What does Singapore Variable Capital Company(VCC) entail?
In the realm of investment and fund management, the Singapore Variable Capital Company (VCC) stands out as a versatile structure, offering unparalleled benefits for scalability, tax efficiency, and operational flexibility. Our comprehensive suite of services guides you through establishing a VCC, ensuring strategic leverage of its advantages.
The Singapore Variable Capital Company (VCC) offers limitless scalability through unlimited sub-funds, streamlining administrative processes, and providing tax efficiency at the umbrella level. With unrestricted flexibility, it allows for diversified asset allocation across private, public, and real estate markets, enabling effective navigation of market fluctuations. Additionally, the VCC serves as a gateway to Singapore’s well-regulated financial hub, enhancing credibility, attracting investors, and fostering sustainable growth opportunities.
Tax Residence and Distributions
Tax residence
A Variable Capital Company (VCC) is deemed a tax resident in Singapore if its business control and management occur within the country during a calendar year, often determined by the location where its board of directors convene for strategic decisions. Sub-funds under a VCC inherit its tax residency status, meaning they are also residents if the umbrella VCC is, and vice versa. While a VCC can obtain a Certificate of Residence (COR) to support its tax claims under Singapore’s Double Taxation Agreements, sub-funds, being non-legal entities, cannot individually receive a COR. In such cases, the COR is issued in the name of the umbrella VCC, with the sub-fund’s name included.
Income of VCCs (Distribution)
VCCs domiciled in Singapore enjoy tax exemptions on dividends distributed to shareholders, mirroring the tax treatment of resident companies. However, their tax obligations are aligned with standard corporate tax measures, with exceptions tailored to their function as collective investment schemes.
While they can benefit from incentives such as venture company income exemptions and certain deductions related to fund management, VCCs are restricted from accessing certain deductions, like those for protecting intellectual property and research and development expenses. Additionally, they are ineligible for group relief provisions and specific deductions under sections 14A, 14B, 14K, 14KA, 14D, 14DA, 14E, and 14F of the Income Tax Act.
VCCs in Singapore receive tax exemptions on distributed dividends akin to those of resident companies, but their tax framework aligns with general corporate taxation rules. Although they can avail themselves of incentives geared towards investment funds, they are barred from certain deductions and relief measures, ensuring alignment with their collective investment scheme focus while maintaining tax fairness and efficiency.
Tax Incentives
Look through the differences in incentives between Sections 13U, 13O, and 13H in the table below.
| Aspect | Section 13U | Section 13O | Section 13H |
|---|---|---|---|
| Fund type | Any fund | Any fund | Company, Limited Partnership, or VCC |
| Minimum fund size at application | SGD 10 million | SGD 50 million | SGD 10 million |
| AUM increase commitment | Must increase AUM to SGD 20 million within 2 years | – | – |
| Investment Professionals (IP) | Managed or advised by family office with ≥ 2 IPs | Managed or advised by family office with ≥ 3 IPs, with at least 1 non-family member | – |
| Business spending requirement | Total: SGD 200,000 | Total: SGD 200,000 | No minimum annual expenditure requirement, but must be met by tenure end |
| Local: SGD 500,000 | Local: SGD 500,000 | – | |
| Local investment requirement | Invest at least 10% of AUM or SGD 10 million, whichever is lower, in local investments | Invest at least 10% of AUM or SGD 10 million in local assets. | 30% investment in Singapore companies |
| Grace period of 1 year if requirement not met at application | Grace period of 1 year if requirement not met at application | – | |
| GST recovery | – | – | Approximately 52% Exemption |
| Exemption | – | – | Exemption on interest, dividends, gains from disposal derived from qualifying investments |
Strategy with a VCC!
Take advantage of flexible capital and asset protection.
How Tax Incentives Are Applied
Browse through the differences between Sub-fund Level and VCC Level in the table below.
