When looking to invest their hard-earned money, investors have various options to choose from, including investment funds and variable capital companies (VCC’s). These investment vehicles both offer advantages and disadvantages, and it is essential to consider these before deciding which one to invest in. In this article, we will give an overview of the Mauritian VCC and explore its features.
Both investment funds and VCCs offer investors advantages when it comes to investing their money. However, a VCC offers greater flexibility, efficiency and ring fencing of Assets and Liabilities.
The Variable Capital Company (VCC) is a corporate entity structure under which several collective investment schemes (whether open-end or closed end) may be gathered under the umbrella of a single corporate entity and yet remain ring-fenced from each other. It’s a new structure which provides investment managers with a flexible and efficient vehicle that streamlines management and operations as it permits the set-up of Sub-Funds (“SFs”) and Special Purpose Vehicles (“SPVs”) within the same entity.
The VCC can accommodate both a CIS and a CEF under one structure, therefore providing fund managers an additional structuring option with economies of scale and cost efficiencies. Its flexibility offers investors a diverse investment opportunity as the scheme also offers cost advantages by allowing funds to be established with reduced administrative and operational expenses. This cost efficiency is an attraction to investment managers as it also allows for different types of investment scenarios, such as open or close-ended investment funds, private equity structures, hedge funds, and venture capital funds. The corporate entity structure gives funds an alternative to unit trusts, limited partnerships, limited liability partnerships and companies. Funds and sub-funds of VCCs may be authorised schemes or restricted schemes.
Mauritius has been at the forefront of providing innovative products and solutions to investors. The Variable Capital Companies Act 2022 came into existence in May 2022, introducing the fund vehicle known as the variable capital company (VCC), with objective to provide a flexible fund vehicle to cross-border investors while diversifying its product base and enhancing its competitiveness as a fund management hub. A VCC is incorporated under the Companies Act 2001 and carries out its activities through sub-funds and SPVs. A VCC needs to be authorised by the FSC (as a “VCC Fund”, pursuant to the Variable Capital Companies Act 2022.) A VCC can operate as a standalone investment fund or structured as an umbrella fund through its sub-funds and / or its SPVs.
The Mauritian VCC enhances the jurisdictions position as a highly respected International Financial Centre, availing a wider range of investment opportunities for international investors. It is set to revolutionize the investment landscape in Mauritius. With its flexibility, cost & fiscal efficiencies, and emphasis on governance, the VCC Scheme attracts investment funds, strengthens the financial services industry, and promotes cross-border investments. While the VCC Scheme is gaining momentum, Mauritius establishes itself as a preferred destination for fund managers and investors seeking a dynamic and supportive ecosystem for their investment ventures. This influx of funds enhances capital inflows, boosts economic growth, and diversifies the financial sector.
The Mauritian VCC has considerable flexibility for different types of investment scenarios. The assets and liabilities of one sub-fund or SPV are segregated from those of another and, as such, the liabilities of a sub-fund under an umbrella VCC can only be discharged from its assets and not out of the assets of the other sub-funds or SPVs. Unlike a PCC, one sub-fund of a VCC Fund can be structured as a CIS, while another sub-fund of the same VCC Fund can be structured as a CEF. Therefore, a VCC Fund can accommodate both open-ended and closed-ended structures under one “umbrella” structure. In addition, the sub-fund or SPV of a VCC Fund may have separate legal personality from that of the VCC Fund (i.e., separate name and legal entity), in which case it must be incorporated as a company under the Companies Act 2001. A sub-fund of a VCC Fund can also act as a feeder fund or a master fund. On the other hand, SPVs can only operate as a vehicle ancillary to the VCC or a sub-fund of the VCC, and not as a fund on their own.
Mauritius is also a competitive tax jurisdiction with good corporate governance policies in place, enhancing the competitiveness of Mauritius as a fund domicile, attracting both local and international investors. The foundation and constitution of a VCC are typically shared with investors and the terms are agreed upon, prior to investment. This makes a VCC more considerate and accommodating of investor operations compared to entities governed solely under the Mauritius Companies Act 2001. Moreover, a VCC includes an important feature that prohibits the voluntary winding up of any sub-fund or SPV, unless the VCC presents a plan to the FSC. This provision ensures better protection and satisfaction of investors’ interests in the respective sub-fund or SPV.
Summary of Key Features of the Mauritius VCC
The remarkable feature of the Mauritius VCC structure rests in the flexibility for the SFs or SPVs to elect separate legal personalities or not. Where a SF or SPV elects to have a separate legal personality from the VCC, the requirement to prepare separate financial statements for such SF or SPV will apply. Each SF and SPV will also be required to file separate tax return with the revenue authorities. Hence, the tax obligations under the ITA will be applicable to each SF and SPV individually when such election is made. Here are some additional features:
A Global Business Company (GBC) incorporated in Mauritius may be converted into a VCC. A company incorporated in other jurisdictions may be redomiciled in Mauritius as a VCC. A VCC enables a Fund Promoter to carry out business through one or more sub-funds and SPVs within one structure providing for economies of scale; each sub fund or SPV may opt to have a legal personality distinct from the VCC.
A sub-fund or SPV shall have the same promoter as the VCC Fund. A sub-fund of a VCC Fund can also act as a feeder fund or a master fund. It is noteworthy that there is no restriction on the number of sub-entities that can be created under the VCC structure. The sub-funds can be set-up as a stand-alone (single) fund, or an umbrella structure with multiple sub-funds that can be incorporated as CIS and CEF all within one structure. Each sub fund or SPV shall incur liability on its own and shall be segregated ensuring ring-fencing of the assets and liabilities of each sub fund in case of insolvency.
A VCC may issue shares of varying amounts. The variable capital basis allows for issuance, redemption or repurchase of shares at NAV except for shares issued during initial offers and shares of closed-end funds listed on a securities exchange. Investors shall be entitled to refund in accordance with the number of shares they own in the sub-funds or SPVs, where shares are redeemed or brought back. Cross sub-fund investments and cross SPV investments are permitted within the same VCC. The board of the VCC shall determine solvency prior to distribution of dividend. Investors may apply to the Registrar of Companies to reduce the share capital of the sub-fund or special purpose vehicle in which they hold shares subject to the requisite corporate resolution. A VCC Fund which meets the criteria provided under Section 71 of the Financial Services Act 2007, will be required to hold a Global Business License (GBL).
A GBL company is tax resident in Mauritius and is eligible to benefit from the network of Double Taxation Agreements that Mauritius has entered into with other countries. A single GBL will be required by the VCC Fund irrespective of whether its sub-funds or SPVs have separate legal personality. The FSC expects a VCC Fund to appoint the same Company Secretary (Management Company in case it holds a GBL) for all of its incorporated sub-funds/SPVs. Economies of scale exist for umbrella structures with multiple sub-funds.
In a nutshell, a Variable Capital Company can offer significant benefits and advantages for investors and fund managers alike. Its flexibility, tax efficiency, protection for investors, and transparency make it an attractive investment vehicle for a wide range of fund types. As such, VCCs are becoming an increasingly popular option for investors looking for a more effective way to invest their capital.