Second Reading Speech by Second Minister for Finance & Education, Ms Indranee Rajah on the Variable Capital Companies Bill (Miscellaneous Amendments), at the Parliament, 3 September 2019
03 Sep 20191. Mr Speaker, I beg to move, “That the Bill be now read a second time.”
Introduction
2. The Bill comprises two broad categories of proposed amendments. The first category relates to amendments to put in place the tax treatment for variable capital companies or “VCCs”. The second category relates to amendments to the VCC Act which was passed by Parliament in October last year.
3. The VCC is a corporate structure incorporated under the VCC Act which may only be used as an investment fund vehicle. It has features that are tailored for this purpose. For example, a VCC may vary its share capital without seeking investors’ approval, and may pay dividends using profit or capital. The shareholders of a VCC are the fund investors. A VCC must be managed by a fund manager that is regulated by MAS.
4. Introducing the VCC will increase the value proposition for fund managers to domicile their investment funds in Singapore and complements our existing efforts to anchor fund management and other related activities here. It will also create new business opportunities for lawyers, accountants, tax advisors, fund administrators and custodians in Singapore.
5. Mr Speaker, I will now elaborate on the two broad categories of the Bill.
Category 1: Amendments to Tax Acts
6. The first category of amendments deals with the tax treatment for VCCs through amendments to the Income Tax Act, GST Act and Stamp Duties Act. The proposed tax treatment, which was formulated in consultation with industry, recognises the unique characteristics of a VCC. A key feature of a VCC is its ability to combine the advantage of a single legal entity at the umbrella VCC fund level, with segregation of assets and liabilities at the sub-fund level.
7. As announced by the Ministry of Finance in its Budget 2018 Statement, a VCC will be treated as a company for Corporate Income Tax purposes. The salient aspects of the Corporate Income Tax treatment for a VCC are as follows:
a. To ease the compliance burden, an umbrella VCC will only need to file a single Corporate Income Tax return with the Inland Revenue Authority of Singapore, regardless of the number of sub-funds that it has.
b. Deductions and allowances for expenses incurred by an umbrella VCC will be applied at the sub-fund level to determine the sub-fund’s chargeable income.
c. Where applicable, a VCC will enjoy the start-up or partial tax exemption under our general Corporate Income Tax regime. These exemptions will be enjoyed once at the umbrella VCC level, regardless of the number of sub-funds under the umbrella VCC or the number of sub-funds that are subsequently added to the umbrella VCC.
d. VCCs will be eligible to benefit from tax incentives for funds under sections 13R and 13X of the Income Tax Act. These incentives will provide tax exemption on qualifying investment income.
8. As for the GST treatment of VCCs, GST will be applicable at the sub-fund level. GST accounting and reporting are to be performed separately by each sub-fund that is liable for GST registration. This is because sub-funds have segregated assets and liabilities, and each sub-fund makes independent sale and purchase decisions based on its investment mandate.
9. On stamp duty treatment of VCCs, stamp duty is levied at the sub-fund level. For instance, stamp duty will be levied on an instrument that transfers the interest in property and shares between sub-funds. This treatment regards sub-funds as separate persons for stamp duty purposes and is in line with the principle that sub-funds have segregated assets and liabilities.
10. IRAS will provide further guidance and details of the tax treatment for VCCs on its website and e-Tax Guides.
Category 2: Amendments to VCC Act
11. The second category of amendments seeks to amend two aspects of the VCC Act.
Amendments to insolvency provisions
12. The first aspect relates to the insolvency provisions in the VCC Act. The current provisions in the VCC Act relating to the receivership and winding up of VCCs and their sub-funds are adapted from the Companies Act. In October 2018, the Insolvency, Restructuring and Dissolution Act or “IRDA” was passed by Parliament. The IRDA consolidates all personal and corporate insolvency, and debt restructuring laws under one statute. When the IRDA comes into force, the insolvency provisions in the Companies Act will be repealed. As such, the VCC Act must be amended so that the insolvency framework for VCCs and their sub-funds will make reference to the relevant provisions in the IRDA instead of the Companies Act. This will align the insolvency regime for VCCs and their sub-funds with that of other corporate structures in Singapore.
13. I had previously highlighted the need for these amendments when I moved the VCC Bill in Parliament last year. This was also highlighted in the explanatory brief accompanying the VCC Bill on the MAS website, as well as during the most recent public consultation on the operational framework for VCCs in July this year.
Other technical amendments
14. The second aspect involves technical amendments to the VCC Act. One example is to clarify that a VCC should have at least one member. This aligns the minimum number of members in a VCC with that for companies under the Companies Act. Other amendments include requiring documentary evidence of the directors’ decision to be lodged with the Registrar for proper records for alterations to the VCC constitution that do not require a members’ resolution. These have been included for clarity, in light of enquiries received.
Conclusion
15. The Bill will provide clarity to fund managers who are looking to domicile funds as VCCs when the VCC framework becomes operational at the end of this year: first, in terms of the tax treatment for VCCs and second, in terms of the receivership and winding-up framework applicable to VCCs and their sub-funds.
