Legislative groundwork for the functioning of VCCs in Singapore was laid in 2018. Back then, a special piece of legislation was passed called the VCC Act. Meant to stimulate investment, it was also aimed at bolstering the position of Singapore as the world’s number one investment hub.
We’ll taking an indepth look at VCCs in Singapore, VCC’s taxation in Singapore & general guidelines for borrowers & lenders planning to finance a VCC in the state of Singapore.
VCCs registered in the state if Singapore have a separate legal status & could be used as corporate funds for purposes of CISs. Their investors have two options:
- creating a separate organization
- registering umbrella funds in the state of Singapore.
Those interested in establishing a Singapore-based umbrella fund should keep in mind that such an entity is comprised of multiple subfunds, all of which have diverging investment-oriented strategies & goals, liabilities & assets, and managing directors & common service providers.
Investing in a VCC in Singapore is done by investors through the purchasing of stakes of VCCs based in Singapore.
Having an umbrella-like structure enables investors to own interests in specific sub-funds without investing in separate subfunds.
Creating a VCC in the state of Singapore also implies 2 stages:
- launching an OEI fund in the state of Singapore
- establishing a CEI fund in the state of Singapore.
Establishing a VCC in the state of Singapore involves employing 2 concepts - that of individually structured cells & that of variable capital.
A structure like this allows Singapore-based VCCs to register and distribute their assets & liabilities through multiple subfunds within an identical legal entity. Creating such structures is meant to be an alternative to individual assets.
Those planning on getting a VCC registered in the state of Singapore should remember that its net assets value must reflect its market value.
Those seeking to establish a VCC in the state of Singapore are required to abide by the VCC Law, namely:
- make arrangements for the appointment of their fund’s manager (which requires getting an IF manager license in the state of Singapore);
- ensure the availability of a minimum of one director;
- keep a register of participants without making it public;
- appoint an auditor for the purpose of conducting an annual audit;
- VCC with multiple subfunds are required to prepare separate financial statements for each of the subfunds;
- have a Singapore-registered office & secretary;
- abide by respective AML requirements.
How VCCs are Taxed in the State of Singapore
VCCs in the state of Singapore are eligible for tax benefits, such as tax certificates, provided their founders qualify as Singapore tax residents. A Singapore tax resident is also able to access double tax treaties, which can reduce foreign taxes and capital gains taxes in jurisdictions where investments are made.
Also, under the MAS-launched scheme, costs related to registering a VCC in the state of Singapore can be covered by means of co-financing.
Variable Funding in Singapore
Since VCC regulations only came into effect in early 2020, it will take some time for lenders & other market participants to understand how VCCs are structured & potential financing opportunities.
It is projected that DD procedures for Singaporean VCCs & judicial auditing of VCC deals in the state of Singapore are not going to differ significantly from those of corporate funds or investment instruments.
Given the novelty of their structure, lenders & borrowers will inevitably face certain problems with VCCs. For instance, in the case of umbrella VCCs, lenders will need to understand how the multiple subfunds they are composed of are managed.
Launching the VCC system was an event investors looked forward to with great anticipation. Because of it, entirely new investment instruments became available for potential investors & managers of funds.
Looking for help with VCC regulations in the state of Singapore? IQ Decision UK can handle that and a lot more. We provide assistance in obtaining an investment services provider license in Singapore, including legal advice on financing international investment projects.