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In January 2020, the Singapore government launched the Variable Capital Company (VCC), a new corporate structure for all types of collective investment schemes. This legislation is a potential game changer for the international fund management industry, affecting Singapore and neighbouring
countries.
The VCC offers much more operational flexibility for investment funds. Through this entity, fund managers can establish investment funds across both traditional and alternative strategies, as open-ended or closed-end fund strategies. Investors are also eligible to receive tax benefits if they establish a VCC entity.
Details can be found on many websites of various auditing and legal firms, but I’d like to state a few interesting points. The VCC must have at least three directors who are Singapore residents. Fund managers can easily re-domicile existing overseas investment funds by shifting their registration to
Singapore.
Income from a VCC can be exempt from tax if it qualifies for the government’s Enhanced Tier Fund Scheme. The VCC must fulfil two criteria: have a minimum fund size of S$50 million (about US$37 million) and a local business spend of at least S$200,000 (about US$147,000).
A new corporate structure for investment funds will put Singapore in the same league as other global fund hubs. But with the strong Singapore brand, it is likely to be a winning formula, as few jurisdictions will be able to match the city’s reputation.
Central bank data shows that assets under management by Singapore-based managers rose 15.7 per cent in 2019 to just under US$3 trillion, most of which is held in vehicles registered abroad such as Luxembourg, Bermuda, Mauritius and the Cayman Islands.
Luxembourg, with around US$4.7 trillion of assets under management, has long been a destination of choice for many big-name funds such as JPMorgan and BlackRock.
But with Singapore’s status as an international hub in Asia and an investment haven, along with its stable economy, strict regulations and corruption-free governance, it is not difficult to see how it will continue to attract money and investors from other jurisdictions.
In my opinion, many funds registered in various tax havens will consider moving their funds to Singapore over the next few years. The Singapore government estimated earlier this year that the VCC framework could create over 1,000 new jobs for the fund management industry in the first two years of its introduction.
I think this is a conservative estimate and I expect the number of newly created jobs to be higher. Think of all these fund managers, owners and lawyers who will be relocating to Singapore, following their money. There will be an additional demand for upscale properties to accommodate this influx.
These high-net-worth individuals will boost local consumption of Singapore’s F&B, entertainment, insurance, travel, luxury businesses and services. This will naturally bring in more tax revenues, even if several of those industries have slowed down this year due to Covid-19.
Foreigners that work in Singapore are entitled to VAT refunds on big ticket items, meaning an increase in future sales of high-end watches and jewellery.
It is unclear what the aftermath of this epidemic ravaging the world economy will hold and how it will affect Singapore. But following the previous economic crisis of 2008-2009, many expats chose to remain in Singapore and many more relocated to Singapore in the months and years following the crash.
As such, this new scheme is expected to increase rental demand for the properties in the
prime districts and invigorate the demand from local and international investors in the prized high-end property market. Local businesses will benefit from this new flow of money in various ways.
But the demand for luxury is not going to be limited to Singapore. It is well known that much of the resort real estate in the region is purchased or rented by Singapore-based expats, who enjoy spending holidays in their second or third homes.
Singapore is just a couple of hours by plane from popular holiday islands like Phuket, Samui, Bali and others, so the demand for yachting – charter or purchase – will follow. Several of Singapore’s neighbouring economies have been dependent on big-spending tourists and visitors.
The new VCC scheme provides Singaporean and regional luxury businesses with a much-needed boost towards recovery and further strengthens the city state’s position of importance in the finance world.
Alexander Karolik Shlaen, Executive MBA, is the founder of Singapore-based Panache Management, which represents Aston Martin, Tonino Lamborghini and Formitalia design lines in Asia, and provides luxury interiors and design for exclusive real estate, private jets and super yachts. The company is also involved in property and technology investment.
Shlaen sits on the board of directors of a Singapore stock exchange traded company. He has appeared in various regional and global media, writing luxury columns for regional magazines since 2009. Shlaen was chairman of the judges’ panel for the Asia Property Awards and is frequently sought to attend established business forums and events.
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