To further enhance Singapore’s credentials as an international fund management centre, the Singapore Variable Capital Companies (VCC) framework was officially launched on 15 January 2020. VCC is a corporate vehicle tailored for use as a collective investment scheme. It may be set up as a single standalone fund structure or an umbrella fund with multiple sub-funds, each holding a portfolio of segregated assets and liabilities. Despite having multiple sub-funds, only one Board of Directors is required to form an umbrella VCC. Fund managers may establish new VCCs or re-domicile existing overseas investment funds to Singapore.
Although VCCs are treated as companies incorporated under the Companies Act for income tax purposes, given the specific features of VCCs, in August 2020 the Inland Revenue Authority of Singapore (IRAS) published a tax guide on the tax framework for VCCs. The guide outlines specific tax treatments of VCCs, which are in line with the intent of the VCCs, such as:
(i) Tax residence
Tax resident VCCs are allowed to access Singapore’s wide tax treaty network. A VCC is considered a tax resident in Singapore, subject to the VCC establishing that it is controlled and managed from Singapore. As a sub-fund is not a legal person separate from the VCC, its tax residency would follow that of its umbrella VCC. In practice, the certificate of residence (COR) required by a sub-fund would be issued in the name of the umbrella VCC, with the name of the sub-fund included in the COR.
VCCs can be considered for the Enhanced Tier Fund (ETF) Scheme, Singapore Resident Fund (SRF) Scheme and Venture Capital Fund Scheme (VCF). No other incentive would be available for VCCs.
(iii) Disallowable expenses
In line with the object of VCCs, certain expenses which are intended to promote specific, non-fund related activities, will be denied a tax deduction. The activities in respect of which expenses are not allowed include the following:
(iv) Taxable income of an umbrella VCC
Tax rules under the Income Tax Act would apply at the sub-fund level and the taxable income/exempt income of an umbrella fund is the sum of the taxable income /exempt income of all its sub-funds. Specifically, rules worth noting include, amongst others:
The tax treatments of VCCs are largely in line with the objective of the VCC, which is to provide an alternative fund structure in Singapore for investment funds. There are some restrictions in place to close loopholes to avoid unintended “tax planning”, most of which are reasonable. For example, although certain expenses are specifically disallowed for VCCs, there should be no significant downside, as the funds are not expected to incur those expenses due to the nature of their principal activities. There is still room to come up with a tax efficient structure, and we look forward to discussing the structure with you.
Wong Sook Ling