The Cayman Islands have a long-standing reputation as a premier choice for global investors, offering tax neutrality and an ultra-investor-friendly regulatory environment. Traditional investors might, therefore, make a beeline to the Cayman Islands without giving other jurisdictions much thought.
While that move is entirely understandable, Singapore’s relatively recent introduction of the Variable Capital Company (VCC) framework in 2020 marks a significant and noteworthy development that should shake things up.
Astute investors seeking to optimise tax and efficiency should also have Singapore on their shopping list. While the Cayman Islands boast a longer history, Singapore’s modern and flexible approach quickly positions it as a strong contender in the global financial landscape.
This article will objectively compare these two leading fund jurisdictions, examining their regulatory frameworks, tax regimes, operational efficiencies, and market perceptions. By exploring these aspects, we aim to equip fund managers and investors with the insights needed to make an informed decision tailored to their specific requirements and strategic goals.
Background on Fund Jurisdictions
Fund jurisdictions play a huge role in shaping the global financial ecosystem, impacting how investment funds are structured, regulated, and taxed. The Cayman Islands have long been a go-to destination for the world’s hedge funds and private equity funds, largely thanks to their Segregated Portfolio Company (SPC).
By now an established offshore financial centre, it functions as a well-oiled money machine that includes a strong and accessible legal system, experienced service providers, and a regulatory environment that strikes a motivating balance between investor protection and operational flexibility.
In contrast, Singapore’s financial landscape has not traditionally been a fund management haven for fund managers and ultra-high-net-worth individuals (UHNWI). However, it has recently been catching the eye of such investors, mostly thanks to the introduction of the VCC framework in 2020 that complements existing investment fund structures.
It has made waves in the fund management world, offering flexibility in capital management, streamlined regulatory compliance, and enticing tax incentives. Supported by a long-standing stable political environment and proactive regulatory bodies like the Monetary Authority of Singapore (MAS), Singapore is quickly becoming a contender that is hard to ignore.
Singapore VCC
Overview of VCC
Singapore introduced the VCC framework in January 2020, and it has quickly made a splash in the fund management industry. The VCC structure offers much more flexibility than Singapore vehicles previously offered, allowing funds to be set up as either open-ended or closed-ended entities.
This setup is particularly beneficial because it allows for the segregation of assets and liabilities across multiple sub-funds, each with its own portfolio. VCCs can be formed as a single standalone fund or as an umbrella fund with at least two sub-funds.
As of October 2022, there were over 660 VCCs, incorporating more than 1,300 sub-funds managed by 420 regulated fund management companies.
Regulatory Environment
Singapore’s regulatory environment is renowned for its transparency and strength, with the MAS at the helm. MAS has always been known for those aforementioned qualities, and it ensures that the VCC framework meets high regulatory standards, providing a safe and efficient market.
As time goes on, they continue to fine-tune the framework to boost its efficiency and usage. Naturally, stringent anti-money laundering (AML) and counter-terrorism financing (CTF) regulations add an extra layer of security, giving investors peace of mind.
Taxation and Compliance
A significant draw of the VCC is its tax efficiency. Singapore offers a formidable suite of tax incentives, including exemptions on certain income types and no capital gains tax. The country also boasts an extensive network of over 100 double-tax treaties, 38 bilateral investment treaties, and 22 free trade agreements.
Compliance is straightforward, thanks to clear guidelines and support from the Inland Revenue Authority of Singapore (IRAS), helping fund managers steer clear of bureaucratic red tape.
Advantages of Singapore Variable Capital Companies
The VCC framework offers several standout advantages:
- Flexibility in Capital Structure: Ideal for both open-ended and closed-ended structures, allowing diverse investment strategies.
- Operational Efficiency: Backed by Singapore’s world-renowned infrastructure and experienced service providers, VCCs enjoy smooth day-to-day operations.
- Legal and Regulatory Benefits: Strong IP protection and a transparent legal system add to the VCC’s allure.
- Market Reputation and Investor Confidence: Singapore’s political stability and economic resilience inspire confidence among investors, making it a solid bet for fund managers.
Perhaps most enticingly for those sitting on the fence or with an existing fund management vehicle, MAS has introduced a VCC Grant Scheme to encourage the adoption and conversion to the VCC structure. This grant covers 30% of the qualifying expenses, capped at S$30,000 per VCC, and up to three VCCs per fund manager. Note that this grant is only available until 15 January 2025.
By capitalising on these benefits, Singapore’s VCC framework is likely set to become a major player in the global fund management industry. For fund managers looking to get the best bang for their buck, Singapore’s VCC absolutely presents a compelling choice compared to traditional jurisdictions like the Cayman Islands.
Cayman Islands SPC
Overview of SPC
The Cayman Islands SPC is a well-established and widely used fund structure, particularly favoured in the private equity and hedge fund industries. Its fundamental feature is that it allows for the segregation of assets and liabilities across multiple portfolios within a single legal entity — meaning that each portfolio operates independently, safeguarding assets from the liabilities of other portfolios within the same SPC.
This feature is highly valued by discerning investors as it provides protection against cross-contamination of assets and liabilities. As of the most recent data, the Cayman Islands remains the dominant offshore jurisdiction, holding more than 75% of the world’s offshore hedge funds — and nearly half of the world’s approximate US$1.1 trillion of assets under management.
Regulatory Environment
The regulatory environment in the Cayman Islands is comprehensive and designed to cater to the needs of global investors. The Cayman Islands Monetary Authority (CIMA) oversees the financial sector, ensuring that the SPC framework meets international regulatory standards.
