Popular investment vehicles in Singapore.

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Popular investment vehicles in Singapore

Investment vehicles refer to an investment company or pooled investments to gain profits or a return. These vehicles have been increasingly common as they can reduce any investment risks. What are the popular investment vehicles in Singapore? Our guide will answer this question.

1. Variable capital company

A Variable Capital Company (VCC) is a new legal entity that can be used for all types of investment funds.

It can be used as either a standalone fund or an umbrella fund with several sub-funds holding different assets. Sub-funds of an umbrella VCC are not considered as a separate legal entity from the VCC, but the VCC can sue or be sued in the name of the sub-fund.

A common reason for when the VCC may be used is as one or more Collective Investment Schemes (CIS). A CIS is an arrangement where money is pooled together and managed by a fund manager.

Variable Capital Company requirements

The VCC must comply with the following legal requirements:

  • Must have a registered office in Singapore
  • A licensed or registered fund manager must be appointed
  • At least one director must be a resident of Singapore
  • One or more directors must be a Qualified Representative or a director of its fund manager
  • The directors of the VCC must meet with the fit and proper requirements outlined by the monetary authority of Singapore (MAS), which the criteria for considering whether a person is fit and proper include but are not limited to the following:
    • Honesty, integrity and reputation
    • Competence and capability
    • Financial soundness
  • At least one shareholder
  • A Singapore resident must be appointed as the corporate secretary within six months of incorporation
  • A Singapore-based qualifying accounting entity must be appointed within three months of incorporation.
  • Annual general meetings must be held within six months after the end of the financial year-end (FYE)
  • Annual returns must be filed within seven months after the end of the FYE
  • The VCC must comply with the Anti-Money Laundering and Countering the Financing of Terrorism requirements

Benefits of a Variable Capital Company

A VCC can change its share capital without prior approval from the shareholders, which provides flexibility and convenience to investors to enter or exit the investment fund. When a shareholder wants to exit the investment, they can sell the shares back to the VCC.

VCCs can also distribute dividends out of capital instead of just from profits.

VCCs are expected to maintain a register of shareholders, but the information will not be disclosed to the public, giving privacy to shareholders. Financial statements of the VCC are also not required to be made public.

An umbrella VCC can benefit from cost savings as sub-funds have the same management and service providers, such as auditors, administrative agents and common fund managers.

Variable Capital Company incorporation steps

The incorporation of a VCC in Singapore involves two main steps, which are obtaining a name and incorporating the VCC. The incorporation of the VCC can be made through the bizfile+ portal of the ACRA.

Filing and submitting the name application

The first step is to choose a new VCC name and apply for the name through the online application form.

Necessary details such as the incorporation purpose, directors and shareholders’ proof of residential address, identification type, identification number, and nationality.

The process may take approximately 14 days, and once the application is sent, you will receive a transaction number.

Once the application has been approved, the name will be reserved for 120 days which the VCC must be incorporated within the deadline. If the VCC is not incorporated within 120 days, the name reservation will be cancelled, and a new name application will need to be submitted.

VCC incorporation

To incorporate the VCC, the following information is required:

  • Transaction number of the approved name application
  • Details of the proposed director and VCC officers, including address, identification number, identification type, nationality and contact information
  • Details of at least one director who is either a director or qualified representative of the fund manager of the VCC
  • Details of the fund manager, including the Unique Entity Number (UEN), address and country of incorporation
  • Details of subscribers, including the identification number, name of subscriber and email address
  • Type of VCC
  • Registered office address and opening hours
  • Copy of constitution
  • FYE (common FYEs are 31 March, 30 June, 30 September or 31 December)

The incorporation fee is SGD 8,000. Once the VCC is successfully incorporated, a UEN will be issued.

Tax incentives

VCCs in Singapore are eligible for two types of tax schemes, the Enhanced Tier Fund Scheme (13X) and the Singapore Resident Fund Scheme (13R).

Under the two schemes, designated investments will be exempted from tax. This includes:

  • Shares and stocks of any companies
  • Qualifying financial derivatives
  • Qualifying unit trusts
  • EFTs
  • REITs
  • Futures
  • Forex transactions
  • Foreign currency deposits with overseas FIs
  • Immovable property from overseas

2. Investment holding company

An investment holding company (IHC) is a corporate entity that allows investors to generate income (non-trade income), such as dividends, interest, rental income or royalties, by owning real estate and/or shares in other companies.

IHCs in Singapore only handle non-trade activities and cannot be used to conduct any business venture; it can only overlook management decisions. However, the IHC can purchase shares of other firms and use its subsidiaries to conduct trade.

If the IHC has 100% ownership of another business, it will be referred to as a wholly-owned subsidiary.

Investment holding company requirements

The requirements for registering an IHC are:

  • At least one shareholder (can be an individual or company)
  • At least one local director
    • A resident of Singapore
    • Over 18 years of age
  • At least one resident company secretary
  • Minimum paid-up capital of SGD 1.00
  • Local registered physical address for official communication
  • Corporate bank account

Benefit of an investment holding company

A Singapore IHC is a distinct entity, and the liability of its shareholders is limited to the amount that the shareholders contributed. If the company suffers any losses, your personal liability will not be at risk.

Singapore is a destination for setting up an IHC as the government has supported foreign investment by reducing entry barriers.

Even though an IHC cannot engage in any business activities, the Accounting and Corporate Regulatory Authority (ACRA) allows an IHC to own and sell real estate.

Singapore is one of the tax havens in Asia, with a corporate tax rate of 17%, no tax will be imposed on dividends and zero tax on all capital gains. Foreign-sourced income can also be exempted from tax only if your company meets the requirements.

IHCs in Singapore can also benefit from double tax treaties that Singapore has signed with over 80 countries which will avoid companies having to pay tax on the same income in two jurisdictions.

Another benefit of an IHC is that it can be structured as either a limited liability company, limited partnership, trust or foundation. However, the most common structure is the private limited company, as it provides the most benefits. The last benefit is IHCs can be set up with a low capital share of only SGD 1.00.

What are the allowed deductions?

Expenses that can be deducted are attributable to the investment income and can be applied to lower payable income tax. These expenses include direct expenses, statutory and regulatory expenses and other allowable expenses.

Direct expenses are expenses that earns investment income, such as the cost of collecting rent, interest expenses, insurance, property tax and repair and maintenance.

Statutory and regulatory expenses are expenses spent to keep the company compliant with local laws and regulations, which include accounting fees, annual listing fees, audit fees, bank charges, income tax fees, printing and stationery and secretarial fees.

Other allowable expenses include administrative fees, directors’ fees, general expenses, office rental, telephone and utility charges, staff salaries, allowances, bonus and approved provident fund contributions and transport expenses.

Conclusion

Many entrepreneurs are investing in investment vehicles as they reduce investment risks and provide other benefits, including tax benefits. If you have any additional questions about investment vehicles in Singapore, feel free to contact us.

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