Articles and Views

Variable Capital Company – Why the Hype? 

December 28, 2020

“The introduction of this corporate structure, known as the variable capital company or VCC, will be a game changer for Singapore’s fund management industry” according to Second Minister for Finance Ms. Indranee Rajah.

Singapore intends to be a leading fund-investment hub in Asia Pacific, if not globally and to place itself on the world stage of attracting fund investments and talents into Singapore.  To achieve this goal, the Singapore Parliament on 1 October 2018 introduced the Variable Capital Company (“VCC”) framework.

The VCC framework, launched by the Monetary Authority of Singapore (“MAS”), came into operation on 14 January 2020.  The VCC is regulated under the Variable Capital Company Act 2018 and the Accounting and Corporate Regulatory Authority (“ACRA”) is the administrative authority , except in relation to anti-money laundering/countering the financing of terrorism (AML/CFT) which is supervised by MAS.

The VCC provides an alternative to the Singapore’s existing legal structures, such as unit trust, limited liability partnerships, and companies.  The introduction of VCC is indeed timely amidst the recent tighter regulations in jurisdictions such as Cayman Islands and British Virgin Islands which were typically favoured by as fund investment hubs.  Certain tax havens were black/grey listed by the European Union (“EU”) member states whereby these jurisdictions were perceived to encourage abusive tax practices, in light of low or zero tax rates without substance in that particular jurisdiction.  While the inclusion of a country or jurisdiction into the black/grey list does not trigger material penalties and sanctions from the EU or amount to a prohibition of marketing these tax havens (as private placement regimes) in the EU, there are existing EU “non-tax defensive measures” that prevent access to EU funding.  Meanwhile, the result of the black/grey list created not only a negative perception on being associated with these tax havens, but also there is increased scrutiny and tax risk on funneling the investments via fund investments vehicles situated in these tax havens.

Singapore, with its VCC framework, provides the fund investors and fund managers an alternative when considering a fund investment jurisdiction. In fact, the VCC framework allows for re-domiciliation of a foreign investment fund into Singapore.


Highly Efficient and Flexible VCC Framework

The VCC framework is tailored for the fund investment industry, and it is a highly versatile fund investment vehicle.  Not only can it be used in both traditional funds or alternative funds, it can also be utilised in multiple fund strategies, such as an open-ended or closed-ended fund.

The VCC can also be formed as a single standalone fund, or as an umbrella VCC fund with two or more sub-funds. Each sub-fund is ring-fenced from the umbrella VCC and the other sub-funds, while legally not a separate person from the umbrella VCC fund.  Each sub-fund may also have different investment objectives and strategies with its own composition of shareholders.

Statutorily, a sub-fund’s assets and liabilities are legally segregated from the umbrella VCC fund and the other sub-funds in the same structure. Meaning to say, the creditors against sub-fund 1 do not have legal standing to claim against the assets of sub-fund 2, assuming that each of the sub-funds are mutually exclusive in relation to shareholding/creditors composition.  Hence, it follows that the umbrella VCC is required to keep separate books and accounts for each sub-fund.  This does not, however, preclude cross sub-fund investment should the investor/member wishes to do so.  Do note that while the assets and liabilities of the sub-funds are “quarantined”, the sub-fund may not issue shares to its investors as it is not a legal entity, but rather the shares are issued by the umbrella VCC fund in relation to specific sub-funds within the structure.

To make the VCC an even more compelling investment fund vehicle, especially for investors who wants to maintain privacy, the register of members is not required to be made public, although it must be disclosed to public authorities for regulatory, supervisor and law enforcement purposes upon request. Further a VCC is not subject to capital maintenance requirements, unlike a Company, and their share capital can be varied without having to seek investor’s approval.  This allows investors the flexibility to exit their investments in the fund when they wish to do so.

A VCC must appoint a Singapore-based fund manager that is regulated by MAS (either licensed or registered) to facilitate supervisory oversight of the VCC. Further, there must at least one Singapore-resident director in the composition of the Board of Directors.


To bolster the VCC scheme and to defray the cost of setting up a VCC, MAS has launched a Variable Capital Companies Grant Scheme (VCCGS) under the Financial Sector Development Fund (FSDF) to co-fund up to 70% (capped at S$150,000 per VCC) qualifying expenses paid to Singapore-based service providers for work performed in Singapore, in relation to the incorporation or registration of a VCC, pending certain conditions are met.  The scheme is valid until 15 January 2023.  Even a foreign corporate entity that wishes to re-domiciled to Singapore as a VCC would qualify for such a grant, pending certain conditions are met.

The versality and promotion of the VCC no doubt make it an attractive option as an alternative to existing fund/collective investment schemes.  And the response has been highly positive in that 177 VCCs (as of 14/12/2020) has since registered with ACRA starting from 14 January 2020.


Income Tax Implications

All VCCs are incorporated under the VCC Act, but they are to be treated as companies under the Companies Act for purposes of the Singapore income tax. This means that VCC is subject to the corporate income tax rules and prevailing corporate tax rate (currently at 17%) unless otherwise stated or exempted, and it may also qualify for start-up or partial tax exemption.

In general, the standalone VCC or sub-fund of an umbrella VCC should enjoy the same tax treatment for items of income and deduction, unless otherwise stipulated in the Singapore Income Tax Act (“SITA”) or the IRAS e-tax guide on the tax treatment of VCC.  There are some deviations — for instance, the standalone VCC or sub-fund of an umbrella VCC will not be allowed a tax deduction for expenses relating to deduction for costs for protecting intellectual property under Section 14A of SITA, management expenses of investment companies under Section 14F of SITA, and deduction for renovation or refurbishment expenditure under Section 14Q of SITA.  Further, a VCC is not able to transfer or receive losses under the Group Relief scheme.  However, it is expected that these disallowances broadly relate to activities and expenditure that an investment fund would typically not seek to claim.

