Variable Capital Companies Act 2018 finally came into effect in January 2020, offering new possibilities for fund and wealth managers to design new and improved investment instruments. It also provides new investment avenues to investors who can now invest with more flexibility and efficiency offered by the variable capital company (VCC) act supervised by the Monetary Authority of Singapore (MAS).
As a general rule, a licensed fund manager is required to manage a variable capital company. We have thoroughly explored the new VCC structure and selected 5 best things about the VCC Singapore. Before discussing the top 5 benefits of a variable capital company for entrepreneurs and investors, let us briefly discuss the operations and features of this company model.
It is worthwhile to remember that the Monetary Authority of Singapore (MAS) introduced Variable Capital Companies Act to facilitate investment management, pointed out Raymond Chan, Business Development Manager at pilotoasia.com. Investment management, or fund management, has a specific way of working, and this company structure might not be suitable for organizations involved in other kinds of operations, he remarked.
When talking about variable capital companies (VCCs), it is natural to think about the purpose of introducing this new structure and how it differs from many company formation options already available.
The following are some key features of this new company structure.
- Shares and dividend flexibility: a VCC has more flexibility in the issuance and redemption of its shares. Furthermore, it can pay dividends out capital, a useful feature for a wealth and fund management company.
- Registration transfer: Monetary Authority of Singapore (MAS) has made it very easy to form a new VCC. But this is not all. It has also made it easier for existing companies to transfer their registration to become VCC in Singapore. This is an excellent way to motivate companies around the world to become a part of Singapore’s investment ecosystem.
- Variable capital companies have the flexibility to keep their shareholders’ register private. They are, of course, required to maintain such a register and show it to authorities if a need arises, but otherwise, they do not need to show such registers to the public.
Flexible as a Fund and as a Fund Manager
We do not need to go into the details of investment management to understand the benefits of variable capital companies. It is enough to know that funds are avenues of investment, and VCCs can act as a fund manager or investment company managing these funds. A variable capital company can have more than one fund; for example, one for the low-risk profile and the other for high-risk profile investors. Similarly, a VCC may introduce one fund for the specific investment needs of its investors in the U.S. while the other fund for its investors in Europe.
Asset Allocation
A variable capital company can create complex asset allocation solutions to suit the needs of a diverse range of investors, and it is best to illustrate this point with an example. A VCC can create two funds: one stock market fund with high risk and high return and one money market fund with low risk and low return.
Once a VCC has these two funds, it can create a range of funds to suit the risk-return needs of its diverse client base. It can offer a fund with 20 percent funds invested in the stock fund while the remaining 80 percent invested in the money market fund. With a handful of base funds, a VCC can satisfy the needs of investors with varied needs.
Appoint Third-party Fund Managers
People in the investment industry know that it is not easy to manage funds, even if your own organizations owns them. And it becomes more difficult when you are managing funds on behalf of your employees or the public. Managing funds is a sensitive job, and its legal requirements and formalities are enormous.
Variable capital companies act aims to make the process more manageable. Any organization can delegate the fund management responsibility to a VCC and make life simpler for itself. VCC companies are, after all, dedicated to investment management, have time and resources, and have a myriad of investment options to choose from.
Liquidity and Flexibility
Liquidity and flexibility are two major concerns when choosing the right avenue for your investment needs. Stock and money market funds are usually liquid and flexible, offering easy redemption, but many other types of investments are not. For example, many investments in real estate, private equity, and infrastructure are not liquid, and the investors have to either wait for the maturity period or pay the penalty to convert their investment into cash.
The introduction of the Variable Capital Act aims to empower fund managers to overcome liquidity and flexibility issues, making investments easier for corporate and individual investors.
Tax Benefits
Inland Revenue Authority of Singapore, or IRAS for short, treats a VCC as a single legal entity for tax filing purposes. There are certain tax exemptions and incentives available for VCC, and in its bid to encourage investment and funds inflow in Singapore, IRAS offers tax exemption of up to SGD 200000. A VCC is a legal tax entity in Singapore, given that it is based and managed in Singapore, and enjoys a number of tax incentives.
Since its launch, VCCs have become popular in a short time and have shown a promising future ahead. The MAS has designed the VCC structure to encourage investment inflows, and it seems that it is already on the path to success. MAS has gone the extra mile to promote this company structure and offers a grant to co-fund up to 70 percent of the expense incurred during the formation, or bringing foreign companies to be a part of the Singapore financial system known as re-domiciling.
This is just the beginning for variable capital companies, and with the flexibility it offers, we hope to see a myriad of innovative investment solutions offered by VCCs. We hope, and so do the concerned authorities in Singapore, that this initiative will result in more economic activity and create convenience for its investors.
