VCC or Variable Capital Company
VCC or Variable Capital Company
Variable Capital Company (VCC) Features
Variable Capital Companies (VCC) can be structured in several ways. A Variable Capital Company can adopt a standalone or umbrella fund structure comprising multiple sub-funds with segregated assets and liabilities. Standard service providers can save money when used across the umbrella and sub-funds. Proper accounting and administration procedures are crucial for efficiently managing such entities.
By transferring their registration to Singapore as Variable Capital Companies, fund managers can incorporate new Variable Capital Companies or re-domicile their existing overseas investment funds with comparable structures.
Variable Capital Company has a flexible capital structure allows it to issue and redeem shares as needed. It can pay dividends out of the capital to meet dividend payment obligations.
A Variable Capital Company must maintain a register of shareholders, which does not have to be made public. However, it must disclose the register upon request by public authorities for regulatory, supervisory and law enforcement purposes.
Both closed-end and open-ended fund strategies can make use of a VCC.
What are the Requirements of a VCC?
Incorporating & establishing a VCC:
- A VCC may have only one member, allowing its use in fund structures with a single member and multiple underlying investors (e.g., master-feeder-fund or single nominee account)
- Minimum initial paid-up share capital can be denominated in currencies such as USD and must be at least SGD 1.00
- A Singapore-based licensed or regulated fund manager is required (unless exempted under the regulations*)
- The company must have its registered office and appoint a company secretary in Singapore
- Atleast one shareholder is needed (The shareholder can be either an individual or a corporate entity, and 100% foreign shareholding is allowed.)
- Every Variable Capital Company (VCC) is required to have at least one director, who can also be the same person who is ordinarily resident in Singapore. This director must either be a Qualified Representative (as defined under the VCC Act) or a director of its fund manager
- It must present its financial statements and be audited by a Singapore-based auditor
Tax Handling of the Variable Capital Company (VCC)
Stand Alone (Single fund) VCC
- The stand-alone VCC will have the same value as a Singaporean company
- Under the Income Tax Act, the Enhanced Tier Fund (“ETF”) Scheme and Singapore Resident Fund (“SRF”) Scheme will apply to a stand-alone VCC similarly as it would apply to a Singapore company
Umbrella (Multiple Sub-fund) VCC
- The applicant fund's minimum size must be at least S$50 million upon application
- The fund requires a minimum local business spend of S$200,000 annually
- Under the SRF Scheme, the fund needs to have an annual business spend of at least S$200,000, which may be spent overseas
The legislation allows corporate entities from other jurisdictions that have one or more Collective Investment Schemes (CIS) to move their registration to Singapore and become a Variable Capital Company (VCC) by applying to the ACRA. However, the legislation does not provide a similar provision for Singapore-domiciled funds to convert to a VCC. These Singapore-domiciled funds will need to rely on standard acquisition agreements to transfer their assets to a VCC.
Comparison of a Company & a VCC
| Private Company Limited by Shares (Company) | Variable Capital Company (VCC) | |
| Management | Board of directors | Board of directors |
| At least one director is required, who may or may not be the shareholder. | Every VCC must also have at least 1 director (who may be the same person that is ordinarily resident in Singapore) who is either a Qualified Representative (as defined under the VCC Act) or a director of its fund manager.If VCC has authorized scheme, then it must have three directors, including one independent. | |
| A VCC must appoint a Permissible Fund Manager to manage its property or operate the CIS that comprises the VCC. | ||
| The manager is required to possess a capital markets services license for fund management. | ||
| Taxes | Companies are required to pay income tax at a rate of 17% on their corporate earnings. | A VCC is treated as a single entity company for tax filing purposes. Only one set of income tax returns needs to be filed with IRAS. |
| Singapore has a simplified tax system, and shareholders are not taxed on dividends that are paid out. | The total chargeable or exempt income of an umbrella VCC is calculated by aggregating the income of each of its sub-funds as if they were individual VCCs. | |
| VCCs are required to pay income tax at the current corporate tax rate, which is 17%. | ||
| Singapore has a single tier tax system, and dividends that are paid out to shareholders are not subject to taxation. | ||
| Liability of partners/share- holders | The obligation of the company is the responsibility of the company alone. | Shareholders’ liability for the liabilities of the VCC or its sub-funds is limited to any unpaid amount on their shares. The income of a sub-fund is determined as if it were a VCC and the tax rules are applied at the sub-fund level. Tax credits, if any, are also computed at the sub-fund level. |
| The liability of a shareholder to contribute is limited to the amount if any, unpaid on their shares. | The obligation of the VCC is the responsibility of the VCC alone. There are no other parties involved in fulfilling this obligation. Similarly, an obligation of a sub-fund is solely the obligation of that sub-fund. | |
| The company’s liabilities will be paid from its assets. | The VCC’s liabilities will be paid from its property. | |
| The sub-fund is responsible for its own liabilities, not the VCC or other sub-funds. | ||
| Legal Status | A company is considered as a distinct legal entity from its owners and shareholders. | A VCC refers to a distinct and independent legal entity. |
| It can possess assets and hold them under its own name. | It has the ability to own and manage assets in its own name. | |
| The rights and responsibilities are distinct from those of its shareholders and directors. | The rights and obligations of a company are distinct from those of its shareholders and directors. | |
| Under an umbrella VCC, a sub-fund is not considered a separate legal entity from the VCC. However, the VCC has the power to take legal action or be sued on behalf of a sub-fund. Each sub-fund is treated as if it were a legal person and its property is also treated as if it were owned by a separate legal entity. |
Benefits of Variable Capital Company (VCC)
Flexibility
Both open-ended and closed-end funds can be impacted by VCC, which has no restrictions on investment. You can also redeem investor investments and pay dividends using capital without difficulty.
Tax Transparency
VCCs are among the various tax incentives Singapore funds can use.
Discretion
It also ensures that investors are safeguarded against leaking VCC financial statements and investor/shareholder registers to the public.
How can IMC Group help you?
- Incorporating your VCC
- Assist in variable capital company accounting and administration
- Drafting your legal documents
- Assist in the licensing process for your fund management company (V/R/LFMC)
- Determine the most advantageous tax structure for your VCC (Tax advisory)
- Tax Compliance of your VCC
- Audit your VCC
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