While Singapore is gearing up to welcome a new corporate structure for investment funds this year, the main concern for asset managers right now is the tax treatment of the upcoming structure.
Announced in 2016, the Singapore Variable Capital Company (S-VACC) is an open ended investment company scheme designed to promote fund domiciliation in the city-state.
According to Eric Roose, partner at law firm Withers Khattarwong, the Singapore tax treatment of the S-VACC is still not entirely clear.
He said to make the vehicle a success, however, the S-VACC should have tax neutrality, access to Singapore's extensive tax treaty network, and an ability to satisfy the conditions for the Singapore fund tax incentive schemes under Section 13 of the Singapore Income Tax Act.
What’s more, the Singapore fund incentive schemes should exempt the S-VACC from Singapore taxation on specified income on designated investments, he told Citywire Asia.
This would mean no Singapore tax imposed on income and gains derived by the fund.
The introduction of S-VACC is a game changer as it represents a needed addition to the existing vehicles asset managers can use as collective investment vehicles for their sponsored investment funds under the Singapore corporate and partnership laws.
The S-VACC can be set up as a standalone or as an umbrella entity with multiple sub-funds.
More importantly, the S-VACC law allows for established corporate type funds in other jurisdictions to be moved to Singapore managed funds.
The law will contain provisions which authorise the re-domiciliation of foreign corporate funds to Singapore as an S-VACC.
Notably, S-VACC is a corporate structure that is specifically tailored to the specific needs of investment funds by doing away with certain aspects of the Singapore corporate law, such as the lack of variable capital, which are not conducive to investment funds.
Variable capital provisions are critical to funds, as they allow investors to invest in and out of the fund, by way of subscriptions and redemptions.
Those changes as well as others will allow the S-VACC to be used by all types of investment funds. S-VACC can be used for traditional and alternative fund strategies such as hedge funds, private equity and real estate funds, both open-ended and close-ended.
Local and regional fund managers are likely to be the first wave of adopters of S-VACC, while global fund managers are expected to follow suit.
A detailed tax framework is expected to be released by October, while the legislation of the S-VACC is expected to be released end of this year, according to a spokesperson from EY Advisory.
He said the first S-VACC is expected to register in early 2019.
The Monetary Authority of Singapore put forth a consultation on S-VACC in March 2017 and introduced the S-VACC tax framework in February this year.