A Guide to the Variable Capital Company (VCC) in Singapore

If you’re a business owner, then you know that capital is key to success. You need money to invest in your company, hire new employees, and expand your operations. 

But what if you don’t have the capital you need? That’s where the variable capital company (VCC) comes in. 

In this blog post, we will discuss the variable capital company in 2022 and give you a guide on how to get started!

What is the Variable Capital Company (VCC) in Singapore?

A VCC is a type of company that allows business owners to raise money by issuing and selling equity shares.

In other words, VCCs are companies that allow business owners to get money from investors in order to grow their businesses.

It is a relatively new corporate structure for investment funds under the Variable Capital Companies Act effected on 14 January 2020.

A VCC is normally handled by either of these entities:

• A fund manager which is a licensed fund management company
• A registered fund management company
• An individual exempted under the Securities and Futures Act (SFA) and whom does not need a capital markets services license to perform fund management business activities

What Are the Key Features of a VCC?

Some of the main characteristics of variable capital companies are:

• A flexible variable capital structure in terms of shares issuance and redemption
• Dividends can be paid out of capital
• Can be established as a single independent fund
• Can be used for both open- and close-ended fund strategies
• The need to maintain a register of shareholders
• Fund managers can either establish new VCCs or re-domicile their foreign funds with similar structures

What Are the Requirements of a Variable Capital Company (VCC)?

There are several requirements that must be met:

1. A variable capital company’s capital must be the same as its net assets to provide flexibility in distributing and reducing capital
2. It needs at least 1 Singapore resident director for non-approved schemes and at least 3 for approved schemes
3. It must have a registered office in Singapore and it must appoint a Singapore-based company secretary
4. It must have a Singapore-based and licensed or regulated fund manager unless exempted
5. The current Securities and Futures Act (SFA) guidelines for investment funds will apply
6. It is subject to audit by a Singapore-based auditor and has to show its financial statements according to IFRS, the US GAAP, or the Singapore FRS

What is the Tax Treatment of a Variable Capital Company (VCC)?

VCCs can be established as a single fund or with several sub-funds, the latter which is often known as an umbrella VCC.

A single fund VCC is subject to the same tax treatment as that of a Singapore firm. This means the Enhanced Tier Fund (ETF) and Singapore Resident Fund (SRF) schemes will apply.

For an umbrella VCC, the typical requirements do not apply to each of the sub funds, but instead, as a whole to the umbrella fund itself.

This reduces the minimum fund size and business spend requirements.

What Are the Advantages of Variable Capital Companies?

Singapore’s variable capital companies are attracting fund managers with their cost efficiencies, tax advantages, and flexibility. 

We expand on these benefits of a Singapore variable capital company:

Increased flexibility

Variable capital companies offer a lot of flexibility, which is important for businesses that are constantly evolving. 

With a VCC, business owners can raise money quickly and easily, which can help them grow their businesses more quickly.

Easier to manage

VCCs are also easier to manage than traditional companies. This is because VCCs have fewer restrictions on how they can be run. 

This means that business owners have more freedom to make decisions about their businesses, which can lead to better decision-making overall.

Financial Statements Are Not Required to Be Made Public

Although VCCs must prepare their financial statements and perform tax reporting, they need not disclose their financial statements publicly.

This gives complete privacy to ultimate beneficiaries.

Umbrella Structure Allows Economies of Scale and Cost Efficiency

When permissible fund managers structure their funds as umbrella VCCs, they can gain economies of scale and cost efficiencies.

These are a result of using common service providers for the umbrella and is sub funds. The sub funds can also share costs incurred from setting up and maintenance.

Tax Efficiency

Apart from the tax treatment for umbrella funds, they are also exempt from the 13X and 13R schemes.

If a VCC has successfully applied for tax exemption, the majority of its investment profits will be tax exempt.

The conditions are offered to the umbrella fund itself, which may make achieving the requirements easier.

Wide Application of Use

It can be used for different investment strategies, including hedge funds, traditional, real estate, private equity, and more.

It can also be used as a pooling and investment vehicle that eliminates the need for multi-tiered fund structures

What is the Variable Capital Company Grant Scheme?

The Variable Capital Company Grant Scheme (VCCGS) was initiated by the Monetary Authority of Singapore (MAS) under the Financial Sector Development Fund (FSDF).

This scheme helps to co-fund qualifying costs of up to 70% (limited to S$150,000) paid to Singapore-based service providers for work completed in the country.

The completed work must be related to a VCC’s registration or incorporation.

Related Read: 13 Startup Schemes and Grants in Singapore »

Setting Up a Variable Capital Company in Singapore

How can you incorporate a VCC in Singapore?

There are a few steps to follow:

1. Register a new VCC name at S$15. After registration, it will be reserved for 120 days, in which incorporation must take place within
2. Determine the type of VCC, whether an umbrella with at least 2 sub funds, or non-umbrella (standalone)
3. Appoint the VCC officers, namely the director, managing director, company secretary, auditor, and fund manager
4. Decide on the financial year end (FYE), and whether your accounting period is over 12 months of 52 weeks
5. Provide a registered office address in Singapore that must be accessible and operational during office hours
6. Incorporate your new VCC through the VCC portal or by engaging a professional and registered corporate service provider to do it for you

Related Read: Singapore Company Incorporation »

How Can You Register a VCC Sub Fund?

If you plan to register a sub fund, you can only do so under an umbrella VCC. 

You have to provide these details to register it:

1. The suggested name of the sub fund
2. The date of formation of the sub fund

Submit your application through the VCC portal, and registration will take up to 3 working days to process.

What Should Investors Consider Before Investing in a Variable Capital Company?

• The size of the company: It’s important to consider the size of the company when you’re considering investing in a VCC. This is because the larger the company, the more risk there is involved
• The stage of the company: It’s also important to consider the stage of the company. If the company is early-stage, then there may be more risk involved. If the company is later-stage, then there may be less risk involved
• The sector: It’s also important to consider the sector that the company is in. Some sectors are more risky than others, so it’s important to do your research before you invest

Incorporating Your VCC in Singapore Can Be Easy

Are you looking to incorporate your VCC in Singapore after finding out its features and benefits?

We help to make the process simple and fuss-free! Let our experts handle your VCC set up along every step of the way.

FAQs

Suggested Readings

Singapore Budget 2018 – Overview of Tax Changes for Businesses and Individuals 13 Startup Schemes and Grants in Singapore How businesses will be backed as part of the Singapore Budget 2020 Singapore: The Land of Opportunity