Daniel Yong


Since taking effect in January 2020, Singapore’s variable capital company (VCC), a new structure for investment funds, has seen tremendous take-up notwithstanding the economic handbrakes applied by covid-19.

As of June 1, approximately 297 VCCs have been registered. A brief recap of the VCC’s key features may help to shed light on its growing popularity among fund managers and investors.

Flexible structure: The VCC can exist in two forms. The first is a ‘standalone’ vehicle typically used for ‘pooling’ purposes. The second and more popular is the ‘umbrella’ structure, which accounts for 79 percent of VCCs registered, with sub-funds having their respective assets and liabilities segregated from other sub-funds and the umbrella VCC itself. Sponsors also have the ability to design the share capital of the VCC or sub-funds as necessary to fit each sub-fund’s commercial terms.

Diverse strategies: The VCC can accommodate a multitude of strategies. Of those funds now registered as VCCs, 31 percent are private equity and venture capital managers, 23 percent are external asset managers (EAMs) and multifamily offices (MFOs), and 25 percent are hedge funds.

Until recently, EAMs and MFOs constituted the largest users of the VCC, principally for private wealth purposes. However, institutional closed-end managers and/or their investors are also increasingly comfortable with adopting the VCC model, which augurs well for Singapore as a fund domicile.

Ease of capital flow: Shares are issued and redeemed at prevailing net asset value; the ‘profit’ and ‘solvency’ rules for distributions do not apply.

Re-domiciliation: Foreign corporate funds can ‘migrate’ into Singapore as VCCs. We have seen 10 of these hailing from the Cayman Islands, Mauritius and the Bahamas.

Tax benefits: The VCC can access Singapore’s extensive network of double taxation agreements, as well as the popular s.13R and s.13X fund tax incentives, which generally exempt tax on specified income derived from designated investments.

Monetary Authority of Singapore (MAS) grant: Available until January 2023, this scheme reimburses up to 70 percent of a VCC’s establishment costs, capped at S$150,000 ($130,000; €93,000) in respect of locally incurred eligible expenses such as legal, tax, fund administration and compliance fees.

Looking ahead, the MAS is examining refinements to further enhance the usage of the VCC. These include allowing exempt managers like single family offices and real estate fund managers to set up VCCs as well as possibly introducing pathways for other fund structures – for example, the Singapore limited partnership and private limited company –  to restructure as VCCs.

Daniel Tang

Hong Kong

Limited Partnership Fund Ordinance: The launch of the limited partnership fund regime (LPF Regime) in August 2020 aims to provide an alternative vehicle for market players to set up their funds in Hong Kong so that their place of registration can be the same as their operational base.

The LPF Regime comes at the right time when fund managers are actively considering alternative onshore jurisdictions to restructure their operations in response to the introduction of economic substance requirements and the Private Funds Law in February 2020. There are so far more than 230 LPFs registered in Hong Kong.

Hong Kong is the most active IPO market in the region for private equity funds to exit their investments. Given this, and given its proximity to mainland China, we expect the LPF Regime to attract more market players, many of them benefiting from China’s tech and start-up boom, with their staff and managers settling in the city.

Tax concessions for carried interest: The Inland Revenue (Amendment) (Tax Concessions for Carried Interest) Ordinance, which introduces a concessionary 0 percent tax rate for carried interest, came into effect on May 7 and applies retroactively to eligible carried interest received by or accrued to qualifying fund managers on or after April 1, 2020. Cutting the tax rate on carried interest to 0 percent certainly makes Hong Kong a more attractive base for fund managers and brings it on par with other leading fundraising centers. The concession is also opportunely timed, coming after President Joe Biden’s plan to eliminate carried interest tax breaks.

Government grant scheme: On May 10, the government launched a scheme to subsidize the listing of real estate investment trusts (REITs) on the Hong Kong Stock Exchange and incorporation/re-domiciliation of an open-ended fund company. The scheme covers 70 percent of eligible expenses paid to Hong Kong-based service providers, subject to a cap of HK$8 million ($1 million; €850,000) per REIT and HK$1 million per OFC.

The government has allocated funding of HK$270 million to the scheme. The application period commenced on May 10 and will run for a period of three years on a first-come, first-served basis.

We believe the scheme provides many welcome incentives for the asset and wealth management industry in Hong Kong.

Along with the facilitative tax environment created by the carried interest tax concession, Hong Kong will likely become an increasingly attractive domicile for investment funds exploring onshore options.

Koji Yamamoto


On April 1, the Japan Financial Services Agency and the National Tax Authority of Japan made an announcement regarding the use of a special limited partner (SLP) by Japan-based investment professionals to receive carried interest with respect to limited partnership funds.

As a matter of default, whereby carried interest is received as salary, including bonus, such carried interest will be subject to the standard progressive income tax rate of Japan. This can be as high as 55.94 percent. However, by having the investment professional subscribe to the fund as an SLP, through proper structuring, any such carried interest received by the SLP may be subject to a significantly lower capital gain rate of 20.31 percent.

The regulators sought to provide further guidance and clarity on the use of SLPs in relation to the receipt and taxation of carried interest.

Through reference to a specific fact pattern as an example, further guidance was given regarding factors and considerations by which an SLP could qualify for the capital gains treatment in relation to carried interest received.

The cited fact pattern was intended as an example of one structure by which an SLP may treat their received carried interest as capital gains, while other structures are certainly viable as well. Given that the use of SLPs is typically seen with closed-end limited partnership funds, we believe that this may have a significant impact on private equity, venture capital and real estate fund managers.

This initiative by the Japan FSA and National Tax Authority is the latest in an ongoing series of efforts to attract foreign fund managers to set up management companies in Japan and to establish Japan as a financial hub of Asia.