Explanatory Brief on the Variable Capital Companies (Miscellaneous Amendments) Bill on 5 August 2019
The Second Minister for Finance, Ms Indranee Rajah, today moved the Variable Capital Companies (Miscellaneous Amendments) Bill 2019 (“the Bill”) for First Reading in Parliament.
2 The Bill amends the:
(a) Variable Capital Companies Act 2018 (Act 44 of 2018) (“VCC Act”);
(b) Income Tax Act (Cap. 134) (“ITA”);
(c) Goods and Services Tax Act (Cap. 117A) (“GSTA”); and
(d) Stamp Duties Act (Cap. 312) (“SDA”).
Amendments to VCC Act
3 The VCC Act provides for the incorporation and operation of a new corporate structure, the Variable Capital Company (“VCC”), to cater to the needs of investment funds. The introduction of the VCC structure will encourage fund managers in Singapore to domicile their investment funds in Singapore and help strengthen Singapore’s position as a full-service international fund management centre. It is expected that the VCC framework will be operational in 4Q 2019.
4 Insolvency provisions: As was communicated at the time of the reading of the VCC Bill in Parliament in 2018 (link) and in the Explanatory Brief accompanying the Bill (link), the provisions relating to the receivership and winding up of a VCC and its sub-funds in the VCC Act would need to be amended to ensure the VCC insolvency regime remains aligned with that of other corporate structures in Singapore.
5 Currently, these provisions in the VCC Act are adapted from the Companies Act (Cap. 50) (“CA”). Following the introduction of the Insolvency, Restructuring and Dissolution Act 2018 (“Insolvency Act”) which is expected to come into operation in 4Q 2019, these provisions will be repealed. As such, the provisions relating to the receivership and winding up of a VCC and its sub-funds would have to be replaced, taking reference from the receivership and winding up provisions from the Insolvency Act, with the necessary modifications.
6 Other amendments: The Bill provides for other, mainly technical, amendments to the VCC Act. These amendments include (i) clarifying that a VCC should have at least one member (to align with the minimum number of shareholders for companies under the CA); (ii) requiring a directors’ resolution for amendments to the constitution that do not require members’ resolution to be lodged with the Registrar for proper records; and (iii) correcting certain referencing errors, such as references to a branch office, or a VCC being registered as a member of itself, as these do not apply to VCCs in the same manner as they apply to companies.
Amendments to ITA, GSTA and SDA
7 As was communicated at the time of the reading of the VCC Bill in Parliament in 2018 (link), the tax framework for VCCs is separately set out via legislative amendments to the relevant tax legislation.
8 The proposed amendments to the ITA, GSTA and SDA introduce the tax treatment for VCCs. The proposed tax treatment, formulated in consultation with the industry, recognises the unique characteristics of VCCs, which combine the advantage of a single legal entity at the umbrella VCC fund level, with limited liability and segregation of assets and liabilities at the sub-fund level. Salient aspects of the tax treatment are detailed below:
(a) Corporate Income Tax (“CIT”)
i) To ease compliance burdens, an umbrella VCC only needs to file a single CIT return with the Inland Revenue Authority of Singapore, regardless of the number of sub-funds that the umbrella VCC may have.
ii) Tax incentives under sections 13R and 13X of the ITA will be extended to VCCs . In the case of an umbrella VCC, these tax incentives will be granted at the umbrella level.
iii) Deductions and allowances for umbrella VCCs will be applied at the sub-fund level for determination of the sub-fund’s chargeable or exempt income.
iv) Where applicable, an umbrella VCC will enjoy start-up or partial tax exemption which will be applied once at the umbrella level, regardless of the number of sub-funds the umbrella VCC may have.
(b) Goods and Services Tax (“GST”)
i) GST will apply at the sub-fund level, as each sub-fund makes independent sale and purchase decisions based on its respective investment mandate.
(c) Stamp Duty (“SD”)
i) SD treatment will be applied at the sub-fund level. This is because each sub-fund can, through its umbrella VCC, enter into transactions relating to immovable property and shares.
9 More details of the proposed tax treatment are provided in Annex A.