Variable Capital Companies (Miscellaneous Amendments) Bill

Order for Second Reading read.

1.31 pm

The Second Minister for Finance (Ms Indranee Rajah): Mr Speaker, I beg to move, "That the Bill be now read a Second time."

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.

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.

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.

Mr Speaker, I will now elaborate on the two broad categories of the Bill.

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.

As announced by MOF 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:

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.

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.

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.

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.

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.

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.

IRAS will provide further guidance and details of the tax treatment for VCCs on its website and e-Tax Guides.

The second category of amendments seeks to amend two aspects of the VCC Act.

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.

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.

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.

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. Mr Speaker, I beg to move.

Question proposed.

1.38 pm

Mr Patrick Tay Teck Guan (West Coast): Mr Speaker, I rise in support of this Bill. The Variable Capital Companies Act or the VCC Act provides for the incorporation and operation of a new corporate structure, the VCC, which caters to the needs of investment funds. The VCC structure is designed to encourage investors to place their funds in Singapore and strengthen Singapore's economy.

I note that there are several amendments to the VCC Act and they may be broadly classified into two areas: first, amendments to the VCC to align the VCC insolvency regime with all the other corporate structures in Singapore; and second, other more technical amendments.

I have no objections to the amendments, however, my questions today, revolve more so around the development and progress of the VCC Framework since it was introduced last year. In particular, the impact of the VCC Framework on the economy and job market and prospects in Singapore.

The Second Minister for Finance, Ms Indranee Rajah mentioned in Parliament last year, that the VCC framework will create new business opportunities for lawyers, accountants, tax advisors, fund administrators and custodians in Singapore.

MAS has estimated that the VCC framework could create over 1,000 new jobs for service providers in the first two years of its introduction. In this respect, I have the following questions.

First, it has been about one year since the passing of the VCC Act.

How many new jobs have been created as a result of the VCC and has it reached the 1,000 mark?

As a follow up question, are they all in the legal/accounting sector? Would the Minister be able to provide a brief breakdown of the new jobs created within the various sectors?

Second, I note that the VCC framework is a relatively new corporate structure introduced last year, which is unlike the traditional company.

How well received is the VCC structure in Singapore? Has it achieved its objective in making Singapore a more attractive fund management hub?

In the work force: are there also plans to provide education and training to the fund managers, lawyers and accountants, who would be advising and assisting with the VCC? If so, what are these plans?

In the educational institutions: are there also plans to introduce this VCC framework into the local law schools and universities, as part of their Corporate Law modules, to prepare local law students for the possibility of working with the VCC framework, for example, drafting of fund documents, knowing the VCC requirements and so on? If so, is it well received?

Could more be done to prepare and ensure that our students and workers are able to be adept and competent with handling the VCC framework?

Third, there are indications that Singapore economy is headed towards uncertain territory. Would the Minister be able to share whether this VCC framework, with the additional funds flowing into Singapore, can assist with cushioning the impact of the economic slowdown?

Sir, clarifications notwithstanding, I stand in support of this Bill.

Mr Speaker: Second Minister Indranee.

1.41 pm

Ms Indranee Rajah: Mr Speaker, I would like to thank the Member, Mr Patrick Tay, who has spoken on the Bill and for his support.

I would like to like to clarify that whilst the VCC Act was passed in Parliament last year, the VCC framework is not yet operational. The Government is working on the Subsidiary Legislation which sets out the operational framework for VCCs and their sub-funds. The tax treatment for VCCs will also be introduced, which I have just dealt with in my speech earlier. With these components in place the VCC framework is anticipated to come into operation at the end of this year.

As such I will begin by addressing Mr Tay's second question on reception of the VCC structure, and the plans to prepare the industry and the educational institutions for the launch of the VCC framework.

The response to the VCC framework from the asset management industry both in Singapore and abroad has been positive, with the VCC being hailed as a "game-changer". It has been welcomed as a positive step to enhance the suite of fund structuring options in Singapore with a structure that is fit for use as an investment fund vehicle.

It is also an important step to ensure that Singapore remains competitive with other long-established fund domiciles such as Luxembourg and Ireland.

MAS has been actively promoting the VCC framework to three main groups: first, the fund managers; second, investors; and third, service providers, including lawyers, accountants, tax advisors, fund administrators and custodians.

When I moved the VCC Bill last year, I mentioned that MAS has been working closely with industry associations, local service providers and consultants to familiarise them with the value proposition and features of the VCC framework. These include providing greater flexibility in the use of capital, allowing fund managers to consolidate certain administrative functions to achieve cost efficiencies, and allowing for funds domiciled in other jurisdictions to re-domicile to Singapore as VCCs.

Since last year, MAS has continued with its engagements with the industry to familiarise it with the features of the VCC framework. MAS participated in various industry-led events and seminars including the Seminar on the VCC Act organised by the Law Society of Singapore in April this year.

MAS continues to conduct regular engagement sessions with fund managers and other service providers, to ensure that they are kept abreast of the developments and timeline for the implementation of the VCC framework.

MAS has also recently concluded two promotional trips to North America and Japan to encourage fund managers and investors to consider the VCC as a viable structuring option for their investment funds. During these overseas trips, MAS also met with fund service providers to familiarise them with the VCC framework, so that they can, in time, introduce the VCC as a structuring option for their clients.

MAS received positive feedback on the VCC framework and many of the stakeholders that were engaged are keen to explore domiciling funds in Singapore when the framework is launched.

In addition, MAS officers continue to participate in panel discussions and seminars in New York and London to educate the local asset management community about the features of the VCC framework.

To familiarise the industry with the VCC framework and to allow fund managers to provide feedback on the registration process for VCCs, MAS will be running a pilot programme for interested fund managers and service providers. These fund managers will be able to have their funds registered as VCCs on the day that the VCC framework is launched. The programme will commence later this month. Interested fund managers and service providers may approach MAS to find out more about participation.

While there are currently no plans to introduce any modules relating to VCCs in the local tertiary curriculum, MAS will study whether this is necessary once the VCC framework is launched.

Mr Tay also asked about the number of jobs created and the impact of the VCC framework to the Singapore economy. It is estimated that the VCC framework could create over 1,000 new jobs for service providers in the first two years of its introduction. We will monitor its impact to the Singapore economy once the framework is launched.

I would add, however, that the introduction of the VCC is one important, but not the only, piece in our plan for Singapore to be the leading pan-Asian hub for fund domiciliation and management. The Government continues to work in tandem with the industry to refine our existing schemes and introduce new initiatives to foster the development of the asset management industry.

Mr Speaker, let me conclude. I would like to reassure Mr Tay and all interested parties that the Government is putting in its best efforts to ensure that there is maximum take-up of the VCC structure once it is launched. The Government will continue to work with the industry to ensure that all players in the industry are fully apprised of this new structuring option and are equipped to take advantage of its features as well as the new business opportunities that it can provide. Mr Speaker, I beg to move.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [Ms Indranee Rajah].

Bill considered in Committee; reported without amendment; read a Third time and passed.