The Variable Capital Companies Act 2022 (the “Act”) was passed by the National Assembly on the 12^th of April 2022 and came into operation on the 16^th of May 2022. The Mauritius Variable Capital Company (“VCC”) which is inspired from similar structures in other jurisdictions is said to be an improved version of the Singapore VCC, a VCC Plus. The rationale behind the Mauritius VCC is to compete to provide enhanced flexibility while reducing the costs of the structure itself.

The Mauritius VCC offers operational flexibility as it can operate as a standalone single fund or an umbrella structure with multiple sub-funds or special purpose vehicles (“SPVs”). The Act provides that a VCC shall be a body corporate and carry out its business through sub-funds and special purpose vehicles which may have a legal personality that is distinct from the VCC. Each sub-fund/SPV may also opt to have legal personality and may appoint its own directors and constitute its own board (separate from the VCC) if the constitution of the VCC provides for it. There may be an unlimited number of sub-funds/SPVs.  Moreover, a VCC can accommodate both a collective scheme and a closed-end fund under a single structure (compared to a protected cell company structure which cannot hold both licences under the same structure). Each sub-fund/SPV may carry out different activities and have different investment strategies but the management of all these sub entities is streamlined under one single structure through the appointment of a single management company/company secretary for the VCC and all sub-funds/SPVs. The various sub-funds may however have different CIS managers, CIS administrators, custodians or other service provider (other than the management company/company secretary) for each sub-fund/SPV.

The VCC brings segregation of assets and liabilities of the sub-funds/SPVs of the VCC on a statutory footing whereby the assets and liabilities of a sub-fund/SPV of a VCC cannot be used to discharge any liability of the VCC or any other sub-fund/SPV including during the winding-up, administration or receivership of the VCC and sub-fund/SPV. The assets of a sub-fund or SPV are only available to creditors of that particular sub-fund or SPV and are protected against creditors of other sub-funds or SPVs including from any statutory, regulatory or government body. 

Another interesting feature of the VCC structure (compared to a protected cell company structure) is that cross investment between sub-funds/SPVs is permissible. The only exception is that the sub-fund or SPV shall not invest in another sub-fund or SPV that has already invested in it.

The VCC requires only one Global Business Licence irrespective of the number of sub-funds/SPVs (thereby reducing the regulatory and administrative expenses) and the processing and annual fees for the VCC Fund and each sub-fund is minimal (especially for the first 5 sub-funds). 

Moreover, the VCC has the option to prepare and file consolidated financial statements and tax returns for the VCC and the sub-funds/SPVs (thereby reducing the regulatory and administrative burden) or prepare and file each financial statement separately. It is also possible to share regulatory and administrative costs among the sub-funds/SPVs. For instance, in terms of AML/CFT requirements which must also be complied by a VCC and its sub-entities, the MLRO, DMLRO and Compliance Officer may be appointed by the VCC only.

In terms of share capital and distribution, a VCC may issue shares of varying amounts in its sub-funds/SPVs and dividends may be paid in respect of shares of the sub-funds/SPVs by reference only to the assets and liabilities attributable to that sub-fund/SPV. 

In terms of taxation, the tax advantages are that VCCs and sub-funds/ SPVs which are tax resident in Mauritius may have access to the Mauritius tax treaty network. Like companies, VCCs and sub-funds/SPVs are taxed at the rate of 15% on their chargeable income but they may be entitled to 80% partial exemption on certain categories of income subject to satisfying prescribed substance conditions. Where a VCC decides to present consolidated financial statements, the VCC is allowed to file a single tax return and would be liable to income tax on the aggregated income of its sub-funds/SPVs, thereby taking advantage of tax losses in certain sub-funds/SPVs, which would not be possible under generic fund structures. Where the VCC presents separate financial statements, each sub-fund/SPV of the VCC will be treated as a separate entity for the purpose of recovery of tax such that the Mauritius Revenue Authority will not recover income tax due by a sub-fund/SPV from the other sub-funds/SPVs.

The Mauritius VCC is a blueprint to increase the competitiveness and attractiveness of our diversified International Financial Centre and to become a globally well-regarded funds jurisdiction. Through the Mauritius VCC, the Mauritius IFC has brought an innovative structure which is very cost effective for managers/promoters of more than one fund and yet addresses certain of the issues found in other structures.  We believe it is certainly a structure worth considering.