Variable Capital Company: a key structure for investment in Singapore

VCCs are flexible and low cost and are a compelling option for both local managers and foreign-based managers domiciling their funds in Singapore.

What is a VCC?

The VCC is a corporate structure designed for managed investment funds. The structure of a VCC is highly flexible and suits a wide range of funds, from closed ended to open ended, and works for a wide range of assets and investment strategies, from traditional to alternative.

It can be used for new funds as well as redomiciled existing funds.

A VCC can have a single shareholder or hold just a single asset, or can have multiple shareholders or assets.  It is comparatively simple to set up when compared with unit trusts and other alternatives. And it is cheap to administer, so that those cost savings can be used to reduce fees for investors and attract investment into the fund.

The VCC is particularly attractive for fund managers with a broad Asian investor base or those who invest in Asia.

Government financial incentives were introduced to encourage adoption of the new structure when it was launched in January 2020.  These incentives have now been extended until 15 January 2025. Incentives under the Variable Capital Companies Grant Scheme (VCCGS) include grants to cover some expenses such as legal fees, tax advisor fees, regulatory advisory fees towards set up, and consulting fees.

The advantages of the VCC have underpinned significant growth in use of the structure.

Why was it introduced?

The VCC structure is tailored to attract more local and foreign-based fund managers to domicile their funds in Singapore.  It builds on the broader attractions of Singapore’s stable governance and economy, light regulation, and low corporate tax rates.

Singapore is a key location for investment managers, especially for investments in the Asia Pacific region. Fund managers and advisers set up in Singapore to raise funds from investors within Singapore and internationally.

The introduction of the VCC brings Singapore more into line with other tax jurisdictions such as Luxembourg, Ireland, the Cayman Islands and Mauritius.

Furthermore, more than 100 double tax treaties with different countries around the world means that most businesses outside of Singapore do not to have to pay their taxes twice.

The new corporate entity structure gives funds a very attractive alternative to other fund structures available in Singapore, such as limited partnerships, unit trusts and private limited companies. The VCC framework may soon also be extended to family offices in Singapore.

The attractions of the VCC - specific benefits for fund managers

• Greater flexibility combined with lower risk: the VCC is a legal entity that can be formed as a single standalone fund, or as an umbrella fund with numerous sub-funds.  All sub-funds, including their respective assets and performance, are insulated from each other.  Sub-funds are ring-fenced from one another, with legal segregation of assets and liabilities, providing protection from liability.
• The structure makes it easier for funds to meet the needs of diverse investors, through targeted sub funds.
• Cost efficiency, with considerable administrative economies:
• where a VCC has sub-funds, those sub-funds can share a Board of Directors and use the same custodians, administrators, and other service providers
• ability to re-domicile existing compatible offshore funds to Singapore to take advantage of VCC benefits, while (depending on the jurisdiction) retaining its characteristics, including its track record
• savings in complying with regulations, such as anti-money laundering rules.

• A reduced tax compliance burden, given the streamlining offered by the VCC. Qualifying VCCs are tax exempted. The relevant qualification thresholds are calculated at the umbrella level, so that sub funds can be combined to achieve these hurdles.
• Access to a generous subsidy from the VCCGS.
• Saving time – the speed and simplicity of incorporation is a unique benefit of the VCC.  It takes between 14 days (for the simplest structure) to 60 days to get approval from the  Singapore Accounting and Corporate Regulatory Authority.
• Fund managers can delegate fund management to a registered third party within Singapore, provided that they maintain overall responsibility for the outsourced fund. This allows fund managers to focus on growing the fund.

Attractive benefits that fund manager can pass on to their investors

• Tax exempted income, for qualifying VCCs.
• Lower fees and/or enhanced returns, reflecting lower administration costs attached to the fund structure.
• A more consistent income flow as a VCC can issue dividends using its capital, in contrast to companies which can only issue dividends out of profits.
• Ease of administration, including:
• ability to withdraw with ease, as the VCC can issue and redeem shares as needed
• VCC may elect not to hold annual general meetings, which may be attractive to more hands-off investors
• anonymity, as the shareholder register of a VCC is not made public (although may be disclosed to public authorities upon request for regulatory, supervisory and law enforcement purposes).

So, a VCC can help build investment in your fund.

In combination, the advantages of the VCC corporate structure substantially reduce the barriers to entry for funds management in Singapore.

Can the VCC work for your fund?

The VCC offers a very appealing package to fund managers and their investor base. To better understand how the VCC structure can work for your fund, talk to TMF Singapore.

How TMF Group can help

TMF Group has extensive experience in providing the right advice and practical support to those who wish to set up or expand their business operations in Singapore and beyond.

Our experienced TMF Singapore team can help you navigate the options and support you, efficiently and cost effectively, in establishing the best structure for you, with the VCC a strong contender.

Check out the services we provide on our Singapore website page.

Talk to our experts now.