As the country continues to position itself as a one-stop destination for business investment, Singapore’s economy remains one of the best in Southeast Asia, and for good reasons. Over the years, the government of Singapore has taken a more direct and intentional approach to develop its investment sector. As a result, its fund management industry compares favourably with some of the world’s leading economies.
One good example of Singapore’s commitment to growing the investment industry was its passing of the Variable Capital Companies (VCC) Act. Although passed into law in 2018, the VCC was only officially launched on January 14, 2020. If you are looking to incorporate a company in Singapore, you should read on. In this article, we examine the benefits of VCC, how it is set up, and its grant scheme. However, before we begin, let’s start from the basics.
What Are Variable Capital Companies (VCC)?
Variable Capital Companies (VCC) are corporate structures for offering collective investment schemes (CIS). It can be set up as a standalone fund or multiple sub-funds or investment schemes. With the main fund acting as an umbrella to these smaller, individual funds, its capital is always liable to change. To prevent this, the assets and liabilities of each sub-fund are allowed to remain segregated.
However, it is important to note that not all VCC is structured to act as an umbrella to several other sub-funds. A VCC can also be set up as a stand-alone investment scheme. What’s most certain is that it allows for both open and close-ended funds, as well as conventional and alternative funds. Consequently, a VCC is required to have a board of directors that will preside over the running of the fund. Under the VCC, the fund is considered a separate legal entity/personality from its directors.
Furthermore, in line with the Singapore government’s commitment to making the country a haven for establishing family offices and hedge funds, the VCC is tailored to allow flexibility in investment capital. The blacklisting of the Cayman Islands by the EU in February 2020 meant that the VCC became positioned to attract investment funds from low-tax jurisdictions like these. However, the VCC was created not just to attract foreign funds.
To this end, the Monetary Authority of Singapore (MAS) created and successfully launched the Variable Capital Companies Grant Scheme (VCCGS). The grant scheme is to help provide joint funding for Singapore-based fund managers and family offices.
Benefits Of VCC
One primary reason the VCC has remained a success since its official launch is the many benefits it offers. To further expound on the features of the VCC, here are some of its unique advantages.
Greater Share Flexibility
For any active and experienced investor, a major attraction of any investment scheme is the ease of entry and exit. This is one benefit the VCC offers. In addition, funds under the scheme have the right to issue and redeem shares without the approval of its shareholders. As such, fund managers can also pay out dividends when due and on time. This is possible because the VCC’s capital will always be equal to its net assets.
Protection For Sub-Funds’ Assets And Liabilities
Although funds are allowed to have multiple sub-funds under them, the assets and liabilities belonging to each sub-fund are protected. In other words, should the main fund, acting as an umbrella to these sub-funds, end up with liabilities, its sub-funds assets cannot be harnessed to mitigate such liabilities. This helps put the sub-fund’s investors at ease, knowing their investment assets remain independent of the financial woes of the main fund and other sub-funds.
Tax Incentives
There are few countries that offer tax incentives and exemptions like Singapore does. With the VCC at the forefront of its effort to attract foreign investment, the scheme can also provide tax incentives as an added benefit. However, with the VCC, tax incentives only apply to the main fund and not its sub-funds. A good reason for this is so the fund can meet the eligibility requirement for these tax incentives.
Cost Efficiencies For Sub-Funds
This benefit is mainly applicable to the sub-funds than the umbrella fund itself. While a VCC can be a single, stand-alone investment, sub-funds can allow for cost efficiency. In other words, rather than bear the cost of setting up and maintaining the fund, the cost can be shared at smaller percentages among the sub-funds. The same applies to sharing the cost and expertise of the umbrella service providers.
Privacy And Anonymity
Most people who own assets or participate in management funds will prefer to stay out of the public eye for personal and security reasons. To ensure the non-disclosure of its shareholders’ personal information, fund managers are not required or mandated to make public the names of their shareholders. Although the list of shareholders is kept in a confidential register, VCCs are mandated to maintain the register and must present it to any of the regulatory bodies if needed. These regulatory bodies include MAS, the Accounting and Corporate Regulatory Authority (ACRA), and the Inland Revenue Authority of Singapore (IRAS).
How Do You Set Up A VCC?
The government of Singapore has made things a lot easier when it comes to setting up a VCC in the country. To help get you started, here are detailed steps to follow:
Choosing The Name Of Your VCC
In business, names differentiate one entity/business from another. The same applies to a VCC. While there’s no restriction on the composition of names for a VCC, ACRA gives three guidelines to follow in name selection.
- The name should not be identical to an already existing business to avoid confusion.