However, recent legislative changes, such as the Private Funds Law and the Mutual Funds (Amendment) Law, have introduced stricter requirements for private funds. These include annual audits by CIMA-approved auditors, mandatory valuations of assets, and the appointment of custodians for safekeeping of assets.
Taxation and Compliance
One of the attractions of the Cayman Islands is most famous for as a fund jurisdiction is its favourable tax regime. There is no income tax, capital gains tax, or withholding tax, making it an attractive option for investors seeking tax efficiency.
However, the introduction of the Economic Substance Law in 2019 requires entities to demonstrate sufficient economic activity within the jurisdiction to benefit from these tax advantages. Compliance with this law involves proving adequate local presence in terms of physical office space, employees, and expenditure.
Advantages of Cayman Islands SPC
The SPC framework offers several key advantages:
- Flexibility in Fund Structures: The SPC is ideal for multi-class hedge funds, umbrella funds, and master-feeder fund structures, allowing managers to implement diverse investment strategies within a single entity.
- Tax Efficiency: The absence of income, capital gains, and withholding taxes makes the Cayman Islands highly attractive for tax-sensitive investors.
- Established Legal Framework: The Cayman Islands has a well-developed legal system and a robust regulatory framework, providing a stable and secure environment for fund operations.
- Global Recognition and Trust: The Cayman Islands are globally recognised and trusted as a premier offshore financial centre, adding much-needed credibility to funds domiciled there.
However, the cost of setting up and maintaining a Cayman Islands SPC can be higher compared to other jurisdictions like Singapore. Additionally, the increased regulatory scrutiny, particularly for funds marketed to U.S. investors, can be a disadvantage.
Singapore VCC vs Cayman Island SPC Cost Comparison
With both jurisdictions offering rather similar solutions with in some use cases, nominal advantages, the decision may well come down to cost.
- Singapore VCC: The streamlined regulatory framework and support from MAS can, generally speaking, lead to lower overall costs for setting up and operating funds. The grant scheme provides additional financial support, and may entice some away from the stalwart in the SPC. To reiterate, the MAS grant scheme covers 30% of qualifying expenses, capped at S$30,000 per VCC, and up to three VCCs per fund manager, which significantly reduces the initial setup costs.
- Cayman Islands SPC: Despite its efficiency, the cost of setting up and maintaining a Cayman SPC can be higher due to increased regulatory requirements and the need for multiple service providers to comply with local regulations. The Private Funds Law and Mutual Funds (Amendment) Law introduce additional compliance costs, including annual audits, asset valuations, and the appointment of custodians and administrators.
As there is no clear winner for a general use case, fund managers will likely need to weigh these cost considerations against their specifc operational needs and strategic goals when choosing between the Singapore VCC and the Cayman Islands SPC. Generally speaking though, it’s good that the global investment community now has the luxury of options.
Key Comparison Tables – Singapore VCC vs Cayman Island SPC
Key Features of Singapore vs the Cayman Islands
| Feature | Singapore | Cayman Islands |
|---|---|---|
| Population | 6.05 million (2024 estimate) | 69,885 (2024 estimate) |
| GDP | $466.8 billion (2022 estimate) | $6.85 billion (2022 estimate) |
| GDP per capita | US$82,807 | US$99,624 |
| Area | 734 km² | 264 km² |
| Main Industries | Finance, tourism, electronics, biotechnology | Finance, tourism, real estate |
| Legal System | English common law | English common law |
| Currency | Singapore Dollar (SGD) | Cayman Islands Dollar (KYD) |
| Time Zone | UTC+8:00 | UTC-5:00 |
| Political Stability | High | High |
Key Features and Requirements of Singapore VCC vs Cayman Islands SPC
| Feature | Singapore’s VCC | Cayman Islands SPC |
|---|---|---|
| Instruments that can be issued | Shares, debentures | Shares, debts |
| Foreign ownership | Yes — although there must be at least 1 Singapore resident director | Yes |
| Are financial statements publicly available? | No | No |
| Is a list of shareholders publicly available? | No | No |
| Access to tax treaties | Over 100 double tax treaties | None, but 30 Tax Information Exchange Agreements (TIEAs) |
| Timeline for setup | Up to 14 days | 5 – 10 business days (excluding registration under Private Funds Law / Mutual Funds Law) |
| Grant | Up to 30% co-funding of qualifying expenses (capped at S$30,000 per VCC, and up to three VCCs per fund manager) | No |
Where to Next With Incorp
Choosing the right fund jurisdiction is obviously a crucial decision for any investor or fund manager. While the Cayman Islands have a long-standing reputation for stability and efficiency, Singapore’s Variable Capital Company (VCC) framework certainly stands to offer a modern and flexible alternative for those looking for other options.
With the support of the Monetary Authority of Singapore (MAS) and various tax incentives, the VCC is rapidly gaining traction. On the other hand, the Cayman Islands’ SPC remains a traditionally strong option with established legal and regulatory frameworks.
Ultimately, the best choice will depend on your specific needs and strategic goals. For personalised advice and assistance in understanding how these options would operate in your specific use case, contact InCorp today. Our team of experts is ready to help you make the best decision for your precise investment strategy.
FAQs about Singapore VCC or Cayman Islands
- The main differences lie in regulatory frameworks, tax incentives, operational costs, and the ability to issue different types of instruments. The VCC offers significant tax incentives and a streamlined setup process, while the SPC provides flexibility in fund structures and a well-established regulatory environment.
- Setting up a VCC in Singapore typically takes up to 14 days, whereas establishing an SPC in the Cayman Islands can take 5-10 business days, excluding the time required for registration under the Private Funds Law or Mutual Funds Law.
- No, financial statements and shareholder lists are not publicly available for either Singapore’s VCCs or the Cayman Islands’ SPCs, ensuring privacy for investors.
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