Maritime and Shipping Law Services

PDegal LLC offers clients an extensive range of services to private equity and venture capital firms, family offices, providing advice and expertise on:

• establishment and licensing of fund management companies and fund regulatory matters
• establishment of family offices and variable capital companies (VCC) funds
• structuring and establishment of offshore and onshore, private investment funds
• offering of funds-related services
• legal and regulatory requirements for fintech, digital assets and payment services
• corporate advisory and guidance on fundraising, including the venture investment model agreements (VIMA)

The Variable Capital Company – a corporate structure for investment funds in Singapore

On 15 January 2020, the Monetary Authority of Singapore (MAS) launched the much awaited ‘Variable Capital Company’ (VCC), a new corporate structure customized to cater to the specific requirements of investment funds.

The VCC structure is based on the “Segregated Portfolio Company” structure – a company, which remains a single legal entity and may create segregated portfolios such that the assets and liabilities of each portfolio are legally separate from the assets and liabilities of any other portfolio, currently adopted by jurisdictions such as the Cayman Islands. Much like the Segregated Portfolio Company, the VCC can be structured as a stand-alone fund or an umbrella fund with multiple sub-funds.

This article seeks to provide an overview of the VCC structure including regulatory requirements and incentives, and highlight why the VCC is becoming an increasingly popular vehicle for fund and wealth management.

Key Features of the VCC

The following are the key features of a VCC:

• The VCC can be structured as a single stand-alone fund or an umbrella VCC with multiple sub-funds.
• Whether structured as a stand-alone fund or as an umbrella fund, the VCC and its sub-funds are considered a single legal entity.
• When structured as an umbrella VCC, each sub-fund operates as a “cell” with distinct assets and liabilities, thereby allowing for ring-fencing of assets from other sub-funds within the umbrella VCC.
• The VCC may be constituted as an open ended (i.e mutual and hedge funds) or closed end (i.e. venture and private equity funds) fund.
• The VCC benefits from flexibility in relation to dividend payouts which can be paid out of its capital. This is in contrast to the traditional structure under the Companies Act, where dividends may only be paid out of profits.

Advantages of the VCC

As the VCC was introduced for the purposes of fund and wealth management, it has been ultimately tailored towards the needs of the aforesaid industries. Some of the key advantages of the VCC include the following:

• Privacy and Confidentiality – The register of members and the Constitution (which embodies rights of investors, nuances of distributions etc.) of the VCC is publicly available information, providing necessary privacy and confidentiality to Investors and Fund/Wealth Managers alike.
• Tangible cost efficiencies – When structured as an Umbrella VCC, sub-funds will benefit from streamlined operations viz. a common fund manager, team and board of directors, and common service providers i.e. custodian, counsel, auditor fund administrator etc. This would ultimately reduce significant statutory, regulatory cost and ongoing operational expenses.
• Sub-Funds may adopt separate strategies as the VCC allows for versatile structures with ability to build in varied investor rights.
• The VCC will benefit from tax incentives which will be granted at the umbrella level and cover all Sub-Funds (streamlined administration, decrease expenses etc.)

Grant Scheme

To encourage industry-wide adoption of the VCC framework from managers in Singapore and globally, the MAS has announced a generous grant to defray VCC related set up costs (the “Grants Scheme”).

Under the Grants Scheme, MAS will reimburse VCCs up to S$150,000 which can be utilized towards payments to eligible Singapore based service providers (legal and tax counsel, regulatory & compliance).

Tax Treatment and Incentives

For the purposes of tax, the VCC is treated as a company and a single entity. As such, the VCC need only to file a single Income Tax return with the Inland Revenue Authority of Singapore (IRAS) .

The VCC will also be able to be afforded tax benefits such as:

• Tax Exemptions on qualifying investment income under the Tax Incentive Schemes (13R,13X, 13R).
• Tax Exemption Scheme for New Start-Up Companies is also available to the VCC.
• Eligibility for the ‘check- the-box’ election which makes it tax efficient for US investors.