Singapore introduced a new structure to attract funds. It provides an attractive alternative to existing fund or collective investment scheme (“CIS”) structures (ie corporation, limited partnership and unit trust).
VCC Act was passed in Oct, 18, amendments in Aug. 19 and the Act became effective from 14-Jan-20.
VCCs will be able to utilise a cellular structure. In this structure, the VCC will be a single legal entity, with its sub-funds operating as separate cells (each without legal personality). A sub-fund will be constituted by registration with ACRA, which will, in turn, provide the sub-fund with a unique sub-fund identification number.
Foreign corporate funds (eg a Cayman segregated portfolio company or a BVI protected cell company) may redomicile to a VCC, if they have positive net assets and remain solvent within 12 months from the date of application. The applicant must submit the requisite forms and documentation for inward re-domiciliation.
VCC is regulated by the Accounting and Corporate Regulatory Authority (for establishment and administrative purposes) and the Monetary Authority of Singapore (“MAS”) (for Anti-Money Laundering/Countering the Financing of Terrorism (“AML/CFT”) purposes). VCC can use US GAAP, ASC Standard or IFRS, except for VCC offered to retail investors which must use RAP7.
Share and Share Capital
A VCC will be allowed to freely redeem shares and pay dividends using its capital. This is one of the main advantages of a VCC. The constitution of a VCC would be deemed to imply the following:
- the value of the paid-up share capital shall be at all times equal to the NAV of the VCC; and
- subject to adjustments for fees and charges as provided in the constitution of the VCC, the shares of the VCC shall be issued, redeemed or repurchased at the price equal to the proportion of the NAV of the VCC represented by each share.
An exception is available for closed-end funds which are listed on a securities exchange where the shares of the fund may be traded.
Tax Incentives
A VCC will be treated as a company and a single entity for the purposes of tax. In addition, tax incentives applicable to funds under sections 13R and 13X of the Income Tax Act will be extended to VCCs. The Financial Sector Incentive Scheme for fund management and GST remission for funds will also be applicable to VCCs, provided that all applicable incentive conditions are met.
A VCC can be used by fund/asset managers, wealth managers, private equity/real estate/venture capital managers and multi-family offices. It can be used for traditional, alternative, private equity/real estate/venture capital funds. It can also be used as an alternative to retail unit trust funds. Practically, we anticipate a significant take up rate for the private VCC, both for traditional and alternative fund strategies.
VCC is expected to help strengthen Singapore’s position as a full-service international fund management centre.
Amendments to other Acts, to accommodate VCC regime:
(a) Corporate Income Tax (“CIT”)
- To ease compliance burdens, an umbrella VCC only needs to file a single CIT return with the Inland Revenue Authority of Singapore, regardless of the number of sub-funds that the umbrella VCC may have.
- Tax incentives under sections 13R and 13X of the ITA will be extended to VCCs. In the case of an umbrella VCC, these tax incentives will be granted at the umbrella level.
iii) Deductions and allowances for umbrella VCCs will be applied at the sub-fund level for determination of the sub-fund’s chargeable or exempt income.
iv) Where applicable, an umbrella VCC will enjoy start-up or partial tax exemption which will be applied once at the umbrella level, regardless of the number of sub-funds the umbrella VCC may have.
(b) Goods and Services Tax (“GST”)
i) GST will apply at the sub-fund level, as each sub-fund makes independent sale and purchase decisions based on its respective investment mandate.
(c) Stamp Duty (“SD”)
- SD treatment will be applied at the sub-fund level. This is because each sub-fund can, through its umbrella VCC, enter into transactions relating to immovable property and shares.
As regards India, Foreign Direct Investment flows from territories like Mauritius, Singapore, Netherlands and other Treaty countries apart from tax heavens. Both Maurirus and Singapore have amended Treaties. VCC regime in Singapore is an edge over Mauritian Traty.
With the intervention of OECD – BEPS, Multi Lateral Instruments have been put in place. The Treaties have also been amended to include MLI. Singapore Treaty has incorporated Article 29A to the Treaty: –
“ARTICLE 29A
PREVENTION OF TREATY ABUSE
Notwithstanding any provisions of this Agreement, a benefit under this Agreement shall not be granted in respect of an item of income or capital if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of this Agreement.”
With this introduction of MLI in Treaty, it would be interesting to see how VCC is treated in MLI.