The Singapore Variable

Capital Companies (VCC)

at a glance
The introduction of the Singapore Variable Capital Companies (“VCC”) legislation in
Singapore is a potential game-changer for the fund management industry, both within the
city-state and across the Asia-Pacific region. As this development stands poised to usher in
a new era of options for fund and wealth managers, we answer some pertinent questions
regarding this regime below.

What is a VCC?
What can it be How can it be Can a foreign
used for? set up? fund be
re-domiciled?

It is a new
legal entity form/
structure for
investment funds Traditional and alternative As a stand-alone Foreign corporate
fund strategies or as an umbrella entities set up as
(both open-ended entity with multiple funds could be inward
and close-ended) sub-funds re-domiciled as VCCs

What are the benefits?

Financial …for a variety of

Improved statements investment strategies
…as a pooling and
operational are not – viz., traditional,
hedge funds, private investing vehicle,
and tax required equity and real thereby dispensing
efficiency to be made estate funds with multi-tiered
fund structures
public
It could avail
itself of the US It can be used… …to list funds as ...and an option
“check-the- information listing for wealth
box” election and also for trading management
purposes industry as well.
 What are the requirements of a VCC?

The capital of a VCC will It will require a Singapore- Existing Securities

always be equal to its net based licensed or and Futures Act (SFA)
assets, thereby providing regulated fund manager requirements for
flexibility in the distribution (unless exempted under investment funds will
and reduction of capital. the regulations*). apply to VCCs.

It must have at least one It must be subject to audit by

Singapore resident director It must have its registered a Singapore-based auditor
for non-authorised schemes office in Singapore and and must present its financial
and at least three directors must appoint a Singapore- statements as per IFRS,
for authorised schemes. based company secretary. Singapore FRS, or US GAAP.

*Currently, fund managers exempt from regulations – viz., real estate and related party exemption – cannot use a VCC.

VCCs can be used for all types of investment funds in Singapore

Today VCC

Authorised Restricted Exempt Authorised Restricted Exempt

Mutual Unit Trust Unit Trust Unit Trust Unit Trust/ Unit Trust/ Unit Trust/
funds VCC VCC VCC

Unit Trust/ Unit Trust/

Unit Trust/ Unit Trust/
Hedge N.A. Ltd. Partnership/ Ltd. Partnership/
Ltd. Partnership/ Ltd. Partnership/ N.A.
funds Company*/ Company*/
Company* Company*
VCC VCC
Private equity Ltd. Partnership/ Ltd. Partnership/
N.A. Ltd. Partnership/ Ltd. Partnership/
& real estate N.A. Company*/ Company*/
Company* Company*
funds VCC VCC

* Currently, company form legal entities are mostly used as a step-down vehicle in Singapore primarily for investing purposes as a special
purpose vehicle with pooling outside of Singapore. In the future, VCCs can be used as a pooling and investing vehicle.
 Explaining VCC as each investment fund type

The key issues that ultimately characterise the investment fund legal entity are highlighted below:

Real Estate fund

Mutual fund** Hedge fund** Private equity** Venture Capital**
(Private)**

Fund manager
CMS Licence (Retail) RFMC/CMS licence (A/I) RFMC/CMS licence (A/I) RFMC/CMS licence (A/I)
[ No exemption available]
VC Manager regime/
[Singapore regulated] RFMC/CMS licence (A/I)

Fund type Authorised Restricted *** Restricted *** Restricted *** Restricted ***

Compliance to code of Yes No No No No

collective investment schemes

Yes
Custodian requirement Approved trustee only Yes* Typically No Typically No Typically No

Yes Yes Yes Yes Yes

Local administrator (through tax (through tax (through tax (through tax (through tax
incentive schemes) incentive schemes) incentive schemes) incentive schemes) incentive schemes)

Number of Board of Director

members required 3 1 1 1 1

Number of Board of Independent

Directors required 1 – – – –

Number of Board of Directors

required to be Residents 1 1 1 1 1

Financial Statements CIS Code - RAP 7 IFRS/SFRS/US GAAP IFRS/SFRS/US GAAP IFRS/SFRS/US GAAP IFRS/SFRS/US GAAP

* The prescribed entities are:

