Summary: This piece is an insight into a Singapore Variable Capital Company, its salient features, and relevance for varied stakeholders including family offices and start-ups.
Introduction
Singapore, now a well-established global asset and wealth management hub, has consistently attracted investments from different parts of the world. This achievement is the result of concerted efforts by the government of Singapore and its relevant limbs to nurture a stable, predictable, and business -friendly regulatory and legal ecosystem. Enforcement in both letter and spirit being one of the highlights for its preferential treatment when compared to its peers.
A key innovation in this context is the Variable Capital Company (VCC) structure, which despite being called a company, acts like a pooling vehicle in practice. VCCs are separate legal entities, structured to function as a standalone entity or as an umbrella entity housing sub-funds or cells. Interestingly, unlike the status of the umbrella VCC, sub-funds housed within it are not considered a separate legal entity. It must be noted that while the umbrella structure offers operational, compliance and tax efficiencies, investors should critically evaluate their objectives before taking a call on either of the structures.
Also, a plain vanilla company or a Limited Liability Partnerships (LLP) may not be entirely suited for modern funds, such as a VCC, wherein multiple investment strategies are adopted for investment, sub-funds operate under one umbrella fund, and investors may redeem their investments at ease.
A VCC offers a rather flexible framework for pooling of funds, investments, and management of such investments by a regulated fund manager. A principal advantage is the operational flexibility it offers paired with a tax regime tailored for funds. Whilst similar flexibility in capital structure is also offered by open-ended investment companies in the United Kingdom as well as protected cell companies and segregated portfolio companies in Guernsey & Cayman Islands, Singapore’s overall business-friendly ecosystem and expansive network of double tax avoidance agreements with several countries make the VCCs a preferred choice for fund formation and investment management.
Since Singapore introduced the VCC through a statute, namely the Variable Capital Companies Act in 2018 (Act), the count of VCCs and regulated fund managers[1], as on date, stands at about 1200 and 600, respectively.
The legal regime & salient features
As mentioned earlier, the VCC was introduced by the Act. The Accounting and Corporate Regulatory Authority of Singapore (ACRA) is the primary regulator for VCCs, while the Monetary Authority of Singapore (MAS) regulates the fund managers of such VCCs, who are obliged to ensure compliance with, amongst other things, applicable anti-money laundering and counter-financing of terrorism regulations.
The salient features of a VCC are as follows:
- While the structure enables operation of multiple sub-funds under one umbrella, which is beneficial for open-ended funds, there is also a statutory mandate to maintain segregation of assets and liabilities of these sub-funds.
- A VCC provides ease of investor entry and exit from the fund.
- As one legal entity, VCC could have multiple sub-funds, thereby, reducing its operational and compliance costs.
- In contrast to a private limited company, a VCC is not obligated to disclose its shareholding pattern and financial statements on the ACRA portal.
- A VCC must have a Singapore licensed fund manager who is regulated by the MAS. Also, a VCC is required to have at least one director who is a Singapore resident.
- Typically, management shares of a VCC are held by the fund manager and investors are issued participatory shares in lieu of their investments in the VCC.
- A VCC may distribute dividend from its capital quite unlike a company, which pays out dividends only from its profits. Further, income and gains made in a VCC are exempt from tax provided the VCC procures the relevant exemptions set out under Section 13 of the Singapore Income Tax Act, 1947. However, do note that this is subject to the tax residency of the investor and certain other factors. To be eligible for such exemptions, the VCC is required to meet certain prescribed thresholds and conditions, amongst others, pertaining to assets under management, local spending, domicile, specified investments and associated income.
- Though typically considered advantageous to other fund structures, the initial establishment costs incurred towards incorporation, licensing, and ongoing regulatory compliance obligations are relatively higher for a VCC as compared to other available fund structures. As an aside, initially, MAS also had a grant scheme, whereby, 70 per cent of the initial set up cost of a VCC was subsidised, capped at S$ 30,000 per fund. However, this grant scheme was slowly phased out.
- The VCC & Indian capital control regulations
For purposes of the Foreign Exchange Management (Overseas Investment) regulations, rules and directions, 2022 (collectively, the OI Regs), investment in an overseas fund, i.e., a fund domiciled outside India shall be deemed to be overseas portfolio investment (OPI). However, it is imperative that such fund is regulated by the regulator of the host jurisdiction or has a fund manager who is instead regulated by such regulator. In terms of the OI Regs, such OPI may be made by an individual resident in India within the limits prescribed by the liberalized remittance scheme (LRS). It is noteworthy that monies sent through the LRS route can only be used for permissible capital and current account transactions. These would include without limitation, investment in securities of operating companies, travel or medical expenses, education expenses, or investment in offshore real estate.
Further, it is pertinent to note that a person resident in India cannot make OPI in: (i) unlisted debt instruments, (ii) securities issued by a person resident in India who is not in an International Financial Services Centre (IFSC) such as GIFT city, (iii) any derivatives unless permitted by the Reserve Bank of India, and (iv) any commodities, including bullion depository receipts. Therefore, under the OI Regs such person resident in India who can make OPI will include Indian individual residents and listed entities. While individuals can make such investments subject to the LRS cap of US$ 250,000 per financial year[2], an Indian listed company may make OPI up to 50 per cent of its net worth[3].
This necessarily implies that an unlisted Indian entity cannot make OPI in an overseas fund such as a VCC. However, the OI Regs enable such unlisted Indian entities to make OPI in an alternative fund incorporated in GIFT city, the first IFSC of India. Interestingly, this is the only exception where an unlisted Indian entity can make OPI under the applicable capital control regulations. Furthermore, several fund managers and start-ups may use VCCs to pool funds from different investors in accordance with the fund’s private placement memorandum and subsequently deploy them in portfolio companies across jurisdictions. Similarly, family offices established in jurisdictions such as Singapore could consider accessing global public and private markets through a VCC, thereby making it a lucrative option.
Conclusion
In summation, one can appreciate how a VCC is a company and a separate legal entity similar to a private limited company but in effect, works like a fund. It is an interesting amalgam of a company and a fund, which in some ways provides the best of both worlds. Singapore VCC is a niche vehicle for fund structuring, management, and deployment, providing flexibility, investor confidentiality, and tax efficiency when combined with the exemptions enshrined in the Singapore income tax law. That said, every investor should always weigh the pros and cons of using a VCC structure against its intended objectives. In doing so, investors should work closely with a legal advisor to ensure that its objectives are best served, and interests are protected adequately. Recently, the MAS issued the circular at footnote 1 of this piece, which caused some unease amongst fund managers. Watch out this space for more on that circular.
For further information, please contact:
Varun Kalsi, Cyril Amarchand Mangaldas
varun.kalsi@cyrilshroff.com
[1] Circular No IID 04/2025, issued by MAS on June 26, 2025.
[2] Financial year means a year beginning from the first day of April of a calendar year and ending on the last day of March of the subsequent calendar year.
[3] Net Worth: The OI Regs ascribes the same meaning to ‘net worth’ as under the Indian Companies Act, 2013, which defines net worth as “the aggregate amount of the paid-up share capital and all the reserves created out of the profits, after deduction from it of the aggregate amount of the accumulated losses, the deferred expenditure, and the miscellaneous expenditure not written off as appearing in the audited balance sheet”.
For a registered partnership firm or Limited Liability Partnership, ‘net worth’ shall be the sum of the capital contribution of partners and undistributed profits of the partners after deducting therefrom the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the last audited balance sheet.
