Single Family Offices Should Make Use of Variable Capital Companies
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Single Family Offices Should Make Use of Variable Capital Companies
May 2023
1．Introduction
Single family offices can make use of the variable capital company structure to ringfence their assets and investments by appointing a family member to be a director who instructs a permissible fund manager to manage the variable capital company. Presently, single family offices are excluded from the scope of a permissible fund manager, which means that such family offices are not able to directly manage the variable capital companies. A permissible fund manager means a licenced or registered fund management company or certain exempt financial institutions such as banks.
2．Variable Capital Company Structure
This variable capital company structure is beneficial in terms of re-domiciling multiple funds into a single variable capital company, where foreign funds can redomicile to Singapore via a simple registration process, which allows foreign funds to preserve their corporate history and identity.
Furthermore, the segregation of sub-funds under an umbrella variable capital company may mitigate risks since such segregation prevents the commingling of assets of different sub-funds, and the assets of one sub-fund cannot be used to discharge the liabilities of another fund under the same umbrella variable capital company.
Additionally, single family offices structured as variable capital companies are treated as a single legal entity for tax filing purposes, so only one set of income tax returns must be filed with the Inland Revenue Authority of Singapore. Variable capital companies are considered companies, so the prevailing company tax rates apply and variable capital companies may enjoy the same deductions as other companies. Given the variable capital companies’ specific use as investment vehicles, they typically are eligible for tax incentives that could exempt most income derived from designated investments such as Section 13O of the Income Tax Act 1947 of Singapore (Exemption of income of company incorporated and resident in Singapore arising from funds managed by fund manager in Singapore). Such potential tax incentive gains may substantially lower or defray the cost of setting up a single family office using a variable capital companies for Ultra High Net Worth Individuals.
Yet, such arrangement poses privacy concerns for single family offices as the permissible fund managers will now be exposed to price-sensitive and confidential private wealth information that family offices are only privy to access. Presently, the Monetary Authority of Singapore is looking at potentially expanding the scope of permissible fund managers to allow single family offices to personally manage a variable capital company, which can mitigate such privacy concerns.
Single family offices may aim to manage their own variable capital companies by qualifying for the Extended Variable Capital Companies Grant Scheme (https://www.mas.gov.sg/schemes-and-initiatives/variable-capital-companies-grant-scheme) that co-funds thirty percent (30%) of qualifying expenses arising from a variety of legal services, tax services and administration and regulatory and compliance services paid to Singapore-based service providers, in relation to the incorporation or registration of a variable capital company, up to a maximum grant cap of S$30,000 per variable capital company.
To apply for the grant scheme, applicants should be first-time Qualifying Fund Managers who must not have previously incorporated or successfully re-domiciled a variable capital company and must not have previously applied for the Extended Variable Capital Companies Grant Scheme. Qualifying Fund Managers are defined as licensed or registered fund management companies, or certain exempt financial institutions such as banks. Each applicant may only apply for grants for work done in relation to a maximum of one variable capital company.
3．Conclusion
Applicants should submit their grant application within three (3) months from the incorporation or transfer of their variable capital companies. It takes around four (4) weeks to incorporate a variable capital company, and applicants should submit their applications within three (3) months from the date of incorporation or transfer of their variable capital company. The scheme will be available until 15 January 2025.