- Profane, offensive and vulgar words are highly prohibited.
- The chosen name should not be among those listed as prohibited by the Ministry of Finance.
Once you have a name that complies with all three guidelines, the next step is to conduct a search to ensure the name is available. The search should be done on the Bizfile+ Search Directory.
Register Your VCC’s Chosen Name
Having ascertained that your chosen name is still available, the next step is to register it. This helps you lock the name to prevent others from using it. You would only be able to successfully incorporate the VCC after getting the name registered. Upon completing the registration process, the name will be reserved for your use for 120 days.
You’ll need to visit the VCC official portal to register your chosen name. The cost of registering a name on the VCC portal is $15. In addition, you’re expected to incorporate the VCC within the 120 reservation period. Failure to do so would mean you’ll have to register the name again (only if it’s still available).
There are situations in which the registration of your name has to be referred to other relevant authorities for approval. A good example is if your chosen name has the word “school” in it. In such a case, ACRA would send your application to the Ministry of Education for review.
If you choose to withdraw the registered name, you can do so on the VCC portal. However, name withdrawal can only be made within 120 days of the reservation period and before the VCC is incorporated.
Choosing The Type Of VCC To Operate
You’ll need to determine the type of VCC you want. It can either be a stand-alone fund or one that acts as an umbrella fund with two or more sub-funds.
Appointing VCC Officers
VCC officers are those who will be responsible for managing the fund. You’re also required to submit information about each of these officers. These VCC officers include:
- Director: The director will be in charge of managing the affairs of the VCC. The chosen director must meet all requirements of the VCC Act.
- Managing Director: The appointment of a managing director is not mandatory. However, a managing director is usually hired to oversee all or some parts of the VCC.
- Company Secretary: By law, all VCCs must appoint a corporate secretary within six months from its date of incorporation. The secretary must also meet all the requirements for the position.
- Auditor: The appointment of an auditor must be made within three months of incorporating the VCC.
- Fund Manager: The appointment is mandatory, and the chosen manager must meet all stipulated requirements.
Register An Office Address And Draw Up A Constitution
You can only proceed to incorporate your VCC if it has a registered office address. To qualify as a registered address, it must be a physical location that’s open and accessible to the public and has official working hours. However, this registered address is not mandated to be the exact location the VCC conducts its activities. All correspondence to and from the VCC must use this office address.
You’re also required to draw up a constitution that will serve as a legal document governing the operation of the VCC. When filing for incorporation, a copy of the constitution must be attached to the form. Like the details of its shareholders, the VCC’s constitution should not be disclosed to the public.
Incorporating A New VCC
The next step to take is to proceed with the incorporation of the VCC. You can do this online by visiting the VCC official portal or hiring a licensed filing agent to help prepare and submit the application. Again, ensure all requirements are met and all information for the application is correct.
The processing time for an application is usually between 14 to 60 days. The length of the processing time is largely dependent on whether the application needs to be sent to other government agencies for review. The outcome of the application will be communicated to you by email. A successful application means your VCC has been successfully incorporated in Singapore. At this stage, you’re required to apply for a CorpPass at the CorpPass official website.
You can add sub-funds to your incorporated VCC by providing the chosen name and formation date on the VCC portal.
Summary Of Fees For Setting Up A VCC
You should always check for updates or changes to fees on the VCC portal. However, these are the current fees to pay when setting up a VCC in Singapore.
- VCC name application: $15
- VCC incorporation application: $8,000
- Transfer of registration application: $9,000 + $400 (sub-fund registration fee) x Number of sub-funds
- Sub-fund registration: $400
- VCC or sub-fund name change: $15
There are also other fees for VCC products. Fees for individual products are listed on the VCC portal.
What Is The VCC Grant Scheme (VCCGS)?
With the launch of the VCCGS under the Financial Sector Development Fund (FSDF), MAS intends to jointly fund expenses for the incorporation of VCCs with Singapore-based service providers. VCCGS is also open to foreign businesses that have successfully re-domiciled to Singapore as a VCC. The scheme remains valid until January 15, 2023.
Only fund managers are eligible to apply for the grant. These fund managers must have either incorporated a VCC in Singapore or re-domiciled a foreign entity as a VCC in Singapore. Also, the VCC must meet all requirements stipulated under the scheme’s project eligibility requirements.
The scheme will provide up to 70% of joint funding for qualifying expenses, capped at $150,000. The qualifying expenses covered under the scheme include those for tax services, legal services, as well as administration or regulatory compliance services.
Looking for more information or incorporating a VCC? Contact HeySara today to get a complete understanding of the benefits and process of starting a VCC in Singapore.
