“The introduction of the S-VACC tax regime is certainly a welcomed boost to the development of the local fund industry, especially for open-ended funds. Nonetheless, there are quite a number of open issues still left on the table.
For example, it remains to be seen whether current funds which enjoy existing fund exemption incentives (e.g. Section 13R or 13X incentives) would be allowed to migrate onto the S-VACC platform. If the answer is affirmative, then it would be interesting to see how this pans out in the case of an umbrella fund structure with sub-funds, where each sub-fund enjoys a different tax exemption scheme (e.g. Sub-Fund A is awarded Section 13X status, whilst Sub-Fund B enjoys Section 13R status). This is especially so, given that the authorities have stated that the S-VACC vehicle would be treated as a single entity for tax purposes.
In addition, the authorities have clarified in Budget 2018 that the S-VACC will be regarded as a company for tax purposes. Again say if Sub-Fund A is a Limited Partnership (LP) currently enjoying Section 13X status, whilst Sub-Fund B is a company enjoying Section 13R status, can both entities migrate onto the platform of a single S-VACC entity? If so, would Sub-Fund A be able to convert its LP personality into that of a corporate personality in the process of the migration? In this example, it would also be interesting to see how the authorities would administer the differing economic commitments for Section 13X and 13R onto the new single S-VACC corporate entity going forward.
We hope that the MAS would clarify the above issues when further details surrounding the scheme are announced in October 2018.”
Alan Lau, Head of Financial Services Tax