On the 1st of October 2018, the Singapore parliament passed the Variable Capital Companies Act. The act was assented to by the President on the 31st of October 2018.
The Variable Capital Companies Act provide for the incorporation, operation and regulation of new corporate entities called Variable Capital Companies. A Variable Capital Company (VCC) has two main defining features. The first is the ability to set up segregated cells or portfolios and the second is the ability to vary the company’s capital. These functions are set in place to enhance Singapore’s appeal as an international fund management hub. It is designed to compete with other jurisdictions which allow such similar functions when setting up investment funds. In a nutshell, Singapore is trying to domicile offshore funds by making it attractive for global fund managers to set up Variable Capital Companies in Singapore rather than in other jurisdictions.
Segregated Cells or Portfolios
The ability to form segregated cells or portfolios within a VCC would allow a fund manager to set up different investment strategies within a VCC and the assets and liabilities of each segregated cell or portfolio will not have a bearing on each other or the overall VCC structure. This is extremely useful as it reduces the need to set up individual legal entities but instead, one entity can perform multiple investment purposes.
Vary Company Capital
In a typical company limited by shares, the reduction of share capital is a tedious task that requires either a court order to be filed or the directors have to provide a solvency statement before the share capital of the company can be reduced. This may be a useful function and safeguard in a typical company that operates a traditional business but when it comes to investment funds, the ability to return capital to investors quickly and efficiently is paramount. The ability to vary share capital easily will greatly enhance the attractiveness of setting up an investment fund in Singapore under the VCC structure.
There are many important considerations when structuring a fund and one of the most important factors would be the local tax landscape. Singapore has very low corporate tax rates and has no capital gains tax. Also, Singapore has an expansive network of over 80 avoidance of double tax agreements with other countries. This already makes Singapore a very attractive place to set up a company. The Variable Capital Companies Act further enhances this and provides a very viable alternative to established structures like those based on Cayman limited partnerships or Irish investment entities.
The act has yet to come into force and thus such business entities have yet to be incorporated. It is estimated that the act will come into force in the fourth quarter of 2019.
The Accounting and Corporate Regulatory Authority of Singapore will be the registrar for Variable Capital Companies and the companies will require a company secretary as well as a qualified fund manager to operate.
When in doubt, seek legal advice or consult an experienced ACRA Filing Agent.
The editorial team at ACRA Filing Agent.
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