30 October 2018

The Variable Capital Companies Bill (“Bill”) was passed in Parliament on 1 October 2018. When the Variable Capital Companies Act (“VCC Act”) is enacted, there will be a new legal framework for variable capital companies (“VCCs”) in Singapore, a new type of corporate entity tailored for investment funds. The VCC Act is expected to come into force in 2019.

Reasons for establishing new VCC framework

Currently, investment funds may be structured as unit trusts (constituted by way of trust deeds), companies incorporated under the Companies Act or limited partnerships governed under the Limited Partnerships Act. However, these structures have limitations when used as vehicles for investment funds. Therefore, many investment funds that are currently managed out of Singapore are incorporated or set up in foreign jurisdictions.

The VCC framework seeks to provide investment managers with greater operational flexibility and allow investment funds to consolidate the fund domicile with the respective fund management activities in Singapore.

 Key advantages of VCC

Under the VCC Act, a VCC may be set up as a single standalone fund or may adopt the umbrella VCC structure under which it has multiple sub-funds that may have different investment objectives, investors as well as assets and liabilities. Some key advantages of VCCs over the current fund structures include:

  • VCCs may consist of both open-ended and closed-end funds as its sub-funds.
  • VCCs will be allowed to issue or redeem their own shares in accordance with their constitutions without having to seek shareholders’ approval, thus enabling investors to exit from their investments in the investment fund when they wish to.
  • VCCs may pay dividends out of capital, not only out of profits.
  • VCCs are more cost effective as sub-funds of a VCC will be allowed to share a board of directors and have common service providers, such as the same fund manager, custodian, auditor and administrative agent.
  • Foreign corporate fund structures that are similar to VCCs will be allowed to re-domicile as VCCs in Singapore through a simple registration process. Unlike the re-domiciliation regime under the Companies Act, a foreign corporate fund will not be required to satisfy the minimum size criteria.
  • VCCs will be given the flexibility to prepare their financial statements using an applicable accounting standard set by the Accounting Standards Council (namely, Singapore Financial Reporting Standards (“SFRS”) or the SFRS (International)), the International Financial Reporting Standards (IFRS) or the US Generally Accepted Accounting Principles (US GAAP).

Next steps

In addition to the Bill, more details for operationalising the VCC framework are expected to be released and/or consulted on and these relate to:

  • Tax framework for VCCs which is expected to be released by the Monetary Authority of Singapore (“MAS”), the Inland Revenue Authority of Singapore (IRAS) and the Ministry of Finance (MOF).
  • Subsidiary legislation to be issued under the VCC Act.
  • Details of the regulation of offerings of investments in VCCs which will be set out in amendments to the Securities and Futures Act (“SFA”) and its subsidiary legislation.
  • Requirements applicable to a VCC which consists of Authorised or Restricted Schemes which will be set out in amendments to the SFA, its subsidiary legislation and/or the Code on Collective Investment Schemes. An Authorised Scheme refers to a collective investment scheme (“CIS”) that is constituted in Singapore and authorised by MAS under section 286(1) of the SFA. A Restricted Scheme refers to a CIS that is offered only to accredited investors and certain other persons, or offered on terms that the units may only be acquired for consideration of at least S$200,000 (or equivalent in foreign currency) per transaction, and is exempted from authorisation or recognition and prospectus requirements.
  • Requirements relating to anti-money laundering and countering the financing of terrorism (AML/CFT) and the keeping of the register of controllers and nominee directors.

Reference materials

The following materials relating to this development are available on the Singapore Parliament website http://www.parliament.gov.sg/, the MAS website www.mas.gov.sg and the Singapore Law Watch website www.singaporelawwatch.sg:

 

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