Singapore likely to ease regime to allow routing of offshore funds
Mumbai :Singapore is likely to ease regime to allow routing of offshore funds, including those coming to India, in the next few months. Under this, these funds would be investing through that country.
This spells good news for offshore funds from recently tagged high-risk jurisdictions such as Mauritius and Cayman Islands that are looking to re-route their investments through Singapore, as the threshold for being deemed beneficial owner (BO) is much higher for the latter.
The biggest change on the anvil is easier norms for investment through open-ended structures. At present, the redemption process for open ended funds is cumbersome, which has dissuaded entities from setting up offshore fund structures in Singapore.
Open ended funds involve investors putting money in and taking it out regularly. Under the current regime, the process for redemption is inefficient as entities wanting to redeem have to draw up their accounts, get them audited, and provide a certificate stating that they are solvent. This often delays the redemption process.
Singapore is slated to bring in Singapore Variable Capital Company (SVACC), a new legal entity that can be used as a vehicle for investment funds. SVACC is expected to simplify the process of redemption for open ended funds. “It (SVACC) has been on cards for some time now and will be operational by the end of this year or early next year,” said a person familiar with the development. “The requirement to provide an insolvency certification for open ended funds will be done away with under this new entity.”
At present, there are three options to set up investment funds in Singapore, which includes trusts, limited partnerships or companies under Singapore’s Companies Act. All these have limitations. For instance, trust structures cannot take the benefit of the India-Singapore tax treaty under existing norms.
The enactment of S-VACC is expected to enhance Singapore’s competitiveness as a domicile for investment funds and re-domicile foreign corporate funds to Singapore .
According to a report by PwC, the new regime will bring in a customised corporate structure that dispenses with elements of existing company law not conducive to investment funds. A corporate form fund could be set up as an open-ended or as a close-ended fund, and used for mutual fund-type strategies meant for retail investors, or as alternative investment fund strategies meant for sophisticated investors.
Today, most offshore funds opt for closed ended structures or create a feeder fund in jurisdictions such as Cayman Islands which feeds into Singapore and then invests into India. In the case of the latter, the open ended structure actually operates at the Cayman level, with the Cayman entity behaving as an open ended fund and letting investors come in and go out at any point in time. Investments in the Singapore entity, however, remain stable, with few redemptions.