Singapore passes new law on variable capital companies

The Variable Capital Companies Act (260-page / 709KB PDF) provides for VCC structures to be set up in the city state, and sets further rules on how they are to be administered, managed and regulated.

Indranee Rajah, Singapore's second minister for finance, described the introduction of VCCs in Singapore as "a game-changer for Singapore’s fund management industry".

"The VCC structure will complement and expand the existing suite of fund structures available in Singapore, such as the company, limited partnership and unit trust structures," Indranee said in a speech before Singapore's parliament on Monday. "Taken together, this will provide a comprehensive range of investment fund vehicles and structures to support investors’ needs."

The variable capital structure of a VCC allows it to issue and redeem shares without having to seek shareholders’ approval, enabling investors to enter and exit investment funds when they wish to. It can also pay dividends using its capital.  

A VCC may be established as a standalone structure, or as an umbrella structure with multiple sub-funds with different investment objectives, investors, assets and liabilities. The umbrella structure creates economies of scale as sub-funds can share the same board of directors and common service providers and consolidate some administrative functions.

To prevent VCC from being abused for unlawful purposes, VCC will be subject to anti-money laundering and terrorist financing requirements, and also required to appoint a fund manager that is regulated by the Monetary Authority of Singapore (MAS).

Indranee said that the opportunity to establish VCCs in Singapore will create more than 1,000 new jobs in the next two years. She also said that the new corporate structure will help Singapore-based companies to benefit financially.

"A substantial proportion of investment funds that are managed by fund managers in Singapore are domiciled elsewhere, for example in Luxembourg and the Cayman Islands, owing to the flexible corporate structures that are available there," the minister said. "As a result, most of the economic benefits generated by service providers to these investment funds accrue outside Singapore."

"Singapore-based fund managers who domicile funds locally as VCCs can look forward to significant cost economies and fewer cross-border administrative and compliance hurdles through the use of local service providers operating out of just one country. In contrast, funds domiciled overseas but sold in Singapore typically incur additional costs from having to use multiple service providers across different countries. VCCs would also be able to avail themselves of Singapore’s competitive tax regime," she said.

Bryan Tan of Pinsent Masons MPillay, the Singapore joint law venture between MPillay and Pinsent Masons, the law firm behind Out-Law.com, said he believes the new legislation will be welcomed by the venture capital industry.

"Industry may consider VCCs where the fund sizes tend to be smaller and the cost savings and nimbleness of the VCC structure would be very much welcomed," Tan said.

Tax and private wealth expert Valerie Wu of Pinsent Masons said: "VCC is a much anticipated vehicle both for the fund management industry and wealth management industry. If this can be coupled with tailored tax incentive schemes, it will provide an even greater boost to both aforesaid industries."