The VCC framework has emerged as one of the most innovative structures attracting the attention of investors, especially in jurisdictions like Singapore, with its flexible capital structure and tax benefits. However, before diving into investments through a VCC fund, a word of precaution involves considering the intricacies of VCC tax exemptions and how the structure works under the watchful eyes of ACRA VCC regulations. The paper takes one deeper into understanding certain fundamental essentials about VCC tax exemptions and other fundamental knowledge required by potential investors of the funds.
What is a Variable Capital Company (VCC)?
A Variable Capital Company, commonly known as VCC, is a relatively new corporate entity created specifically for investment funds. Unlike traditional structures of companies, a VCC offers more flexibility in the way capital is managed: open-ended and closed-ended fund structures. What this simply means is that investors can come and leave a VCC fund with much more ease because such restructuring will not be heavily required, and the size of the capital would grow or shrink depending on the number of investors.
In this way, the VCC fund may be subdivided into several sub-funds, each with its assets and liabilities. In law, the different sub-funds remain separate so that the assets of one sub-fund would be secure from another sub-fund’s liabilities. This compartmentalization renders the VCC structure very desirable to fund managers looking at offering various strategies under one umbrella.
The VCC structure falls under the regulatory regime of ACRA known as the ACRA VCC. ACRA ensures that the VCCs adhere to the requirements laid down by the regulatory body for transparency and security required by the investors.
Understanding VCC Tax Exemptions
The VCC tax exemption is one of the most attractive points for a Variable Capital Company. Under Singapore’s financial framework, significant tax advantages rendered VCCs an excellent structure for investment funds.
The VCCs, essentially, have two available schemes for exemption from tax: The enhanced-Tier Fund Scheme and the Singapore Resident Fund Scheme.
- ETF Scheme: The Enhanced-Tier Fund Scheme allows exemptions on the tax liability of VCCs from incomes such as interests, dividends, and gains arising from the sale of securities and hence is especially a great incentive for funds investing in almost all types of assets. For the VCCs to fall within the ETF scheme, they have to fulfil several conditions, such as the minimum size of the fund and employment of at least three investment professionals, among others.
- Singapore Resident Fund Scheme: The scheme provides tax exemption, similar to the ETF, on specified income derived from prescribed investments. However, as opposed to the ETF regime, the SRF regime has less liberal conditions for qualification, as the VCC fund must be managed by a fund manager resident in Singapore and all of the investors of the VCC should be Singaporean tax residents.
Through such schemes, the VCCs can optimise their tax liabilities and maximise returns to investors. In this regard, individual consultations with any tax professional or engagement with any VCC management firm regarding full compliance with the regulatory requirements brought forth by ACRA VCC and determining the most viable tax exemption scheme for a particular fund are necessary.
Regulatory Framework: ACRA VCC
The Accounting and Corporate Regulatory Authority regulates the structure of Variable Capital Companies in Singapore concerning registration and compliance. The guidelines set by ACRA concerning VCC ensure that the business environment allows them to operate transparently and work efficiently.
ACRA’s VCC requirements prescribed some fund registration, compliance, and reporting standards. Ensuring compliance with financial reporting and filing of tax obligations of VCCs is one of the responsibilities of ACRA. For investors, this added protection assures that the VCC fund operates within the ambit of legal parameters.
Additionally, ACRA VCC guidelines require every VCC to have an appointed qualified fund manager as part of governance and management for the VCC fund. This regulatory support makes VCC an avenue through which investors have a transparent and sure line of investment flexible with tax efficiency that can help them diversify their investments.
Investment Benefits Derived from a VCC Fund
Respectively, the VCC structure offers several advantages for investors, positioning it as one of the desired options sought for flexible and tax-efficient investment vehicles.
- Tax Efficiency: The immediate benefit would be the VCC tax exemption whereby investors could attain maximum returns with minimal or reduced exposure to income derived from certain income types. They will enjoy tax exemptions on income emanating from investments in securities, and dividends, among other prescribed qualifying streams.
- Capital Management Flexibility: The flexible capital structure of the VCC fund allows both investors to subscribe to the fund or exit the fund without disrupting its operations. That would be particularly useful in diversifying portfolios with liquidity-seeking investors.
- Segregation of Assets and Liabilities: For the multiple-strategy investment scenarios, each VCC sub-fund is segregated; thus, each fund faces certain risks whereby the assets of another fund would be fully protected. The protection from loss emanating from other sub-funds adds a degree of security to the general investment.
These benefits, coupled with the sound regulatory regime from ACRA, make VCC a unique solution for investors in their quest to optimise their investment strategies while remaining compliant with regulatory and tax requirements.
In addition, investing in a Variable Capital Company has other advantages: tax efficiency, flexibility, and regulatory strength. Investors make informed decisions and realise the full benefits of a VCC fund by fully understanding the intricacies of the VCC tax exemption and the regulatory regime under ACRA.
Want to know more about the benefits of investing in a VCC fund? Visit VCC HUB today and learn how we can guide you to maximise your investment with tax exemptions offered by VCC. Take the next step in optimising your portfolio with VCC HUB today.