| Aspect | Sub-fund Level | VCC Level |
|---|---|---|
| Tax Treatment | Unutilized capital allowances, trading losses, and donations are quarantined within each sub-fund and cannot offset income from other sub-fund or the umbrella VCC. | Tax conditions are applied to the VCC entity level. For an umbrella VCC, tax exemption benefits apply to all sub-funds within, contingent upon meeting conditions as a whole. |
| Shareholding Tests | Substantial shareholding tests apply to shareholders in relation to the specific sub-fund holding the unabsorbed capital allowances, trading losses, or donations. | Aggregated shareholding of all sub-funds within the same umbrella VCC is considered for startup tax exemption purposes. |
| Gains Exemption | Exemption of gains on disposal of ordinary shares is assessed considering a single sub-fund’s shareholding percentage and holding period, as if the umbrella VCC has only one sub-fund. | The exemption for gains or profits applies at the VCC entity level, benefiting all sub-funds within the umbrella VCC if conditions are met. |
| Foreign Tax Credits | Computation of foreign tax credits is performed at the sub-fund level. | Foreign tax credits are computed at the VCC level. |
| Winding Up Requirements | Tax clearance from the IRAS is necessary for winding up a sub-fund. | Settlement of all outstanding tax matters related to the VCC, whether an umbrella VCC or non-umbrella VCC, is required for liquidation to be completed. |
| Allocation of Tax Benefits | Partial tax exemption schemes, corporate tax rebates, etc., are calculated at the VCC level and then allocated to sub-funds at the discretion of the umbrella VCC. | Tax benefits are allocated to sub-funds within the umbrella VCC based on discretion of the umbrella VCC. |
| Group Relief System | Sub-funds are prohibited from transferring or receiving loss items under the Group Relief System. | The VCC, whether umbrella or non-umbrella, is not allowed to transfer or receive loss items under the Group Relief System. |
At the sub-fund level of a Variable Capital Company (VCC), tax treatments are ring-fenced, preventing the offsetting of tax attributes like capital allowances and losses across different sub-funds or the umbrella VCC entity. Shareholding tests apply specifically to shareholders of relevant sub-funds, and exemptions for gains on share disposal are based on individual sub-fund metrics.
Conversely, at the VCC level, tax conditions are applied uniformly, with benefits extending to all sub-funds under an umbrella structure. Tax benefits are computed at the VCC level and allocated at the discretion of the umbrella VCC. Compliance requirements, including settling outstanding tax matters, apply to the VCC entity level, impacting both umbrella and non-umbrella VCCs before liquidation.
Income Tax Filing Requirements
VCCs, both umbrella and non-umbrella, are required to file two income tax forms annually: the Estimated Chargeable Income (ECI) form within three months from the financial year’s end, and Form C35, which includes financial statements, tax computations, and supporting schedules. For umbrella VCCs with multiple sub-funds, only one set of forms is submitted for the entire entity, without offsetting losses from loss-making sub-funds against the taxable profits of others. Losses are distinctly accounted for in the tax computation.
New sub-funds registration with IRAS doesn’t require notification. However, for winding up a sub-fund within an umbrella structure, tax clearance is mandatory before completing the process. This involves submitting relevant financial statements and tax computations up to the cessation date of the sub-fund’s business and settling all outstanding tax matters, including taxes and penalties.
In summary, VCCs must adhere to strict income tax filing requirements, submitting ECI and Form C35 within specified timelines. For umbrella VCCs, a unified filing approach is adopted, with losses from individual sub-funds clearly delineated. When winding up a sub-fund, obtaining tax clearance and settling all tax obligations with IRAS are essential steps in the process.
Requirements for Tax Exemption
For tax residency in Singapore, funds must be tax residents, which can be established in Singapore or overseas. The fund manager requirements include a Singapore-based CMS licensed fund manager for 13O Resident Tax Exemption and an additional requirement of three investment professionals for 13U Enhanced-Tier Tax Exemption, both offering tax incentives.
There are no restrictions on assets under management (AUM) for 13O, while 13U requires a minimum fund size of SGD 50 million. Reporting obligations for funds include minimum annual expenses and local business spending, with additional requirements for fund administration such as employing a Singapore fund administrator and fulfilling annual MAS declarations and tax filings to the IRAS.
In the event a VCC fails to meet the tax exemption requirements, it may lose its tax-exempt status for that year of assessment and would be subject to Singapore’s corporate tax rate, which is currently 17%.
Profit with a VCC in Singapore!
Leverage VCC-specific tax exemptions and incentives to maximize your returns.
Our Expertise in Singapore VCC
Experience a refined journey to the VCC establishment in Singapore with our dedicated team, offering expertise in documentation, compliance, and regulatory navigation. We ensure seamless implementation, allowing you to focus on core business activities while aligning them with strategic objectives. From registration to type selection, leverage our support to optimize exclusive VCC benefits and elevate your investment strategy. Whether re-domiciliation or exploring tax incentives, trust us as your strategic ally in Singapore’s VCC landscape, empowering your fund’s full potential.
Frequently Asked Questions
What tax benefits does a Variable Capital Company (VCC) offer in Singapore?
VCCs in Singapore enjoy tax exemptions on dividends, capital gains, and foreign-sourced income, subject to conditions. They can also benefit from double taxation avoidance agreements (DTAs).
What criteria must VCCs meet to qualify for tax benefits?
VCCs must be engaged in specific investment activities and meet substance requirements, including having a presence and operations in Singapore, as per regulatory guidelines set by MAS.
