Singapore overhauls fund regime to bolster industry, attract offshore funds

Singapore’s attractiveness as a destination for Indian and global offshore funds is likely to get a leg-up, with the country adopting a new fund framework this year.

Termed the Variable Capital Companies (VCC), the new corporate structure will provide fund managers greater operational flexibility and cost savings. 

Fund managers can incorporate new VCCs or re-domicile their existing investment funds with comparable structures by transferring their registration to Singapore as VCCs.

“The launch of VCC will raise the game for Singapore’s already robust fund management industry. It is expected to encourage fund managers to use Singapore as a master fund platform for US and European investors who have historically preferred jurisdictions such as Cayman Islands, Luxembourg or Ireland,” said Tejas Desai, partner, EY India. 

“Over time, investment by Singapore fund managers into various Asian markets, including India, may flow through VCC structures,” added Desai.

A group of 18 fund managers – including UTI International (Singapore), the flagship company representing the offshore interests of UTI AMC – had participated in a VCC pilot programme in September last year.

“All of these fund managers have incorporated or re-domiciled a total of 20 investment funds as VCCs. These investment funds comprise venture capital, private equity, hedge funds and ESG (environmental, social, and governance) strategies. They demonstrate the viability of the VCC framework across diverse use cases,” observed a note put out by the Monetary Authority of Singapore (MAS) on January 15.

According to PwC, the VCC legislation draws on existing frameworks from jurisdictions that have been operating such funds successfully for many years. In some ways, it brings Singapore to a level expected of an international investment funds hub.

“The VCC has its own legal framework that enables it to be used as an alternative or traditional investment fund and also allows both closed- and open-ended strategies,” the global tax consultancy said in a note.

One of the chief drawbacks of the earlier regime was the cumbersome redemption process for open-ended funds. It required entities to draw up their accounts, get them audited, and provide a certificate stating that they were solvent. 

There were also issues related to dividend payment. The new regime could clear some of these operational bottlenecks.

The treaty amendments in 2017 had placed both Mauritius and Singapore more or less on a par with each other from the Indian tax perspective. The VCC framework could tip the scales in the latter’s favour for setting up offshore funds, said experts.

“The operational ease, tax benefits and government grant for setting up VCCs will make Singapore an attractive destination for offshore funds. The presence of a large number of asset management and capital market professionals in Singapore and its proximity to India will also give Singapore an edge over other countries,” said Sunil Gidwani, partner at Nangia Andersen.

MAS’ VCC grant scheme will help defray costs involved in incorporating or registering a VCC. It will be done by co-funding up to 70 per cent of eligible expenses paid to Singapore-based service providers. 

The grant has been capped at about $111,160 (S$150,000) for each application, with a maximum of three VCCs per fund manager.

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