Setting up a VCC? Learn About its Tax Implications

tax implications

If you are interested in setting up a Variable Capital Company (VCC), or wish to help your clients understand how the VCC works, here is a quick guide to its tax implications, especially in the areas of income tax, GST treatment and Stamp Duty treatment.

Setting up a VCC in Singapore would enable you to be part of a world-class financial hub where you can seek early-stage funding opportunities while enjoying a robust IP protection and legal system, as well as an attractive tax framework.

What is a Variable Capital Company (VCC)?

A VCC is a corporate structure for investment funds constituted under the Variable Capital Companies Act. You could put your VCC to use as a single standalone fund or an umbrella fund with two or more sub-funds, each holding a portfolio of segregated assets and liabilities.

VCCs can also be used for traditional and alternative strategies, and as both open-ended and closed-end fund strategies. Besides incorporating new funds, the VCC framework also allows fund managers to redomicile existing overseas investment funds by transferring their registrations to Singapore.

For more benefits of setting up a VCC, read Understanding the Variable Capital Company.

Income Tax Treatment

VCCs are regarded as companies for tax purposes. Like companies, VCCs are expected to file its Estimated Chargeable Income (ECI) within 3 months from the end of the financial year, as well as Form C, its tax computation and financial statements.

To qualify for tax residency in Singapore in a calendar year, the control and management of the VCC’s business must be exercised in Singapore for that year. Key factors defining “control and management” include the location where the board of directors meet to make strategic decisions.

As such, dividends paid by a VCC that is tax resident in Singapore will be exempt from tax in the hands of its shareholders.

Generally, tax measures and incentives that apply to companies would apply to VCCs, except, among others:

  • Group Relief (Section 37C of the ITA)
  • Exemption of income of venture company (Section 13H of the Income Tax Act (ITA))
  • Exemption of income of company incorporated and resident in Singapore arising from funds managed by fund manager in Singapore (Section 13R of the ITA)
  • Exemption of income arising from funds managed by fund manager in Singapore (Section 13X of the ITA)
  • Some of the deductions available under Section 14 of the ITA

A VCC can also apply for a Certificate of Residence to support its claims for tax benefits under Singapore’s Avoidance of Double Taxation Agreements with its treaty partners.

If you are setting up an umbrella VCC, some tax rules may apply at the sub-fund level instead of the VCC level. For instance, since the assets and liabilities of sub-funds are segregated, unabsorbed capital allowances, losses and donations of a sub-fund may not be utilised against the income of another sub-fund or the umbrella VCC. However, they may be carried forward or carried back to offset against the sub-fund’s future or past income, subject to the shareholding test.

VCCs are eligible for partial tax exemptions, start-up tax exemptions and corporate tax rebates, which will be computed at the VCC level. It is up to the umbrella VCC to allocate the exempt amounts and rebates between its sub-funds.

Due to the various tax incentives available in the country, you are advised to consult with a professional accounting and tax services company like Corporate Services Singapore to guide you through the best applicable incentives for your VCC.

GST Treatment

For GST purposes, each sub-fund of an umbrella VCC is regarded as a separate person. This means that each sub-fund is required to assess its GST registration liability based on the value of its taxable supplies made, and file its own GST returns upon registration.

A non-umbrella VCC or a sub-fund of an umbrella VCC will be required to register for GST if the value of its taxable supplies or services acquired from overseas suppliers (imported services) exceeds $1 million for the past calendar year or is expected to exceed $1 million for the next 12 months.

The non-umbrella VCC or sub-fund of an umbrella VCC may also be subject to reverse charge on imported services.

Each sub-fund can claim GST on expenses incurred by the umbrella VCC in respect of that sub-fund only, subject to the existing input tax recovery and attribution rules. For common expenses, the expenses have to be allocated to the sub-funds on a reasonable basis.

Stamp Duty Treatment

Stamp duties, such as buyer’s stamp duty (BSD), additional buyer’s stamp duty (ABSD), seller’s stamp duty (SSD), are levied at the sub-fund level.

This means that if a non-umbrella VCC or a sub-fund executes dutiable instruments, such as contracts or agreements for sale of properties or share transfer instruments, stamp duties are payable within 14 days after the date of execution in Singapore or, if the instrument is executed overseas, within 30 days after the date of receipt of the instrument in Singapore.

Let Corporate Services Singapore Assist You

When considering the various fund structures in Singapore, such as a VCC, limited company, limited partnership or unit trust, there may be limitations and tax implications for each of them when used as vehicles for investment funds. In addition, there may be new regulations governing these fund structures that you may not be up-to-date on.

Consider consulting with a professional corporate, accounting and tax service provider like Corporate Services Singapore to help you plan, determine and incorporate the right business entity.

A strong legal, accounting and tax foundation will contribute greatly to the success of your investment fund structure. At Corporate Services Singapore, we provide full corporate secretarial services to help your fund structure fulfil its statutory requirements, thus allowing you to channel your best efforts towards your fund strategy.

For outsourced corporate secretarial, tax and accounting services and other value-added services, give Corporate Services Singapore a call at 6602 8286 or email info@corporateservicessingapore.com.

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