VCC Launched 15 Jan 2020: Singapore launches new fund framework as Game Changer to boost Asset Management Industry

The Launch

The Monetary Authority of Singapore (MAS) and the Accounting and Corporate Regulatory Authority (ACRA) launched the Variable Capital Companies (VCC) framework on 15th Jan 2020. The VCC is a new corporate structure launched used for a wide range of investment funds and provides fund managers greater operational flexibility and cost savings.

Fund managers will be able to constitute investment funds as VCCs across both traditional and alternative strategies, and as open-ended or closed-end funds for new fund launches or conversion from existing fund structures. Fund managers may also incorporate new VCCs or re-domicile their existing investment funds with comparable structures by transferring their registration to Singapore as VCCs. A VCC must appoint a fund manager that is regulated by MAS to manage its investments. For further details on the eligibility of fund managers to manage a VCC, please refer to the Explanatory Brief on the Variable Capital Companies Bill on 10 September 2018, available on the MAS website.

ACRA – Variable Capital Companies Act

14th January also marked the launch of ACRA’s online application platform, for more information, please refer to https://www.acra.gov.sg/business-entities/variable-capital-companies. The Variable Capital Company (VCC) is constituted under the Variable Capital Companies Act which took effect on 14 Jan 2020. The VCC is aimed to complement the existing suite of investment fund structures available in Singapore. The VCC Act and subsidiary legislation is administered by ACRA. All VCCs must be managed by a Permissible Fund Manager [1]. The anti-money laundering and countering the financing of terrorism obligations of VCCs will come under the purview of the Monetary Authority of Singapore (MAS).

Some Key Features of VCC as a Corporate Structure:

● A VCC has a variable capital structure that provides flexibility in the issuance and redemption of its shares. It can also pay dividends out of capital, which gives fund managers flexibility to meet dividend payment obligations.

● A VCC can be set up as a single standalone fund or an umbrella fund with two or more sub-funds, each holding a portfolio of segregated assets and liabilities. For fund managers that structure their funds as umbrella VCCs, theremay be cost efficiencies from using common service providers across the umbrella and its sub-funds.

● A VCC can be used for both open-ended and closed-end fund strategies [2] .

● Fund managers may incorporate new VCCs or re-domicile their existing overseas investment funds with comparable structures by transferring their registration to Singapore as VCCs.

● VCCs must maintain a register of shareholders, which need not be made public. However, this register must be disclosed to public authorities upon request for regulatory, supervisory and law enforcement purposes.

[1] Generally, a VCC will have to be managed by a fund manager which is a licensed fund management company (i.e. a holder of a capital markets services licence for fund management under section 86 of the Securities and Futures Act (Cap. 289)), a registered fund management company (i.e. a corporation exempted from holding a capital markets services licence under paragraph 5(1)(i) of the Second Schedule to the Securities and Futures (Licensing and Conduct of Business) Regulations) or a person exempted under the Section 99(1)(a), (b), (c), or (d) of the Securities and Futures Act (Cap. 289) from the requirement to hold a capital markets services licence to carry on business in fund management (i.e. a bank licensed under the Banking Act (Cap. 19), a merchant bank approved under the Monetary Authority of Singapore Act (Cap. 186), a finance company licensed under the Finance Companies Act (Cap. 108), or a company or cooperative society licensed under the Insurance Act (Cap. 142)).

[2] An open-ended fund allows investors to redeem their investments at their discretion, while a closed-end fund does not permit investors to do so. Closed-end funds also have a fixed number of shares and do not allow new subscriptions after the offering period is over, while open-ended funds are open to new subscriptions by new investors at any time.

Pilot and Grants

A total of 18 fund managers participated in a VCC Pilot Programme that was initiated by MAS and ACRA in September last year. All of these fund managers have today incorporated or re-domiciled a total of 20 investment funds as VCCs. These investment funds comprised of venture capital, private equity, hedge fund and Environmental, Social, and Governance (ESG) strategies, demonstrating the viability of the VCC framework across diverse use cases. The list of fund managers that participated in the VCC Pilot Programme is set out in the Annex on MAS’ website.

