The Singapore Variable Capital Company – Overview of Tax Regime

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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).

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:

  1. Must have the legal form of a company 
  2. Have its control and management exercised in Singapore
  3. Use a Singapore-based fund administrator
  4. 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. 

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:

  1. Minimum fund size of S$50 million at the point of application 
  2. Business spending requirement of S$200,000 each financial year 
  3. The hired Singapore-based fund management company must have at least 3 investment professionals

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.

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.

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.

Our Take

The attractive tax regime laid out for the Singapore VCC certainly puts it on par with the likes of the major fund management jurisdictions around the world. Singapore’s political stability, financial infrastructure and global reputation will certainly help boost the appeal of the Singapore VCC.