16. Mr Speaker, I beg to move.
Introduction
2. The Bill comprises two broad categories of proposed amendments. The first category relates to amendments to put in place the tax treatment for variable capital companies or “VCCs”. The second category relates to amendments to the VCC Act which was passed by Parliament in October last year.
3. The VCC is a corporate structure incorporated under the VCC Act which may only be used as an investment fund vehicle. It has features that are tailored for this purpose. For example, a VCC may vary its share capital without seeking investors’ approval, and may pay dividends using profit or capital. The shareholders of a VCC are the fund investors. A VCC must be managed by a fund manager that is regulated by MAS.
4. Introducing the VCC will increase the value proposition for fund managers to domicile their investment funds in Singapore and complements our existing efforts to anchor fund management and other related activities here. It will also create new business opportunities for lawyers, accountants, tax advisors, fund administrators and custodians in Singapore.
5. Mr Speaker, I will now elaborate on the two broad categories of the Bill.
Category 1: Amendments to Tax Acts
6. The first category of amendments deals with the tax treatment for VCCs through amendments to the Income Tax Act, GST Act and Stamp Duties Act. The proposed tax treatment, which was formulated in consultation with industry, recognises the unique characteristics of a VCC. A key feature of a VCC is its ability to combine the advantage of a single legal entity at the umbrella VCC fund level, with segregation of assets and liabilities at the sub-fund level.
7. As announced by the Ministry of Finance in its Budget 2018 Statement, a VCC will be treated as a company for Corporate Income Tax purposes. The salient aspects of the Corporate Income Tax treatment for a VCC are as follows:
a. To ease the compliance burden, an umbrella VCC will only need to file a single Corporate Income Tax return with the Inland Revenue Authority of Singapore, regardless of the number of sub-funds that it has.
b. Deductions and allowances for expenses incurred by an umbrella VCC will be applied at the sub-fund level to determine the sub-fund’s chargeable income.
c. Where applicable, a VCC will enjoy the start-up or partial tax exemption under our general Corporate Income Tax regime. These exemptions will be enjoyed once at the umbrella VCC level, regardless of the number of sub-funds under the umbrella VCC or the number of sub-funds that are subsequently added to the umbrella VCC.
d. VCCs will be eligible to benefit from tax incentives for funds under sections 13R and 13X of the Income Tax Act. These incentives will provide tax exemption on qualifying investment income.
8. As for the GST treatment of VCCs, GST will be applicable at the sub-fund level. GST accounting and reporting are to be performed separately by each sub-fund that is liable for GST registration. This is because sub-funds have segregated assets and liabilities, and each sub-fund makes independent sale and purchase decisions based on its investment mandate.
9. On stamp duty treatment of VCCs, stamp duty is levied at the sub-fund level. For instance, stamp duty will be levied on an instrument that transfers the interest in property and shares between sub-funds. This treatment regards sub-funds as separate persons for stamp duty purposes and is in line with the principle that sub-funds have segregated assets and liabilities.
10. IRAS will provide further guidance and details of the tax treatment for VCCs on its website and e-Tax Guides.
Category 2: Amendments to VCC Act
11. The second category of amendments seeks to amend two aspects of the VCC Act.
Amendments to insolvency provisions
12. The first aspect relates to the insolvency provisions in the VCC Act. The current provisions in the VCC Act relating to the receivership and winding up of VCCs and their sub-funds are adapted from the Companies Act. In October 2018, the Insolvency, Restructuring and Dissolution Act or “IRDA” was passed by Parliament. The IRDA consolidates all personal and corporate insolvency, and debt restructuring laws under one statute. When the IRDA comes into force, the insolvency provisions in the Companies Act will be repealed. As such, the VCC Act must be amended so that the insolvency framework for VCCs and their sub-funds will make reference to the relevant provisions in the IRDA instead of the Companies Act. This will align the insolvency regime for VCCs and their sub-funds with that of other corporate structures in Singapore.
13. I had previously highlighted the need for these amendments when I moved the VCC Bill in Parliament last year. This was also highlighted in the explanatory brief accompanying the VCC Bill on the MAS website, as well as during the most recent public consultation on the operational framework for VCCs in July this year.
Other technical amendments
14. The second aspect involves technical amendments to the VCC Act. One example is to clarify that a VCC should have at least one member. This aligns the minimum number of members in a VCC with that for companies under the Companies Act. Other amendments include requiring documentary evidence of the directors’ decision to be lodged with the Registrar for proper records for alterations to the VCC constitution that do not require a members’ resolution. These have been included for clarity, in light of enquiries received.
Conclusion
15. The Bill will provide clarity to fund managers who are looking to domicile funds as VCCs when the VCC framework becomes operational at the end of this year: first, in terms of the tax treatment for VCCs and second, in terms of the receivership and winding-up framework applicable to VCCs and their sub-funds.
16. Mr Speaker, I beg to move.