(i) a bank licensed under the Banking Act (Cap. 19); (ii) a merchant bank approved as a financial institution under the MAS Act (Cap. 186); (iii) a finance company licensed under the
Finance Companies Act (Cap. 108); (iv) a depository agent within the meaning of section 81SF of the SFA for the custody of securities listed for quotation or quoted on Singapore Exchange
Securities Trading Limited or deposited with the Central Depository (Pte) Ltd; (v) an Approved Trustee; (vi) any person licensed under SFA to provide custodial services for securities; or
(vii) a foreign custodian that is licensed, registered or authorised to conduct banking business or to act as a custodian in the country or territory where the account is maintained
** The terms “mutual fund”, “hedge fund”, “private equity”, “real estate fund”, “venture capital”, etc. have been used in a manner that they are commonly understood in the fund
management industry. These are not terms that are defined in the Securities and Futures Act.
*** Or, if offered to Institutional investors/Private placement, then Exempt
Other salient features

Delegation Single shareholder

The Fund Manager of the VCC can delegate fund VCCs can have a single shareholder or hold a single asset.
management activity and operational duties to other This allows for the application of VCCs as a Master-Feeder
parties (e.g. a sub-manager) that are regulated as fund structure.
managers in other jurisdictions, provided the Fund
Manager of the VCC retains overall responsibility of the
duties, and mitigate any conflicts.

Umbrella VCC
It is permissible to have open-ended and close-ended
sub-funds within an umbrella.
Conversion
There are no statutory provisions for automatic or
procedural conversion of existing Singapore Companies
(set up as investment funds). However, transfer of assets,
liabilities and shareholders is permissible.

Segregation
Segregation of sub-funds’ assets and liabilities are
clarified through various provisions. For any agreements/
arrangements, the contracting party will be the VCC
umbrella and not the sub-fund. However, the name of the
sub-fund should be identified.

Director of FMC or
Qualified Representative
At least one director of the VCC must be a Director
of the Fund Manager or must be at least a Qualified
Representative.
Tax treatment of the VCC

Stand-alone (single fund) VCC

Investors
One of the key features of VCCs is that it may be set up as
a single fund VCC (commonly referred to as a stand- alone Investment Management
VCC) or a VCC with multiple sub-funds (commonly referred Agreement
to as an umbrella VCC).
VCC Fund Manager
The tax treatment of a stand-alone VCC will remain the
same as that of a Singapore company.
Accordingly, the Enhanced Tier Fund (“ETF”) Scheme
and Singapore Resident Fund (“SRF”) Scheme under the
Investments
Income Tax Act will apply to a stand-alone VCC similar to
how it would apply to a Singapore company.

Umbrella (multiple sub-fund) VCC

The new provisions for an umbrella VCC that were announced are distinctive and provide significant benefits.

