Variable Capital Company (VCC)
What is a VCC?
A Variable Capital Company (VCC) is a new type of corporate entity structure for investment funds, aimed at flexibility and efficiency. It was introduced in 2020 by the Monetary Authority of Singapore (MAS), joining other existing structures like the private limited company and limited partnership.
The Variable Capital Company (VCC) is a new type of 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. The creation of sub-funds under an umbrella entity makes it possible for managers to segregate their assets and liabilities according to different investment strategies, asset classes and investor profiles.
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It is similar to the open-ended investment company structure in the UK and protected cell company or segregated portfolio company structures in jurisdictions like Guernsey or the Cayman Islands.
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This legal corporate structure gives funds an alternative to unit trusts, limited partnerships, limited liability partnerships and companies.
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The VCC is regulated under its own legislation, the Variable Capital Companies Act 2018, which came into force on 14 January 2020.
Key features
A VCC
must:
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• be managed by a Permissible Fund Manager, as regulated by MAS
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• engage an eligible financial institution regulated by MAS for Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) purposes
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• provide its register of members to regulatory bodies upon request, but need not publicly disclose it otherwise
can:
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• issue and redeem shares without member approval
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• pay dividends from capital as well as profits
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• adopt either Singaporean or similarly recognised international accounting standards (IFRS, US GAAP) to prepare its financial statements.
The benefits of the VCC structure
Operational and cost efficiencies
Protection & segmentation of assets
through the use of the umbrella structure
Where a VCC is set up as an umbrella fund with multiple sub-funds, the sub-funds share a board of directors and have common service providers, such as the same fund manager, corporate secretary, auditor and administrative agent. Certain administrative functions, such as the holding of general meetings and preparation of fund raising memos, can also be streamlined consolidated.
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The VCC Act does not allow the assets of a sub-fund to be used to discharge those of another sub-fund or the parent VCC fund. Likewise, all liabilities arising from each sub-fund must be discharged solely out of the assets of that sub-fund.
Cross-border tax efficiencies
Leverage Singapore’s tax treaties for better cross-border investments. Singapore has signed over 90 Avoidance of Double Taxation Agreements (DTAs) and is a member of the OECD's framework against Base Erosion and Profit Shifting (BEPS).
The umbrella and multiple sub-fund structure allows differentiated investment portfolios, giving rise to assets and liabilities that can be clearly separated and ring-fenced.
Enhanced Privacy for investors
Unlike a company structure, shareholders' identities and financial statements are not publicly available. The VCC substantially increases the levels of investor privacy, unlike traditional structures elsewhere
Flexibility with the ability to pay dividends from capital
This is a key differentiator from conventional holding companies, where dividends can only be distributed from profits.
Ease of re-domiciliation
Unique onshore Singapore tax incentives
Funds can apply for section 13R (Onshore Fund Tax Exemption Scheme), 13X (Enhanced Tier Fund Tax Exemption Scheme) and a tax exemption for venture capital funds (Section 13H scheme).
The global funds market is shifting towards onshoring structures to meet economic substance requirements, and the VCC is set to make Singapore increasingly attractive for
domiciliation of funds. To date, over 970 VCC funds have been set up in Singapore, since the inception of the VCC Act in 2020. Foreign funds structured similarly to a VCC can re-domicile to Singapore via a simple registration process. This allows for the preservation of their corporate history and track record.
Use cases for a VCC
01
Hedge/PE/VC fund
02
Real estate fund
03
Multi-family office
Setting up a VCC
Requirements upon incorporation
For a new VCC, the following information must be provided upon incorporation. This is similar to the information required of any private limited company in Singapore.
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VCC Name
Financial Year End
Particulars of VCC Officers; with at least 1 resident director and resident company secretary
Details of Subscriber(s)
Local Registered Office Address
Constitution
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The following additional requirements are specific to the VCC structure:
Directors
At least 1 director must be a qualified representative or director of the VCC's fund manager. Additionally, if the VCC involves a collective investment scheme (CIS), it must have a minimum of 3 directors, including 1 independent director who has no connection to the VCC beyond that of a working director.
Fund Manager
The VCC must appoint a licensed or registered fund management entity or exempted financial institution to manage its assets. During incorporation, this entity must provide its Unique Entity Number and other details.
Sub-Funds
Any sub-fund formed under an umbrella VCC must be registered with ACRA within 7 days of its formation. Its name and date of formation must be provided.
AML/CFT
VCCs must adhere to MAS regulations on anti-money laundering (AML) and countering the financing of terrorism (CFT), and are expected to implement robust due diligence measures to this end. All collected information and transactions must be maintained for accessibility by authorities if needed.
Accounting and audit requirements
Accounting and audit requirements for a VCC are largely the same as those for a private limited company.