26 February 2019
On 14 February 2019, the Ministry of Finance (“MOF”) issued a consultation paper seeking feedback on proposed amendments to the Goods and Services Tax Act (“GST Act”) and Stamp Duties Act (“SD Act”) to provide for the goods and services tax (“GST”) and stamp duty (“SD”) treatment of variable capital companies (“VCCs”).
The Variable Capital Companies Act 2018 (“VCC Act”) was passed by Parliament on 1 October 2018. When the VCC Act is in force, there will be a new legal framework for VCCs in Singapore, a new type of corporate entity tailored for investment funds. 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 and investors, with segregation of assets and liabilities at the sub-fund level.
The proposed amendments to the GST Act and SD Act will be incorporated into a Variable Capital Companies (Miscellaneous Amendments) Bill 2019 (“Bill”). Feedback on the changes must be submitted to MOF by 1 March 2019.
Currently, investment funds in Singapore 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 which have the flexibility of a dedicated fund structure for such funds. 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. Some advantages of VCCs over the current fund structures include:
- VCCs are more cost effective as sub-funds of an umbrella VCC will be allowed to share a board of directors and have common service providers;
- 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.
To read more about the VCC framework, please click here for the Allen & Gledhill Knowledge Highlights titled “Upcoming VCC framework to encourage investment funds to domicile in Singapore” (19 October 2018).
MOF has indicated that a separate public consultation will be conducted on proposed income tax treatment for VCCs. The legislative amendments to the relevant tax legislation are expected to come into operation in the second half of 2019.
Key proposed GST treatment of VCC
MOF proposes applying the following GST treatment to VCCs:
- Application at sub-fund level: GST registration, accounting and reporting will be performed separately by an umbrella VCC on behalf of each of its sub-funds. Each sub-fund is taken to be a separate taxable or GST-registered person. GST-registered sub-funds are required to file separate GST returns. This is because each sub-fund makes independent sale and purchase decisions based on its respective investment mandate.
- Taxability of transactions made by sub-fund: The existing GST rules apply to taxable supplies made by a GST-registered sub-fund to its customers, including other sub-funds of the same umbrella VCC. The sub-fund is required to charge and account for GST on taxable supplies made. These rules include the existing deeming rules to require GST to be accounted for when business assets are given away for free or put to non-business use.
- GST collection and enforcement: Any tax liability, fine or penalty under the GST Act in relation to a sub-fund of an umbrella VCC is incurred by the VCC on behalf of the sub-fund. Any such liabilities of the umbrella VCC are to be discharged out of the assets of the sub-fund.
Key proposed SD treatment of VCC
MOF proposes to introduce a new Part VIIIB to the SD Act which will apply certain provisions in the SD Act, which are currently applicable to or in relation to a company, to VCCs:
- Application at sub-fund level: SD treatment will be applied at the sub-fund level in view of the segregation of assets and liabilities of sub-funds within an umbrella VCC. SD will also be imposed on an instrument that effects or that evidences a transaction between sub-funds of an umbrella VCC, or between an umbrella VCC and its sub-fund, being an instrument that would have been chargeable with SD if the sub-funds or sub-fund were a person.
- SD collection and enforcement: Any liability or SD of an umbrella VCC that is incurred, and to be discharged, on behalf of a sub-fund is to be discharged solely out of the assets of the sub-fund.
The following reference materials are available on the MOF website www.mof.gov.sg:
- MOF press release
- Extract of Bill relating to amendments to the Goods and Services Tax Act
- Extract of Bill relating to amendments to the Stamp Duties Act
- Draft amendments to Stamp Duties (Section 23) Order 2017
- Summary table on proposed legislative amendments for the GST and stamp duty treatment of VCCs
- Prescribed template for submission of feedback