Investors Investors Investors

VCC Investment Management

Agreement
Sub Fund 1 Sub Fund 2 Sub Fund 3 Fund Manager

Investments Investments Investments

Economic conditions under the ETF and For an umbrella VCC, it has been announced that the above
will be applied to the VCC (and not to each sub- fund).
SRF Schemes
Therefore, if a VCC has three sub-funds, the business spend
Under the ETF Scheme, the fund has to fulfil (among other requirement will be set at S$200,000 for the VCC as a whole
things) the following economic conditions: (and not S$600,000). If this VCC were to apply for the ETF
1. The applicant fund must have a minimum fund size of Scheme, then the minimum fund size requirement will be
S$50 million at the point of application; S$50 million (and not S$150 million).
2. The fund must have an annual local business spend of at Using an umbrella VCC poses significant benefit to fund
least S$200,000. managers who, in the past, would have had to use three
Singapore companies with a fund size of at least
Similarly, there is a condition under the SRF Scheme that
S$150 million and a business spend of at least S$600,000,
the fund should have an annual business spend (need not
rather than now having the option of using a VCC with three
be local) of at least S$200,000.
sub-funds.
Non-qualifying investor test under Other conditions under the ETF and
the SRF Scheme SRF schemes
Under the SRF Scheme, non-qualifying investors are The other conditions under the ETF and SRF schemes
required pay a financial penalty. Broadly, non-qualifying continue to apply to the VCC. This includes the
investors refer to investors from Singapore which are not requirement to have a Singapore-based fund administrator.
individuals and which own more than 30% (or 50% in some
instances) in the fund. Other key elements
It has been announced that the above test will be applied GST
at the VCC level, not at each sub-fund level. Given that
the test is applied across the VCC (thereby increasing the The current GST remission will be made available to VCCs
denominator when applying the 30% or 50% test), approved under the ETF and SRF schemes.
it improves the chances of a Singapore non-individual Certificate of Residence (“COR”)
investor to qualify as a qualifying investor.
A Singapore COR is available for the VCC subject to the
The VCC approach is evidently the recommended option VCC establishing that it is controlled and managed from
in these situations and the Government’s announcements Singapore.
are laudable.
In the case of an umbrella VCC, the COR will be issued
on the VCC, with the names of the sub-funds receiving
the same nature of income from the same treaty country
Investment objective condition included in the COR
One of the current conditions of the ETF and SRF schemes Withholding tax exemption
is that once the fund has been approved under either of
The current withholding tax exemption available to funds
the schemes, the investment objective of the fund cannot
approved under the ETF and SRF schemes will be available
be changed (other than in certain situations and subject to
to VCCs approved under the ETF and SRF schemes.
approval of the authorities).
Incentive scheme for fund managers
It has been clarified in the recent announcement that the
investment objective condition must be satisfied at the VCC The 10% concessionary tax rate under the Financial Sector
level (and not a sub-fund by sub-fund level). This means the Incentive - Fund Management Scheme will be extended to
following: approved fund managers managing incentivised VCCs.
1. If there is a breach of the investment objective condition Addition of new sub funds
by one sub-fund, it will adversely impact the entire There is no need to seek approval from or inform the
VCC (i.e. even the other sub-funds). A breach could authorities if there are new sub-funds added to a VCC.
occur when the sub-fund invests outside of the VCC’s However, where the investment scope has changed with
investment objective as approved under the ETF and the addition of a new sub-fund, an approval will be needed
SRF schemes. from the authorities to expand the investment scope.
2. Each time a new sub-fund is added to the VCC, which Further, if there is an announcement of termination of the
has a different investment objective than what was ETF and SRF schemes, then additions of sub-funds will not
previously approved under the ETF or SRF schemes, the be allowed.
VCC will need to update the investment objective under
the ETF and SRF schemes and obtain approval from
the authorities.
Conclusion
The investment objective condition was introduced in
The announcements are largely in line with industry
the schemes in order to avoid misuse or recycling of the
feedback and expectations. The main takeaway for fund
approved entities. We hope that the authorities reconsider
managers should be that an umbrella VCC has only one set
this aspect, such that only the sub-fund breaching the
of economic conditions applicable under the ETF and
investment objective condition would lose the incentive for
SRF schemes.
the year in which the breach occurs (and not the rest of the
sub-funds).
The stipulation that a breach of this condition by one sub-
fund will affect the other sub-funds is not desirable. This Learn how VCC compares with the rest of the
may deter many fund managers from using umbrella VCCs. corporate fund structures around the globe here.
How PwC can help you
Our dedicated team brings together senior and experienced subject matter experts and trusted specialists who can
support you at every step of the way to achieve a successful outcome with the VCC launch.

Assist in licensing your fund

Incorporating your VCC
management company (V/R/LFMC)

Provide market intelligence

Drafting your legal documents
for Market Entry

Provide day one compliance Determine tax structure for your

assistance VCC (Tax advisor)

Serve as your company secretary Tax review of VCC fund documents

Serve as your registered

Tax compliance of your VCC
filing agent

Serve as your registered office Assist with FATCA compliance

CISnet application for your VCC Audit your VCC

We are able to provide all these services comprehensively, subject to restrictions.

 Contacts

Justin Ong Tan Hui Cheng

Asia Pacific Asset and Wealth Asset and Wealth Management
Management Leader Tax Partner
PwC Singapore PwC Singapore
+65 6236 3708 +65 6236 7557
justin.ong@sg.pwc.com hui.cheng.tan@sg.pwc.com

Anuj Kagalwala Lim Maan Huey

Asset and Wealth Management Asset and Wealth Management
Tax Leader Tax Partner
PwC Singapore PwC Singapore
+65 6236 3822 +65 6236 3702
anuj.kagalwala@sg.pwc.com maan.huey.lim@sg.pwc.com

Armin Choksey
Asian Investment Fund
Centre Leader
PwC Singapore
+65 6236 4648
armin.p.choksey@sg.pwc.com

For more details on VCC, visit www.pwc.com/sg/svacc

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