There are several tax benefits of Variable Capital Company (VCC). The favourable tax regime for Singapore corporates is applicable to Variable Capital Company. Singapore corporates enjoy a corporate tax of 17%, one of the lowest in the world. The same tax rate will be applicable to VCC. There is also no corporate gains tax which is attractive for investments.
We highlight the other tax benefits of Variable Capital Company below:
Single tax entity
The VCC will be regarded as a single tax entity. This allows it to enjoy the same tax benefit as a company incorporated in Singapore.
The tax residency is determined at the umbrella level. Thus, a VCC could be a Singapore tax resident and enjoy the favourable tax treatment in Singapore.
Umbrella VCC has multiple sub-funds with segregated assets and liabilities. Only a single tax return is required to be filed regardless of the number of its sub-funds.
The chargeable income of an umbrella VCC will be the total of the chargeable income of each sub-fund. Deductions and allowances will be applied at the sub-fund level for determination of the sub-fund’s chargeable or exempt income.
For tax losses which included unutilized capital allowances, trade losses, and donations, it will be applied at the sub-fund level. These tax losses can be carried forward for utilization against future year’s taxable profits of that sub-fund, or carried back for utilization against the immediate preceding year’s taxable income of that sub-fund. For such tax loss treatment, a shareholding test needs to be applied at the sub-fund level where there is no substantial change in shareholders at the date attributed to the filling of the tax return.
Foreign tax credits
Foreign tax credits will be allowed at the lower of the Singapore tax of the sub-fund, or the foreign tax paid by the umbrella VCC on behalf of that sub-fund.
Double Tax Agreements
To prevent double taxation, Singapore has entered into Avoidance of Double Tax Agreements (or DTAs) with an extensive network of over 80 countries. VCC will enjoy the tax benefits of these agreements.
Incentive scheme for funds
Two incentive schemes are applicable to VCC:
- Enhanced Tier Fund (ETC) scheme, and also known as Section 13X
- Singapore Resident Fund (SRF) scheme, and also known as Section 13R
Under the ETF Scheme, the fund has to fulfil two main conditions. Firstly, the applicant fund must have a minimum fund size of S$50 million at the point of application. Secondly, the fund must have an annual local business spend of at least S$200,000. Under the SRF Scheme, the fund is required to have an annual business spend of at least S$200,000. These conditions are applied at the VCC umbrella level and not to each sub-fund. This result in economies of scale as the assets and business spending of the multiple sub-funds can be added together to fit the requirement under the ETF and SRF Scheme.
For funds approved under the ETF and SRF schemes, they can enjoy the benefits of current withholding tax exemption as well as GST remission.
Incentive scheme for fund managers
For approved fund managers, they will enjoy the benefit of 10% concessionary tax rate applied to fee income received from managing incentivized VCCs. This comes under the Financial Sector Incentive – Fund Management Scheme.