Singapore VCC Act: Key Features & Implications for Alternative Funds

On 15 January 2020, Singapore launched the Variable Capital Companies (VCC) Act. Samuel Chang, Commercial Director, and Neco Dusseldorp, Senior Manager Fund Services, discuss the main characteristics and what this new fund structure means for Singapore.

The VCC Act was passed by parliament on 1 October 2018. The Act provides for the incorporation of a VCC, which is a legal entity specifically designed for Alternative Investment Funds (AIFs).

SINGAPORE DOMICILED FUNDS PRIOR TO THE VCC ACT

In Singapore, fund managers are regulated by the Monetary Authority of Singapore (MAS). Licensing ranges from exempted fund managers to the heaviest regulated – Capital Markets Services License. Singapore didn’t have a fund vehicle that’s tax transparent. In this respect, Singapore had a backlog compared to other countries as a fund jurisdiction and saw fund managers based in Singapore use other jurisdictions to set up their fund – mainly the Cayman Islands. To counter this, and to make Singapore more attractive as a fund jurisdiction, MAS introduced a number of tax exemptions, such as S13R and S13X. Funds that are setting up in Singapore can apply these exemptions should they meet pre-determined requirements.

Although these exemptions make Singapore more attractive as a fund jurisdiction, there are still disadvantages compared to the well-established fund location, such as the Cayman Islands and Luxembourg. Singapore identified that these disadvantages stem from a combination of inflexible capital rules for Singapore companies and the fact that only Singapore companies qualify for tax exemption application. To be more competitive as fund jurisdiction, and to facilitate Singapore based fund managers, Singapore designed the VCC Act.

THE MAIN CHARACTERISTICS OF THE VCC

It’s a fund vehicle that:

• is regulated or exempted under the SFA
• can be set up as open or closed-ended
• is used for mutual fund strategies for retail investors and as alternative investment strategies for sophisticated investors
• tax transparent
• repurchase of issued shares
• segregated cells

WHAT INTRODUCING VCC MEANS FOR SINGAPORE

At this point, in the early stages of the launch, there are additional incentives in place for Singapore fund managers to use the VCC structure locally instead of the ones domiciled in foreign jurisdictions. Therefore, many fund managers are starting to move towards these structures. There may be a trend of re-domiciliation of foreign corporate funds in this timeframe as well.

WHAT IT MEANS FOR INTERTRUST

In Singapore, we have a dedicated fund services team with the expertise to administer both open and close-ended funds. We are also partnering PwC to provide extensive training on the VCC in the coming months to equip the team with the necessary knowledge to administer this new structure. We foresee that international fund managers who are contemplating expanding to the South East Asia region will consider Singapore as a jurisdiction to set up their fund. In light of this, Singapore expects that certain fund managers will re-domicile their existing funds to Singapore with the VCC structure in place.

If you’d like to learn more about the VCC or Singapore as a fund jurisdiction, please contact us.