Act. It will make future administration of this type of entity easier simply because the nature of operating a fund differs from that of a company. Privacy is also another key winner for the VCC. At present, shareholder information of Singapore companies are readily available online, which is a bane for many. Our Take The VCC does indeed avail entities in Singapore to relief from rules

The Singapore Variable Capital Company – Overview of Tax Regime “Opportunities don’t happen, you create them.” – Chris Grosser What is the business fund scheme scene in Singapore? Legislated on 15 January 2020, the Variable Corporate Company (VCC) legislation is Singapore’s latest investment fund innovation.  The VCC will be treated as a company and a single entity and also subjected to income tax in Singapore. However, VCC will be entitled to tax exemptions under the “Singapore Resident Fund Scheme (SRF) and Enhanced-Tier Fund Scheme (ETF). Thus, it makes sense that in the light of the COVID-19 pandemic casting a shadow over the economy, the government has put in place a plethora of schemes especially targeting the SME sector, such that businesses get all the support they need. If you are a SME business owner, you may find the following overview useful! Find out about the fund schemes available for your business. 1. Singapore Resident Fund Scheme A Singapore resident fund managed by a Singapore-based fund manager will be exempt on tax on “specified income” derived from “designated investments” if the fund is an “approved company”.  For a fund to be qualified as an approved company, the fund vehicle must satisfy the following criteria: Must have the legal form of a company  Have its control and management exercised in Singapore Use a Singapore-based fund administrator Business spending requirement of S$200,000 each financial year  It should also be noted that there is no minimum fund size required. The tax exemption covers all income and gains in respect of designated investments, unless they fall within an exclusion list.  2. Enhanced Tier Fund Scheme Similar to the SRF scheme, the ETF scheme also provides tax exemption on “specified income” derived from “designated investments” from funds managed by a Singapore-based fund manager.   Under the ETF scheme, the fund has to fulfil the following economic conditions: Minimum fund size of S$50 million at the point of application  Business spending requirement of S$200,000 each financial year  The hired Singapore-based fund management company must have at least 3 investment professionals 3. Stand Alone VCC The tax treatment of a stand-alone VCC will be the same as that of a Singapore company. Accordingly, the ETF and SRF schemes will apply to a stand-alone VCC similar to how it would apply to a Singapore company. 4. Umbrella VCC For an umbrella VCC, the tax exemption schemes will be applied to the VCC as a whole. Similarly, the quantitative conditions to apply for the ETF and SRF schemes will apply to the umbrella as a whole, rather than to each sub-fund. Hence, using an umbrella VCC poses a significant benefit to fund managers who now can enjoy tax exemption for companies under one umbrella. As compared to having each company to qualify for each economic condition. 5. Other Key Elements GST: The current GST remission is available to VCCs approved under the ETF and SRF schemes. Withholding Tax: The current withholding tax exemption on interest payments available to funds approved under the ETF and SRF schemes is also available to VCCs approved under the schemes.  Certificate of Residence (COR): A Singapore COR is available for the VCC subject to the VCC establishing that is controlled and managed from Singapore. In the case of an umbrella VCC, the COR will be issued on the VCC, with the names of the sub-funds receiving the same nature of income from the same treaty country included in the COR. Incentive Scheme for Fund Managers: The 10% concessionary tax rate under the Financial Sector Incentive – Fund Management Scheme will be extended to approved fund managers managing incentivised VCCs. Addition of New Sub-Funds: If there are new sub-funds to be added to a VCC, there is no need to seek approval from or inform the authorities. However, in scenarios where the investment scope has changed with the addition of a new sub-fund, an approval will be needed from the authorities to expand the investment scope. Furthermore, if there is an announcement of termination of the ETF and SRF schemes, then additions of sub-funds will not be allowed. The Singapore Variable Capital Company – Overview of Tax Regime “Opportunities don’t happen, you create them.” – Chris Grosser What is the business fund scheme scene in Singapore? Legislated on 15 January 2020, the Variable Corporate Company (VCC) legislation is Singapore’s latest investment fund innovation.  The VCC will be treated as a company and a single entity and also subjected to income tax in Singapore. However, VCC will be entitled to tax exemptions under the “Singapore Resident Fund Scheme (SRF) and Enhanced-Tier Fund Scheme (ETF). Thus, it makes sense that in the light of the COVID-19 pandemic casting a shadow over the economy, the government has put in place a plethora of schemes especially targeting the SME sector, such that businesses get all the support they need. If you are a SME business owner, you may find the following overview useful! Find out about the fund schemes available for your business. 1. Singapore Resident Fund Scheme A Singapore resident fund managed by a Singapore-based fund manager will be exempt on tax on “specified income” derived from “designated investments” if the fund is an “approved company”.  For a fund to be qualified as an approved company, the fund vehicle must satisfy the following criteria: Must have the legal form of a company  Have its control and management exercised in Singapore Use a Singapore-based fund administrator Business spending requirement of S$200,000 each financial year  It should also be noted that there is no minimum fund size required. The tax exemption covers all income and gains in respect of designated investments, unless they fall within an exclusion list.  2. Enhanced Tier Fund Scheme Similar to the SRF scheme, the ETF scheme also provides tax exemption on “specified income” derived from “designated investments” from funds managed by a Singapore-based fund manager.   Under the ETF scheme, the fund has to fulfil the following economic conditions: Minimum fund size of S$50 million at the point of application  Business spending requirement of S$200,000