Bill introduced to implement tax framework for VCCs and amend insolvency provisions in VCC Act

29 August 2019

On 5 August 2019, the Variable Capital Companies (Miscellaneous Amendments) Bill (“Bill”) was tabled in Parliament to introduce a tax framework for variable capital companies (“VCCs”) incorporated under the Variable Capital Companies Act 2018 (“VCC Act”). The Bill will also amend the receivership and winding up provisions in the VCC Act to make changes necessitated by the transfer of the corporate insolvency provisions from the Companies Act to the Insolvency, Restructuring and Dissolution Act 2018 (“IRDA”).

Separately, on 24 July 2019, the Monetary Authority of Singapore (“MAS”) issued a consultation paper on the “Proposed Framework for Variable Capital Companies Part 3” (“Consultation Paper”) and is seeking comments on proposed subsidiary legislation relating to the insolvency and winding up of a VCC and its sub-funds. The public consultation closed on 24 August 2019.

MAS has stated that the VCC framework is expected to be operational in Q4 2019.

Background

The Variable Capital Companies Act 2018 (“VCC Act”), which is not yet in force, provides for a new legal framework for the creation of VCCs in Singapore. The introduction of the VCC will provide an additional structuring option for Singapore-based fund managers to domicile their investment funds locally and enhance Singapore’s position as a full-service international fund management centre.

MAS conducted two earlier consultation exercises relating to the VCC framework, specifically (1) the subsidiary legislation relating to the operational framework for a VCC and its sub-funds, and (2) the anti-money laundering and countering the financing of terrorism requirements for VCCs.

Tax treatment of VCCs

The tax treatment of VCCs, to be implemented through amendments to the Income Tax Act (“ITA”), Goods and Services Tax Act (“GSTA”) and Stamp Duty Act (“SDA”), recognises that VCCs are unique as they 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.

The tax treatment of VCCs is briefly outlined below:

  • Income tax: VCCs will be eligible for the fund management tax exemption schemes under sections 13R and 13X of the ITA. In the case of an umbrella VCC, these tax incentives will be granted at the umbrella level. 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. 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. An umbrella VCC need only file a single corporate income tax return with the Inland Revenue Authority of Singapore, regardless of the number of sub-funds the umbrella VCC may have.
  • Goods and services tax (“GST”): GST will apply at the sub-fund level as each sub-fund makes independent sale and purchase decisions based on its respective investment mandate.
  • Stamp duty: Stamp duty treatment will be applied at the sub-fund level as each sub-fund can, through its umbrella VCC, enter into transactions relating to immovable property and shares.

The Ministry of Finance (“MOF”) conducted two public consultations in February and March 2019 relating to the income tax, goods and services tax and stamp duty treatment of VCCs. The MOF had sought feedback on draft amendments to the ITA, GSTA and SDA. On 5 August 2019, MOF released its response to the feedback received on the proposed changes to the GSTA, SDA, and ITA.

Proposed insolvency and winding up provisions

Amendments to VCC Act by Bill

MAS intends to align the receivership and winding up regime for a VCC and its sub-funds with those for other corporate structures in Singapore under the IRDA.

Currently, the receivership and winding up provisions in the VCC Act are adapted from the corporate insolvency provisions of the Companies Act. When the IRDA takes effect (which is expected in Q4 2019), the corporate insolvency provisions in the Companies Act will be transferred to the IRDA. The Bill therefore seeks to amend the VCC Act to align the receivership and winding up provisions in the VCC Act with the corporate insolvency provisions under the IRDA with modifications for a VCC and its sub-funds.

MAS public consultation on proposed insolvency and winding up subsidiary legislation for VCCs

MAS is seeking comments on proposed subsidiary legislation on the insolvency and winding up of a VCC and its sub-funds. The proposed subsidiary legislation is adapted from existing subsidiary legislation under the Companies Act with modifications for a VCC and its sub-funds. Specifically, MAS is seeking comments on the following draft subsidiary legislation:

  • Variable Capital Companies (Application of Bankruptcy Act Provisions) Regulations 2019 (“VCC Bankruptcy Regulations”). The VCC Bankruptcy Regulations set out the modifications to the Bankruptcy Act, which apply in the context of the winding up of a VCC or a sub-fund of an umbrella VCC. For this purpose, a sub-fund of an umbrella VCC is to be treated as though it is a separate entity or person. The VCC Bankruptcy Regulations also set out when a person is connected with a VCC or a sub-fund that is being wound up.
  • Variable Capital Companies (Filing of Documents) Regulations 2019 (insolvency and winding up related provisions)
  • Variable Capital Companies (Maximum Amount Payable in Priority in Winding Up) Order 2019
  • Variable Capital Companies Regulations 2019 (insolvency and winding up related provisions)
  • Variable Capital Companies (Winding Up) Rules

When the IRDA comes into force, subsidiary legislation to be issued under the IRDA for companies under the Companies Act will be adapted for a VCC and its sub-funds (“Adapted IRDA Subsidiary Legislation”). The Adapted IRDA Subsidiary Legislation will then replace the proposed subsidiary legislation in the Consultation Paper. MAS has said it does not intend to separately seek feedback on the Adapted IRDA Subsidiary Legislation. Where applicable, MAS will take into account the feedback from this public consultation for the Adapted IRDA Subsidiary Legislation.

Reference materials

The following materials are available on the MAS website www.mas.gov.sg and the MOF website www.mof.gov.sg:

 

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