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Strategic considerations driving fund launches and relocation in Singapore


Even compared to other APAC countries, which are expected to outpace every other region by 2025 in AUM, Singapore is proving to be a magnet for global fund flows. Assets under management (AUM) in Singapore rose 17% in 2020, driven by “strong inflows into both traditional and alternative investment strategies, as well as valuation gains across major asset classes,” according to the Monetary Authority of Singapore (MAS)

At a recent panel hosted by Enfusion, panelists discussed the benefits and challenges of investing in Singapore. Daniel Yong, Partner at Withers KhattarWong LLP, explained Singapore’s potential as two forces coming together -  “push from jurisdictions which traditionally have been popular, making their regulations harder, and a pull from Singapore, making the country more interesting to invest in.”

Infrastructure advantages

Although recent allocation momentum has slowed slightly, fund managers generally regard Asia’s response to the pandemic positively. Most recently, COVID-19 demonstrated the importance of home broadband, an area where Singapore shines. Its unmatched Internet speed helped keep funds operating efficiently during COVID-19 volatility.

During the pandemic, Singapore took advantage of that infrastructure by accelerating the digitization of workflows and the adoption of cloud technologies. But Singapore’s structural advantages within the region have a longer history. Pro-business government and regulation, robust legal infrastructure, and an entire asset management ecosystem have developed over the past 15 years. These factors have great appeal to global investors. Elements of strong governance, such as independent directorships, transparency, and connectivity between government agencies inspire further confidence.

A look at tax policies

As an onshore fund domicile, Singapore’s tax policies also provide additional certainty, along with unambiguous tax and economic cooperation treaties with other jurisdictions.

To be sure, domiciling a fund in the same location as the fund’s manager is advantageous, particularly for meeting conditions to qualify for tax incentive schemes. It does, however, require work and administrative effort to maintain those incentives. It also must be noted that Singapore is not an automatic zero-tax jurisdiction, and failure to comply with tax incentives may carry a hefty cost and reputational damage.

As a second driver, tax treaties recently reached a milestone. On October 8, 2021, 136 countries joined a plan to reform international taxation rules and discourage tax avoidance. The aim is to address domestic tax Base Erosion and Profit Shifting (BEPS) arising from mismatches between different countries’ tax systems. The multilateral instrument will modify thousands of tax treaties at once. “We’ll see a rise in tax controversy in Asia, and an onshore fund helps mitigate some of that,” suggested Mriganko Mukherjee, partner at EY Singapore. Moreover, BEPS 2.0 which aims to be implemented by 2023 seeks to introduce a minimum rate of tax and anti-avoidance measures, potentially affecting onshore structures.

The Variable Capital Company (VCC) structure is key

On the regulatory side, meanwhile, the landscape has evolved in Singapore since 2005, from a light touch to a more licensed regime. Like other regulators across the world, the Monetary Authority of Singapore (MAS) has increased the requirements for fund managers. They must now navigate additional nuances around anti-money laundering, such as opt-in types of regulations. As a result, support for the fund management ecosystem in Singapore has grown since 2012, with the advent of compliance consultants, professional services, and other consultants who help investment managers navigate the regulatory environment.

Singapore introduced the Variable Capital Company Structure (“VCC”) as a legal entity form for investment funds to address some of these challenges. A VCC delivers the benefits of a corporate structure with limited liability protection. The flexible vehicle can function either as a standalone or an umbrella entity with multiple sub-funds, with segregated assets and liabilities between cells. As a result, a broad spectrum of managers are embracing it, including closed and open-ended funds, private equity, real estate, family offices, and venture capital.

The pilot program went live on 15 January 2020 with 20 registered participants launching on the same day. As of November 2021, over 400 VCC funds have been incorporated, demonstrating the strong industry demand for this new structure. From an international tax standpoint, VCCs are still untested, but the industry generally expects that they will be able to access Singapore’s tax treaties.

The structure has advantages beyond taxation as well. It neatly facilitates the flows of investment funds in and out. Issuances and redemptions occur at Net Asset Value (NAV), which removes rules for dividend distribution, profit, and share capital reduction. VCCs also serve as pooling and investing vehicles, thereby dispensing with multi-tiered fund structures. Financial statements also do not need to be made public. Investors can use the U.S. “check-the-box” tax election, which lets U.S. investors incorporate business entities in foreign countries to create limited liability companies. 

However, VCCs do carry strict requirements, such as a Singapore-based regulated fund manager, their registered office in Singapore, and a Singapore-based auditor. “You can delegate functions back to other jurisdictions where you have to be licensed, but oversight still has to stick with Singapore,” said Martin O’ Regan, Managing Director of Solas Fiduciary Services and chairman of the Singapore Fund Directors Association. Notably, a breach of the investment objective conditions by one sub-fund would affect the other sub-funds, which may deter managers from using umbrella VCCs.

Despite such conditions, Singapore offers other attractions and generous grants to draw investors to the VCC structure, such as underwriting 70% of organizational costs.

VCC Benefits

- Supports traditional investment funds, hedge funds, private equity and real estate funds 

- Facilitates investment fund flows, both in and out

- Bypasses rules for dividend distribution, profit, and share capital reduction because issuances and redemptions occur at Net Asset Value (NAV)

- Dispenses with multi-tiered fund structures because VCCs serve as pooling vehicles and can have a single shareholder or hold a single asset (Master-Feeder structure)

- Segregates assets and liabilities by sub-fund, allowing one parent entity to hold different asset classes and insulate itself from risk contagion

- No requirement to make financial statements public

- Allows U.S. investors to use the U.S. “check-the-box” tax election by incorporating business entities in foreign countries as limited liability companies

- Offers subsidies to help cover the costs involved in incorporating or registering


Singapore has evolved and is making major strides in becoming a finance hub in APAC. Its growing fund management industry, supported by attractive structures such as the VCC has drawn global investors from a wide range of geographies and fund types, from North America, including large Canadian pensions, to Europe, where larger family offices come from London and Switzerland. 

The domestic wealth management climate provides further attractions to domiciling in Singapore. The middle-income wealth bracket is increasing within Asia, “with new millionaires popping up,” said O’Regan.

Setting up a fund in Singapore can provide a logical first step for entering the APAC market. While it is not merely another tax haven or offshore jurisdiction, as O’Regan believes, “we’re now on the cusp of sentiment and appetite.” The trajectory of fund launches in Singapore should help bear out that assessment.


All things in perspective.

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