Singapore is viewed as a progressive asset management centre, providing an entry point for asset managers from the West to Asia, coupled with a robust regulatory framework and business-minded government. Nevertheless, the fast-changing environment globally, as a result of regulation and other dynamics, has put increased pressure on financial centres such as Singapore to reinvent themselves to remain at the forefront of the industry. There has also in recent years been an increasing trend towards setting up Singapore-domiciled investment vehicles, primarily because Singapore offers a place where substantive fund management activities and investment vehicles can coexist. It also boasts a large network of tax treaties.
Today, Singapore does not have a corporate form flexible investment fund vehicle that caters to the specific needs of hedge funds, private equity and real-estate funds. This is being addressed by the introduction of the Singapore Variable Capital Company (S-VACC), an initiative undertaken by the city state’s financial services regulator over the past few months, which has come to fruition with the announcement of a public consultation. An S-VACC can be set up only by Singapore-based fund management companies, with certain exemptions available to Singapore-based banks, merchant banks, and insurance companies. It also comes with additional residency requirements such as the need for a minimum of one local ordinarily resident director, Singapore-based company secretary, local auditor and onshore registered office. These enhanced residency requirements will help with the compliance with global initiatives such as the OECD’s base erosion and profit shifting recommendations. Also, the days of having more stringent anti-avoidance provisions in tax treaties are not far away and one effective way to facilitate compliance with the substance of the rules would be to have management of assets and pooling of investors in the same jurisdiction, coupled with the physical substance or presence.
The current S-VACC bill and consultation paper published seems to be silent on the need for a locally based fund administrator, with very little information on its taxation schemes. It does mention that the regulator is studying the current tax regime applicable for investment funds and is considering extending it to S-VACCs. The existing tax incentive schemes available for investment funds such as the Singapore Resident Scheme and the Enhanced Tier Funds scheme both have a local fund administrator requirement. Therefore, if maintaining the status quo of existing schemes, the regulations indirectly will require the need for a local fund administrator.
Looking at the history of various other fund domiciles, there is a strong positive correlation between friendly government policies on the fund management industry and the resulting economic benefits, which includes job creation and an increase in tax revenue. There is no doubt that S-VACCs would lead to an increase in domestic business as there would be an increase in the number and sophistication of service providers and infrastructure to cater to the funds and managers. The quantitative impact today is difficult to estimate as it would be based on several hypotheses and assumptions. What we could learn is from the empirical evidence of other jurisdictions such as Luxembourg and Ireland – traditionally agrarian countries that are now leading financial centres. Lacking natural resources, Singapore may find that the introduction of the S-VACC is another tool to differentiate itself.
Armin Choksey (pictured) PwC Asian Investment Fund Centre leader and representative of the Singapore Fund Administrators Association membership and education committee
Martin O’Regan chairman of the Singapore Fund Administrators Association
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