While the sub-funds of the umbrella VCC are not legally separate entities, the chargeable (or exempted) income is determined separately for each sub-fund as the tax rules are applied on the sub-fund level, unless otherwise stated by SITA or IRAS.  In this regard, the rules pertaining to unabsorbed capital allowances, losses, donations, foreign tax credit (upon the satisfaction of the respective shareholding tests) would be applied at the sub-fund level. Applying the same line of reasoning on segregation of assets and liabilities, any permissible expenses, capital expenditure, loss or donation of a sub-fund should not be offset against the income of another sub-fund.



In this aspect, similar to the dividend tax treatment on a company, the dividends distributed by the Singapore-based standalone or sub-fund of an umbrella VCC to its shareholders are exempt from tax in the hands of its shareholders.


Gain Resulted from Disposal of Ordinary Shares

Standalone VCC or sub-fund of an umbrella VCC is eligible for tax exemption on capital gains provided under Section 13Z of SITA provisions as a result of disposal of ordinary shares in another company (“investee”), pending certain conditions are met.  Consistent with the segregation basis, only each sub-fund’s (i.e., no aggregation) shareholding attribution is considered.


Income Tax Filing Obligation

VCCs are expected to file the Estimated Chargeable Income (ECI) within 3 months of the financial year end of the VCC, unless the ECI administrative concession applies.  Further, the VCCs are expected to file a complete set of income tax return (Form C), which includes the financial statements, the income tax computations and the supporting schedules.

An umbrella VCC needs only submit 1 set of income tax forms for the entire VCC structure.  However, the tax computation and the supporting schedules must show how the chargeable income of each sub-fund is arrived at.

Do note that Form C-S, a simplified version of Form C, does not apply to VCCs.


Tax Residency of VCC

VCCs that are tax residents in Singapore will be eligible to access tax treaties concluded by Singapore to avail the reduced treaty tax rate therein.

Similar to a Singapore company, a VCC will be considered a Singapore tax resident if the control and management of the VCC are exercised in Singapore.  The location in which the board of directors makes strategic decisions is often a key factor in determining where the control and management is exercised.

Any sub-fund of the umbrella VCC will adopt the same tax residency of the umbrella VCC.  For this purpose, the umbrella VCC will apply for the Certificate of Residence (“CoR”) to take advantage of the double tax treaty on behalf of all of its sub-funds.  Typically, a single application for CoR will be submitted by the umbrella VCC, along with a list of all of its sub-funds.


Tax Incentives

Aside from the VCCGS grant aforementioned, the IRAS has stipulated that a VCC (standalone/umbrella) can also apply for the following tax incentives:

  • Exemption of income of venture company under Section 13H of SITA
  • Exemption of Singapore resident funds under Section 13R of SITA
  • Exemption of income arising from funds managed by a fund manager in Singapore under Section 13X of SITA

The exemption is applied at the umbrella VCC level, and if an umbrella VCC obtains an exemption, all sub-funds of the VCC benefit from the same exemption.

One of the benefits of applying the conditions for the exemption at the umbrella VCC level is that the qualifying conditions, otherwise challenging to satisfy on a per fund basis, can be aggregated. For instance, the satisfaction of the S$50 million assets under management (“AUM”) requirement for a Section 13X exemption is determined in aggregate at the VCC umbrella level (i.e., aggregate of all the sub-funds’ AUM).


Goods & Services Tax (“GST”) Implications

Singapore levies a broad-based consumption tax (i.e., GST, currently at 7%) on taxable goods or supplies, unless specifically exempted.  In relation to imposition of GST, each sub-fund of an umbrella VCC is treated as a separate person.  Consequently, the respective sub-fund must assess its own GST registration filing obligation and liability based on the value of taxable supplies it makes.

In this regard, a sub-fund of an umbrella VCC or a standalone VCC must register for GST if the value of its taxable supplies or services acquired from overseas supplies exceeded the S$1 million threshold for the past calendar year, or is projected to exceed S$1 million in the next year.  Further, from 1 January 2020, GST will be levied on Business-to-Business imported services by way of reverse charge. If the total value of your imported services for a 12-month period exceeds S$1 million, funds (including qualifying funds) may become liable for GST-registration. Once registered, funds (including qualifying funds) will be required to report and account for GST on their imported services in the GST returns.

To further position Singapore as a centre for fund management and fund administration, a GST remission was introduced (granted until 31 December 2024) to allow non-GST registered prescribed funds that meet certain qualifying conditions to claim the GST incurred. Under the GST remission scheme, qualifying standalone VCC or sub-fund of an umbrella VCC will be able to recover GST incurred on expenses (with certain conditions) at an annual fixed rate.  The GST recovery rate is substantial (currently at 88% for year 2020).


Stamp Duty Implications

Stamp duty, similar to GST, is levied at the sub-fund of an umbrella VCC or standalone VCC.  However, there has not been any clear guidance on how stamp duty relief may be made available to a VCC and/or its sub-funds in accordance with the associated permitted entity rules and the reconstruction rules.


How CCS Can Help You

We have a dedicated team of VCC experts and trusted specialists who can support you every step of the way to achieve a successful outcome with the VCC launch as follows:

  • Incorporate your VCC
  • Serve as your registered office
  • Determine an efficient tax structure
  • Assist with tax compliance
  • Audit your VCC
  • Any other related corporate matters


If you need further assistance or advisory on specific accounting related issues, please reach out to our Tax Advisory professionals at CCS here for a further discussion.