18 February 2020

Insights with… The Monetary Authority of Singapore


In an annual poll done by the Monetary Authority of Singapore (MAS), the assets under management (AUM) in Singapore rose 5.4% to S$3.4 trillion in 2018. As part of Singapore’s vision to position Singapore as a full-service fund management and fund domiciliation hub in Asia, MAS has launched a new corporate structure for investment funds on 15 January 2020, known as the Singapore Variable Capital Company (VCC).

We go in-depth with Elean Chin, Head, Insurance, Funds & Infrastructure Finance Division, MAS to find out more about the VCC framework.

About the VCC Act

Q1: In order to help us see the bigger picture, could you share with us what MAS’ objectives and goals are in introducing the VCC?

To strengthen Singapore’s position as both a fund management and domiciliation hub, we have introduced the VCC framework to make it more attractive for fund managers to domicile their investment funds in Singapore.

The new VCC has features that are tailored for use specifically as an investment fund vehicle. When conceptualising this structure we looked across the globe at similar structures to find and design a bespoke investment fund structure that works for the fund management community. Co-locating the fund domiciliation and fund management activities in Singapore will also allow the fund manager to achieve cost economies by tapping on a single layer of service providers, and also demonstrate more economic substance through investment activities undertaken locally. For a fund manager already located in Singapore, the VCC as a legal entity will also avail itself to Singapore’s extensive Double Taxation Agreement (DTA) network.

This will allow Singapore to capture a greater share of the full value of fund management, from fund management to fund domiciliation and servicing. In turn, this will bring more business opportunities for Singapore-based service providers, including lawyers, accountants, fund administrators and fund custodians.

Q2: Many of our exempt real estate funds and single-family office clients are disappointed that they are not currently permitted to use the VCC – could you share the reasons for this with us?

The requirement to have a fund manager that is regulated by MAS was proposed to mitigate the risk of abuse of the VCC structure for illicit and fraudulent purposes. Expanding the scope of fund managers that are currently allowed to set up VCCs to include entities not subject to MAS’ oversight could therefore introduce additional risks to the VCC framework and the overall financial system.

MAS is considering studying this requirement in greater detail in the coming year.

Impact of VCC on funds

Some market observers have opined that the VCC competes directly with similar vehicles in the British Virgin Islands (BVI) and the Cayman Islands

Q3: What sets the VCC apart from the BVI and Cayman Islands Segregated Portfolio Company (SPC)?

Each vehicle with a flexible corporate structure has their unique features. Fund managers, and investors, must assess which features are most relevant for their purpose.

In addition, it is often not just the fund vehicle, but also the value proposition of the fund domicile. Singapore is widely acknowledged as a trusted and credible financial centre, with its strong rule of law, robust regulatory standards, ease of doing business, and is gaining prominence as a preferred onshore fund domicile.

Q4: Do you expect predominately BVI and Cayman Islands funds to re-domicile as VCCs in Singapore or are you expecting mainly new funds to take up the VCC?

A group of 18 fund managers participated in a VCC Pilot Programme that was initiated by MAS and the Accounting and Corporate Regulatory Authority (ACRA) in September last year. These fund managers set up new funds and re-domiciled existing funds across venture capital, private equity, hedge fund and Environmental, Social and Governance (ESG) strategies. Based on the results from the VCC Pilot Programme, we expect that fund managers across the different strategies will set up new investment funds as well as re-domicile their investment funds from other jurisdictions to Singapore. In particular, fund managers may seek to re-domicile their investment funds to Singapore to take advantage of the cost efficiencies from using a single set of service providers in the same jurisdiction.

MAS has also launched a VCC Grant Scheme to defray costs involved in incorporating or registering a VCC. We expect fund managers will tap on this grant to defray qualifying expenses involved in re-domiciliation as well.

Q5: Can a VCC have more than one fund manager? If so, do you see any particular areas the VCC rules will need to address in its management, operation and corporate governance?

A VCC is only permitted to have one fund manager and this fund manager must be regulated by MAS. The fund manager of the VCC may delegate fund management and operational duties to other parties (e.g. a sub-manager) which are regulated as fund managers in Singapore or other jurisdictions. However, the fund manager of the VCC must retain overall responsibility for the management of the fund.

Q6: Are there any areas the MAS is further looking into to further enhance the attractiveness of the VCC?

As part of MAS’ regular policy reviews, we continue to seek industry feedback on how else we can make the VCC an even more compelling fund structure. We are, for example, exploring the possibility of (i) expanding the current set of permissible VCC fund managers who are able to use the VCC structure including, among others, single family offices; (ii) widening the scope of use of the VCC; and (iii) providing a legislative regime to facilitate the conversion of existing domestic CIS structures (e.g. unit trusts) to VCCs.

Tax considerations of the VCC

Q7: Fund managers are often focused on the tax implications of their fund structure. We noticed that the VCC Act has no mention of ‘dividend’. Can a VCC issue dividend out of capital, and what are the intended mechanics of upstreaming profits?

Unlike the Companies Act, the VCC Act does not prohibit the payment of dividends out of capital. In particular, you may wish to know that a VCC may issue different classes of shares with different rights and dividend payment policies. The rights attaching to each share must be clearly set out in the VCC’s constitution.

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