MAS launches new VCC grant scheme for fund managers

THE Monetary Authority of Singapore (MAS) on Wednesday launched a new variable capital companies (VCC) grant scheme to help fund managers with costs when incorporating or registering a VCC. MAS will co-fund up to 70 per cent of eligible expenses paid to Singapore-based service providers. The grant is capped at S$150,000 for each application, with a maximum of three VCCs per fund manager. The new grant scheme will be available for up to three years, funded by the Financial Sector Development Fund established by MAS in 1999 which looks to encourage industry adoption of the freshly launched VCC framework in Singapore.

Sources:
https://www.mas.gov.sg/news/media-releases/2020/mas-and-acra-launch-variable-capital-companies-framework

https://www.acra.gov.sg/business-entities/variable-capital-companies

What is VCC Singapore ? Variable Capital Company

• Corporate structure incorporated under the VCC Act
  
  
• Administered by the Accounting and Corporate Regulatory Authority (ACRA)
  
  
• Managed by a fund manager regulated by the Monetary Authority of Singapore (MAS)
  
  
• Ability to consist variable capital structure:

• Flexibility in the issuance and redemption of shares


• Dividends payments out of capital –  Fund managers flexibility to meet dividend payment obligations


• As Single standalone fund or an Umbrella fund with sub-funds


• Cost efficiencies from using common service providers across the umbrella and its sub-funds


• Can be used for both open-ended and closed-end fund strategies

VCC Requirements and Highlights

“The Game-Changer for Singapore’s Fund Management Industry”

Singapore Based Requirements

• Singapore-based licenced or regulated fund manager (unless exempted under regulations)


• Registered Office in Singapore, Singapore based company secretary


• Subjected to audit by Singapore-based auditor


• Singapore Based Fund Administrator
  (Required if considering for tax incentives schemes such as 13R/13X)

Directors Requirement

• Non-Authorised Schemes
• – At least 1 Singapore Resident Director

• Authorised Schemes
• – At least 3 Directors

* An Authorised scheme are schemes such as the CIS that is constituted in Singapore and authorised by MAS or any schemes as defined by MAS

*There are currently out of scope scenarios for the VCC adoption, such as fund managers exempted from regulations (such as non-regulated real estate managers or have already been granted incentive schemes on exemptions)

*At least One Director of the VCC must be a Director of the Fund Manager or must be a Qualified Representative

* Directors of VCCs must be fit and proper based on the guidelines provided in the regulations. Some areas to be looked at include the Director’s past conduct, application history as a director of financial institution, similar VCC entities, adverse information on due-diligence, compliance and AML perspective for the assessment consideration.

Foreign Fund Re-domiciliation

• Foreign Corporate Entities (Fund Structured) could be re-domiciled as VCCs

Please observe MAS’s proposal on requirements for assessment.

Capital and Members reflection/ requirement

• Capital of a VCC is suggested to be equal to its net assets, providing flexibility in the distribution and reduction of capital


• VCC should have at least one member (to align with the minimum number of members for companies under the Companies Act)


• Allowance for Master-Feeder Fund Structures: – VCCs can have a single shareholder or hold a single asset

Accounting Standards

• Option of Presentation of Financial Statements per IFRS, Singapore FRS or US GAAP and Financial Statements of VCC consisting of authorised scheme to use RAP7

Tax

• Umbrella VCC only need to file single Corporate Income Tax (CIT) return with the Inland Revenue Authority of Singapore (IRAS), regardless of the number of sub-funds the umbrella VCC has

• Tax incentives under sections 13R and 13X of the Income Tax Act will be extended to VCCs when qualifying conditions are fulfilled

• For umbrella VCCs, these tax incentives will be granted at the umbrella level

Should you consider VCC?

Singapore has positioned herself as a developed asset management centre with a conducive environment for asset managers and asset owners to locate and hub their investment activities.

With the trend of onshoring and consolidation in views for establishing economic substance, onshoring in Singapore on the fund manager level; incorporating the VCC in the fund structure allows the funds to benefit from the extensive number of DTAs signed with Singapore as a jurisdiction as well as tax incentives under the available schemes.

Given its flexibility on capital structure, suitable to be tailormade to different investment strategies, the VCC will provide an alternative even for Fund structures onshoring to Singapore or already onshore in Singapore.

For more information.

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