A Variable Capital Company (“VCC”) is a type of structure where activities may be segmented through sub-funds and special purpose vehicles. A VCC needs to be authorised by the Financial Services Commission of Mauritius (the “Commission”) as a VCC Fund pursuant to the Variable Capital Companies Act 2022.

The Variable Capital Companies Act 2022 (the “VCC Act”) was enacted on 12 April 2022 and came in force on 16 May The The VCC Act allows for a company to be incorporated under the Companies Act 2001 of Mauritius (the “Companies Act”) as a variable capital company (a “VCC”). A VCC is generally a fund structure that conducts its business through sub-funds and special purpose vehicles (“SPVs”). It can be established as a single fund structure with sub funds created later to the structure or as a multiple fund with multiple sub funds and SPVs from inception.  This structure facilitates the segregation and ringfencing of assets and liabilities of each sub-entity. Each sub fund and SPV may opt to have a legal personality distinct from that of the VCC. 

The flexible and innovative VCC structure offers numerous benefits for investment funds. While the existing structures such as companies, protected cell companies trusts, and limited partnerships operating as “Collective Investment Schemes” or “Closed End Funds” under the Securities Act 2005 already allow for single fund or umbrella fund models comprising multiple sub-funds the  VCC structure is even more appealing due to  its unique features which are highlighted as follows:

• a VCC can house both Collective Investment Scheme (“CIS”) or Closed End Funds (“CEF”) within one structure;
• a VCC is flexible regarding the increase and reduction of capital;
• a VCC may issue shares of varying amounts and/or issue shares for payment of calls as agreed with its shareholders;
• a VCC permits flexible distribution of dividend;
• sub-funds within a VCC may invest in other sub-funds of the same VCC;
• assets and liabilities can be clearly segregated and ring-fenced through the VCC’s sub-fund and SPV’s, minimizing cross-liability risk;
• the winding-up of the individual sub-funds does not trigger the winding-up of the entire VCC;
• in legal proceedings involving a sub-fund or SPV, any order or judgment will be limited to that sub-fund or SPV reducing contagion risk across the entire VCC.  A VCC can sue or be sued in respect of specific sub-funds; 
• reduced administrative and operational expenses as multiple sub-funds operate within a single VCC structure, rather than individual funds operating separately, enabling shared services.. For e.g., a VCC can appoint a single CIS manager, CIS administrator, custodian or other service provider for all of its sub-funds.

Structure

• The primary object of the VCC is to operate as:
  a) a VCC Fund (comprising all the sub-funds of a variable capital company, together with its special purpose vehicles, where applicable);
  b) a family office through a special purpose vehicle; or
  c) such other activity as may be specified in rules set out by the Financial Services Commission (“FSC”).
• A company already incorporated in Mauritius may be converted into a VCC, Also, a foreign company may be registered in Mauritius by way of continuation as a VCC.
• The name of an incorporated sub-fund or SPV needs to include the expression “incorporated VCC sub-fund” or “incorporated VCC special purpose vehicle”
• The constitution of an incorporated sub-fund or SPV must state whether it is an incorporated sub-fund or SPV of a VCC. 
• A sub-fund or SPV will not be considered to be a subsidiary of its VCC by virtue only of the fact that it is a sub-fund or SPV of that VCC. 
• A sub-fund or SPV incorporated must have the same registered office as its VCC.
• Unless otherwise provided by its constitution, the directors of the VCC shall be the directors of each of its sub-funds or SPVs.
• An SPV in itself is not authorised operate as a fund, however it is authorised to operate:
  a) as a vehicle ancillary to the VCC or a sub-fund of the VCC;
  b) family office activities; or
  c) as such other activities as may be specified in rules set out by the FSC.
• The creation and operation of the VCC, sub-funds, and SPVs require the prior approval of the FSC.

Cross Investment

A VCC may issue shares in its sub-funds and SPVs with the proceeds forming part of the assets of the specific sub-fund or SPV for which the shares were issued. Dividends on these shares may be distributed based on the assets and liabilities allocated  to the respective sub-fund or SPV.

Each sub-fund or SPV can operate as a CIS or a CEF under any category.  

A sub-fund or SPV of a VCC fund may be allowed to invest its assets into another sub-fund or SPV of the VCC Fund. However, a sub-fund or SPV may not invest into a sub-fund or SPV that has already invested in it.

Redemption and Buy Back of Shares

A VCC may redeem or buy back shares it has issued as well as shares issued by its sub-funds and special purpose vehicles in accordance with its constitution. Shareholders whose shares have been redeemed or bought back are entitled to a refund based on the number of shares they own.

Reduction of Share Capital 

Whilst a VCC may apply to the Registrar of Companies (“ROC”) to have its share capital or that of its sub-funds or SPVs reduced, a shareholder of a sub-fund or SPV may also apply to the ROC to have the share capital of the sub-fund or SPV in which he holds shares reduced. 

The reasons for capital reduction must be:

a)    to extinguish or reduce the liability on any shares in respect of share capital not paid up; or/and
b)    to cancel any paid-up share capital which is lost or unrepresented by available assets; or/and 
c)    pay off any paid-up share capital which exceeds the requirements of the VCC.

The ROC must be satisfied with the following in order to authorise the capital reduction:

a)    a special resolution for the reduction of share capital is filed;
b)    the VCC has provided sufficient guarantees to secure payment of its liabilities to every creditor;
c)    no creditor is unfairly prejudiced by the reduction; and
d)    the VCC demonstrates that it satisfies the solvency test.

Filing of Accounts

A VCC may opt to present separate financial statements in respect of each of its sub-funds and SPVs in accordance with IFRS  or any other internationally accepted accounting standards, by notifying the MRA and the ROC accordingly. However, sub-funds or SPVs having separate legal personality from its VCC are required to file their financial statements separately from the VCC.

Taxation of VCC in Mauritius

When a VCC fund opts to prepare separate financial statements for each sub-fund or SPV, each will be treated as a distinct entity separate from the VCC and taxed on its own income.

If consolidated financial statements are presented, the VCC shall file, a single income tax return with the Mauritius Revenue Authority (“MRA”) and the VCC shall be taxed on the aggregated income of its sub-funds and SPVs.

A VCC fund with a  majority of shares or voting rights or the legal or beneficial interest in the VCC are held or controlled, as the case may be, by  person(s)  who is not a citizen of Mauritius and the VCC proposes to conduct or conducts business principally outside Mauritius or with such category of persons as may be specified in FSC Rules, must apply for a Global Business Licence (“GBL”) to the FSC. A single GBL will be required by the VCC being set up as a fund irrespective of whether its sub funds or SPVs have separate legal personality. The GBL allows the VCC to benefit from the Double Taxation Avoidance Agreements (“DTAAs”) which Mauritius has with several countries.

VCCs holding a GBL are liable to tax at the rate of 15% on their chargeable income. They can benefit from an 80% partial exemption subject to satisfying prescribed substance requirements.  

Furthermore, a company incorporated in Mauritius will be treated as non-resident for income tax-purposes if it is centrally. managed and controlled outside of Mauritius. 

A CIS/CEF holding a GBL can seek authorisation from the FSC to operate as a  Special Purpose Fund (“SPF”) if the fund is meeting the relevant conditions set-out under the Financial Services (Special Purpose Fund) Rules 2021.

Investments by a SPF can be made within Mauritius as well as outside Mauritius while the SPF enjoys the benefit of being a tax exempt vehicle as provided under the Income Tax Act, with economic substance in Mauritius and is eligible to benefit from DTAAs.

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