Recap on the Variable Capital Company rules in Mauritius

Mauritius introduced the Variable Capital Companies (“VCC”) scheme on 15 April 2022 to diversify its product base and maintain its competitiveness as a s fund management hub. As a reminder, the VCC is a new type of fund structure which will complement the available type of fund structuring in Mauritius. The intention is for VCCs to be is a flexible vehicle that streamlines management and operations by enabling the creation of Sub-Funds (“SFs”) and Special Purpose Vehicles (“SPVs”) within the same entity. The VCC Act came into force in May 2022, enabling the incorporation, conversion, or redomiciliation of funds as VCCs.

How does a VCC structure work?

The VCC is incorporated under the Companies Act and carries out its activities through the SFs and SPVs, where the SFs can operate as a Collective Investment Scheme (“CIS”) or a Closed-End Fund (“CEF”) or even special purpose funds. The VCC can cater for both a CIS and a CEF under one structure, therefore providing fund managers an additional structuring option with economies of scale and cost efficiencies.

Advantages of a VCC:

• A VCC is generally significantly cheaper to maintain as it can appoint one CIS Manager, auditor, custodian or other service provider for all its SFs. As mentioned above, a VCC can also accommodate many types of investment funds, CIS, CEF, mutual funds, private funds or real estate funds under a single structure;
• A VCC will only require a single Global Business License (“GBL”) and this means that the SFs and SPVs only have to hold specific licenses such as the CIS or CEF depending on their activities. They are not required to hold a GBL;
• Companies incorporated in Mauritius can be converted into VCCs and a foreign company can be redomiciled to Mauritius to operate as a VCC;
  An election can be made by SFs and SPVs to have separate legal personality from the VCC;
• There is no restriction on the number of sub entities that can be created under the VCC structure;
• A VCC may irrevocably opt to present consolidated or separate financial statements. SFs or SPVs having separate legal personality shall file separate financial statements from the VCC;
• In accordance with the Income Tax Act (“ITA”), where a VCC has opted 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 SFs and SPVs, thereby taking advantage of tax losses in certain SFs or SPVs, which would not be possible under generic fund structures;
• It is also possible for VCCs to elect to present separate financial statements in respect of each of its SFs and SPVs, but they will be required to file separate tax returns. In case there is tax due by of the SFs or SPVs, the Mauritius Revenue Authority (“MRA”) will only have recourse to the assets of the owing SFs or SPVs for recovery of income tax;
• VCCs, SFs and SPVs are eligible to obtain a Tax Residency Certificate upon filing of their tax returns and they are also eligible to tax benefits including the partial exemption regime. The SFs and SPVs CIS and CEF licenses can benefit from 95% exemption on interest income derived. As such, its effective tax rate may be considerably reduced. They can also avail the benefits of Mauritius’ network of Double Taxation Agreements;
• To top it all off, VCCs in Mauritius are also exempt from taxes on dividends, withholding tax and capital gains tax earned through their investments.

To conclude, the VCC in Mauritius is gaining interest from institutional investors, family offices and fund managers wishing to set up investment vehicles in Mauritius. Other International Financial Centres (“IFC”) such as Singapore have successfully implemented a VCC structure and it is fair to say that Mauritius is following this blueprint to position itself as a preferred IFC, with a wide range of products at its disposal.

For any inquiries or concerns regarding your VCC structures feel free to contact us.