In January this year, Singapore passed down a new corporate structure created to make the country more appealing for international companies to domicile funds. This law, which is referred to as the Variable Capital Companies Act, makes it convenient for domestic and overseas establishments to register funds in the city-state if they have locally-based fund managers. The new corporate structure would add to the country’s comprehensive service offerings for any fund to be under this jurisdiction.
With more funds domiciled in the nation, the government desires to attract not only more money but also creates jobs in the accounting and legal industry. This new regulation also helps mitigate the dependence of the economy on more volatile markets, such as trade.
What is a Variable Capital Company?
A Variable Capital Company or VCC is an alternative structure of corporate medium which will soon be available for the Collective Investment Schemes or CIS. Currently, the organizational forms the CIS has are limited partnership, companies and the unit trust form. It is designed for collective schemes and will be open to open-end and closed-end funds, as well as conventional and alternative funds.
The existing corporate vehicle under the Companies Act has many limitations when it comes to the reduction of capital and distribution of dividend. In contrast, the VCC comes with flexible capital. This new corporate vehicle strengthens the country’s position as a fund management center in the area.
Historical Background of Variable Capital Company
This new law is initially called Open-End Investment Company or OEIC before being known as the Singapore Variable Capital Company or S-VACC. The concept of this new flexible structure of investment fund initially emerged back in 2016 at Singapore’s Investment Management Association annual conference. Later on, in March 2017, the Monetary Authority of Singapore published a public consultation to get feedback on a variety of aspects of this new structure.
During the 2018 Singapore Budget Statement, the ministry of finance proclaimed that for tax purposes, a VCC would be treated as a single entity and a company. On September 2018, the VCC draft bill was presented in the parliament for first reading. Subsequently, the bill was passed on the 1st October of 2018. The VCC Act was effective from 15th January of 2020. This new framework integrated many critical features of open-ended or flexible capital vehicles which currently exist in certain jurisdictions, including Luxembourg, UK, Ireland and the United States.
Key Features of Variable Capital Company
The VCC has several distinct features which attracted plenty of interest in the fund management sector. These features provide operational flexibility to Singapore’s fund managers. The following are some of the VCC’s key attributes:
- The Variable Capital Companies Act will govern the VCC. For administrative and establishment purposes, the regulatory authority will be ACRA. The MAS, on the other hand, will be responsible for overseeing its anti-money laundering and countering terrorism financing.
- A VCC can be a standalone fund or an umbrella entity which consists of multiple subfunds, each of which may have distinct investment goals, investors and assets and liabilities.
- Share are redeemable without the approval of shareholders, and dividends are payable from the capital, hence, providing more flexibility than corporations.
- It must keep an updated shareholder register and reveal the details to the law enforcement authorities upon request.
Main Benefits of Variable Capital Company
The following are some advantages of VCC:
- Exempted from the corporate resolutions and solvency tests: There is no need for corporate resolutions and solvency tests for shares problem and redemption in a VCC. Relief from these requirements helps make sure a seamless capital movement. Also, shareholders attain more liberty and flexibility to enter into or exit a fund via easy shares’ subscription and redemption. This fluidity feature is vital in boosting the efficiency of investment funds.
- Can distribute dividends directly from capital: In contrast to companies set up under the Companies Act where dividends are distributed only from the generated revenues, a VCC can distribute their dividends from the capital.
- No disclosure of register: While VCCs need to keep a register of shareholders, they are not required to divulge the log to the public.
- Can constitute umbrella funds: The law permits VCCs to be set up as umbrella funds with several subfunds that can share a board of directors and have similar fund manager, auditor, custodian and administrative officer.
Primary Considerations for Variable Capital Company in Singapore
One of the primary concerns for Singapore VCC is the segregation of every sub-fund’s assets and liabilities. The umbrella framework’s subfunds do not have a separate legal entity. Thus, this segregation is required to address the possible risk of contagion, where subfunds’ assets and liabilities get muddled with or utilised to discharge other subfunds’ liabilities. A VCC’s subfund can invest in another subfund of the VCC.
Another consideration is concerning the re-domiciliation of funds domiciled in foreign countries. Since the Act allows such re-domiciliation, most funds which utilized overseas jurisdictions to route investment through similar media to VCC can now consider to re-domicile in the country and consolidate their investment and pooling operations. Before re-domiciling in Singapore, foreign-domiciled funds constituted as corporations need to convert into a VCC first or incorporate a new VCC in the country.
Seeking Guidance from a Professional Singapore Accounting Service Provider
Considering the ever-changing regulation in Singapore, particularly in the accounting and investment aspect, startups, especially foreign entrepreneurs, should consider consulting with Corporate Services Singapore to help you determine and incorporate the right business entity in Singapore.