The Variable Capital Company: A New Corporate Structure for Funds in Singapore
18 September 2018
The Variable Capital Company (VCC) is a new corporate entity structure under which several collective investment schemes (whether open-end or closed-end) may be gathered under the umbrella of a single corporate entity and yet remain ring-fenced from each other. This update takes a look at the new structure and what is involved in establishing one.
A holder of a capital markets services licence for fund management;
A Registered Fund Management Company; or
A person exempted from holding a capital markets services licence under the Securities and Futures Act (SFA).
- The value of the paid up capital of the VCC is deemed to be at all times equal to its net asset value.
- The shares of the VCC must be issued, redeemed and repurchased at an amount representing its proportionate share of the VCC’s net asset value (subject to any adjustments for fees and charges provided for in the constitution).
- If the VCC is an umbrella fund, its assets and liabilities must be allocated to, and used to discharge the liabilities of, each of its sub-funds.
- The manager of the VCC;
- The custodian of the VCC’s sub-funds, but only in respect of the members of its sub-fund; and
- The government.
A VCC consisting of Authorised Schemes must have at least three directors instead of one. At least one of the three must be an independent director.
A VCC consisting of Authorised Schemes must prepare its financial statements using Recommended Accounting Practice 7 “Reporting Framework for Unit Trusts”.
A VCC consisting of Authorised Schemes must appoint a custodian that is an approved trustee.
As regards the ring fencing of sub-funds, the MAS has noted that it will require the directors and the fund manager of a VCC consisting of Authorised Schemes to take reasonable measures to manage cross-cell contagion risks when investing in assets located in another jurisdiction. The measures which would be considered reasonable will depend on the facts and circumstances in each case. For instance, the fund manager may seek legal advice on the risk of a foreign court refusing to uphold the segregation of assets and liabilities across sub-funds, directly or indirectly, e.g., through refusing to give effect to foreign choice of law clauses in contracts for reasons other than public policy. The fund manager may also wish to consider whether it would be appropriate to subject agreements governing the VCC’s overseas assets to laws and jurisdictions which uphold segregation of assets and liabilities across sub-funds, or to contract for terms which limit creditors to claim against relevant sub-fund(s).
- A VCC will be treated as a company and a single entity for tax purposes. This means that only one set of income tax returns is required to be filed with the Inland Revenue Authority of Singapore.
- The tax exemptions for the income of a company incorporated and resident in Singapore arising from funds managed by a fund manager in Singapore (section 13R of the Income Tax Act) and for the income arising from funds managed by a fund manager in Singapore (section 13X of the Income Tax Act) will be extended to VCCs.
- The 10% concessionary tax rate under the Financial Sector Incentive – Fund Management scheme will be extended to approved fund managers managing incentivised VCCs.
- The existing GST remission for funds will be extended to incentivised VCCs.
Existing Funds Converting to Singapore VCCs