VCC Act 2018 — Section 32-33 distribution out of capital — Costs and fees breakdown
The VCC Act 2018 breaks with a core company-law principle: Sections 32 and 33 allow a Variable Capital Company to pay dividends out of capital, not just profits. For income-focused funds this is transformational. This 2026 guide breaks the mechanics, the fees and the compliance down.
Raffles Corporate Services works with a panel of corporate and employment law firms; this article is general information, not legal advice.
What Sections 32 and 33 of the VCC Act 2018 do
Under ordinary company law, dividends may only be paid out of profits. Section 32 of the Variable Capital Companies Act 2018 permits a VCC to make distributions out of capital, and Section 33 sets the conditions — principally a solvency requirement — for doing so. This lets funds distribute at NAV regardless of accounting profit, matching how open-ended funds pay investors.
Who uses distributions out of capital
Income and yield-focused strategies benefit most: a fund can maintain a steady distribution to investors even in periods where realised accounting profit is lumpy, provided the solvency test is met. Managers assessing the wider regulatory perimeter should read the MAS Payment Services Act licensing — MPI and SPI — Costs and fees breakdown.
The solvency condition explained
Section 33 conditions the power on solvency — broadly, the directors must be satisfied the VCC can pay its debts as they fall due after the distribution. This protects creditors while giving the fund distribution flexibility. Directors should document the solvency assessment for each distribution.
Costs and fees breakdown for capital distributions
Indicative 2026 figures:
- ACRA VCC incorporation: S$8,000
- Legal review of distribution policy and solvency framework: S$3,000–S$8,000
- Annual audit (mandatory): S$8,000–S$20,000
- Fund administration and NAV/distribution processing: from S$18,000 a year
The incremental cost of the capital-distribution feature is mainly the legal and governance work to document solvency for each payout.
Legal note and disclaimer
Raffles Corporate Services works with a panel of corporate and employment law firms; this article is general information, not legal advice. Distributions out of capital carry director-duty and solvency implications, and the tax treatment in an investor’s home country may differ — see the MAS explainer at www.mas.gov.sg.
Step-by-step: making a compliant capital distribution
1) Confirm the constitution permits distributions out of capital. 2) Prepare the NAV and proposed distribution. 3) Perform and document the Section 33 solvency assessment. 4) Approve the distribution by the board. 5) Pay and record it at sub-fund level where relevant. For the entity foundations, see Singapore Annual Filing Calendar 2026: Every Deadline Your Private Limited Company Needs to Know and our VCC Act 2018 — Section 17 legal personality — Costs and fees breakdown on Section 17 legal personality.
Common mistakes and gotchas
The most serious error is distributing without a documented solvency assessment, exposing directors to liability. Others include distributing beyond what the constitution allows and failing to keep sub-fund distributions distinct. Confirm ACRA’s current fee schedule at www.acra.gov.sg before you incorporate.
Why the profits rule is relaxed for funds
The ordinary rule that dividends come only from profits protects creditors of a trading company. A fund is different: its investors expect distributions tied to NAV and yield, not accounting profit. Section 32 recognises this by allowing distributions out of capital, while Section 33 substitutes a solvency test for the profits test — a creditor protection better suited to an investment vehicle than the blunt profits rule.
A worked example: an income sub-fund
A REIT-style sub-fund holds assets that generate steady cash but book uneven accounting profit because of fair-value swings. Using Section 32, it distributes a stable quarterly amount to investors out of capital where accounting profit falls short, provided the directors sign off the Section 33 solvency assessment each time. The investors receive the predictable income they came for, and creditors remain protected by the solvency gate.
Director duties around capital distributions
Because a capital distribution reduces the buffer available to creditors, directors carry real responsibility. Each distribution should be supported by a solvency assessment, a NAV that has been properly calculated, and a check against the constitution’s distribution provisions. Keeping this paper trail is both a compliance requirement and the directors’ own protection if a distribution is later questioned.
Related guides
Read next: MAS Payment Services Act licensing — MPI and SPI — Costs and fees breakdown; Singapore Annual Filing Calendar 2026: Every Deadline Your Private Limited Company Needs to Know; VCC Act 2018 — Section 17 legal personality — Costs and fees breakdown.
Authority resources
Confirm the current rules and fees directly with the relevant Singapore authorities: sso.agc.gov.sg, www.acra.gov.sg, www.mas.gov.sg.
FAQs
Can a VCC pay dividends out of capital?
Yes. Section 32 of the VCC Act 2018 permits distributions out of capital, unlike ordinary companies which may only distribute profits.
What condition applies to capital distributions?
Section 33 imposes a solvency requirement: directors must be satisfied the VCC can meet its debts as they fall due after the distribution.
Why does this matter for income funds?
It lets a fund maintain steady distributions to investors even when accounting profit is uneven, provided the solvency test is met.
Should directors document each distribution?
Yes. Documenting the solvency assessment for each distribution protects directors and evidences compliance with Section 33.
Need help with this? Call, SMS or WhatsApp +65 8501 7133, or email hello@rafflescorporateservices.com. Raffles Corporate Services works with a panel of corporate and employment law firms; this article is general information, not legal advice.