Variable capital companies: Singapore seeks to attract fund managers

The 'variable capital companies' framework has been developed by the Monetary Authority of Singapore (MAS) and the Accounting and Corporate Regulatory Authority (ACRA) following a pilot exercise last year. The 18 fund managers involved in that pilot have now incorporated or re-domiciled a total of 20 investment funds as VCCs under the new regime, MAS said.

"This is a great initiative by MAS which provides a tremendous additional competitive advantage for Singapore as a choice jurisdiction for clients, families and investors," said tax and private wealth expert Valerie Wu of Pinsent Masons MPillay, the Singapore joint law venture between MPillay and Pinsent Masons, the law firm behind Out-Law.

Bryan Tan, also of Pinsent Masons MPillay, said the new framework "allows Singapore funds to adopt a more international option to structuring their funds" and enables funds wanting to re-domicile to Singapore to do so easily without breaking structure.

Wu and Tan both welcomed the creation of a new VCC grant scheme which is aimed at encouraging take-up of the new VCC structure in Singapore.

According to MAS, the grant scheme will help pay for up to 70% of the "eligible expenses" fund managers pay Singapore-based service providers to incorporate or register VCCs in Singapore, with a cap set at S$150,000 ($111,000) for each application. Fund managers can access the grant for a maximum of three VCCs, it said.

The grant scheme will be paid for by industry under a new Financial Sector Development Fund (FSDF), which will run for up to three years.

Tan said the grant scheme is likely to prove "very enticing" by cutting the top-line costs of shifting funds to a VCCs structure. Wu said the overall framework would bring potential tax advantages for adopters.

"In the context of global regulatory changes driving the need for onshoring and consolidation, the VCC’s design facilitates the creation of economic substance, and also enables access to Singapore’s 80-plus deferred tax assets (DTAs) and tax incentives through the umbrella fund," Wu said. "This is a much welcome new tool in the toolbox by both fund management and wealth management players, especially multi-family offices."

Benny Chey, assistant managing director, development and international, at MAS said: "The VCC marks a significant chapter in the development of Singapore as a full-service international fund management and domiciliation hub. The VCC framework provides fund managers with a greater choice of investment fund vehicles in Singapore that caters to the needs of global investment funds and investors."

"Fund managers will also be able to extract cost savings from centralising their fund management and domiciliation activities in Singapore and structuring their funds more efficiently. The VCC framework also creates new opportunities for Singapore-based fund service providers such as legal and tax advisors, accountants, fund administrators and fund custodians, as we expect more fund managers to use the VCC to structure their investment funds," Chey said.