Deadline looms to take advantage of VCC grant scheme

Deadline looms for investment managers to take advantage of VCC grant scheme.

With only a few months until the Monetary Authority of Singapore (MAS) closes its Variable Capital Company (VCC) grant scheme, the window of opportunity is closing for investment managers to register. We round up the key facts to support your timely decision-making.

What is a variable capital company and what are the benefits of establishing one?

The Variable Capital Company (VCC) is an enhanced form of the Singapore-incorporated company, which is specifically tailored for investment funds and used for collective investment schemes (CIS). The legal entity can be formed as a single standalone fund or as an umbrella fund with two or more sub-funds (each holding different assets).

The VCC Act was launched on 14 January 2020. It immediately enjoyed strong momentum, with more than 400 VCCs and 550 sub-funds registered in the first two years.

What is the VCC grant scheme?

The VCC grant scheme, launched by the MAS under Singapore’s Financial Sector Development Fund, currently offers a grant of up to 70% of eligible expenses paid to Singapore-based service providers.

Introduced to encourage adoption of the VCC vehicle, it aimed to help these providers with VCC-related set-up costs (including legal, tax advisory and compliance). The grant is capped at $150,000 for each application and limited to three VCCs per fund manager. It also covers existing offshore investment funds that redomicile to Singapore.

The grant supports diversity in the industry, particularly in not precluding boutique-sized investment managers from participating in the VCC regime.

Which investment funds are eligible for the VCC grant?

Qualifying fund managers that have incorporated a VCC or have successfully re-domiciled a foreign corporate entity to Singapore as a VCC and have obtained a notice of incorporation or transfer of registration from the Accounting and Corporate Regulatory Authority (ACRA).

When does the VCC grant scheme end?

The current grant scheme is valid until the 15th of January next year, and it is unclear whether this deadline will be extended.

How long does it take to register – is there still time?

There is still time to register a VCC or re-domicile overseas investment funds to Singapore as a VCC and qualify for the grant scheme - if you are able to move quickly.

It takes around three weeks to set these vehicles up and the name can be registered almost immediately (although timings may vary based on the type of capital markets services license the qualifying fund manager applies for).

What are the benefits of variable capital companies VCC?

  1. Segregation of sub-funds mitigates risk

    A VCC can be established as a standalone fund, or as an umbrella fund with multiple sub-funds. In case of insolvency, each sub-fund must be wound up separately. Ring-fencing the assets and liabilities of each sub-fund in this way helps to safeguard investors.

  2. Flexibility with dividend payouts

    A VCC can pay dividends from capital, which is not typically permissible in other corporate forms.

  3. Heightened privacy

    This is an essential feature for private funds because the constitution, financial statements, and the Register of Members (investors) cannot be made public.

  4. Tax incentives

    Incentives are extended to both the VCC and the Singapore fund manager. Funds can apply for section 13O (Onshore Fund Tax Exemption Scheme), 13U (Enhanced Tier Fund Tax Exemption Scheme) and a tax exemption for venture capital funds (Section 13H scheme). Fund managers of VCC funds may apply for the Financial Sector Incentive Scheme for fund management (FSI-FM) and Fund Management Incentive (FMI) Scheme, which provides concessionary tax rates of 10% and 5%.

  5. Flexibility of use

    The VCC structure can be used for both open-ended and close-ended fund types.

  6. Re-domiciliation of foreign funds

    Foreign funds structured similarly to the VCC can re-domicile to Singapore via a simple registration process under the Companies Act. This allows foreign funds to preserve their corporate history and identity while capitalizing on the benefits that the VCC has to offer.

  7. Cost efficiencies from economies of scale

    The umbrella VCC structure allows sub-funds to share a common fund manager, investment team, board of directors, and service providers (i.e. fund administrator, counsel, custodian, auditor) so reduces statutory and regulatory reporting requirements, as well as ongoing operational expenses.

What are the alternatives to a VCC?

Singapore offers a variety of structures for investment funds including limited partnerships, unit trusts, business trusts, and real estate investment trusts. Corporations are also commonly used as investment subsidiaries for fund investments; more than 70% of alternative funds in Singapore are corporate form funds that are domiciled in foreign locations.

But there are limitations to each of these fund structures, including:

  • investor transparency issues
  • restrictions on dividend payout from capital
  • a lack of access to certain tax treaties that Singapore has in place.

That’s why the VCC is a particularly attractive and efficient investment fund structure option for eligible Singapore-based service providers.

How can Trustmoore help?

Trustmoore has a strong presence in Singapore, having helped both our domiciled and non-domiciled clients with all forms of corporate structures for over 17 years.

As a fund administrator, we are responsible for the independent valuation of the fund, including the calculation of the net asset value (NAV), subscription and redemption prices, as well as remuneration to the fund manager via management and performance fees. Typically, we also take on the role of a transfer agent. Key functions include maintaining a record of ownership of fund interests, processing the subscriptions and redemptions of the fund, distributing dividends among other corporate actions, and preparing capital account statements.

We are independent of any bank, lawyer or accounting firm, so we act as truly independent advisers who can give their full attention to setting up and managing your fund and corporate structures in Singapore.

As well as assisting and advising you on the process of incorporating a VCC in Singapore, we can assess the eligibility of your fund to apply for a VCC grant, and the plausibility of achieving it.

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Director, Business Development, Asia

Desley Tan