Variable Capital Company In Mauritius (VCC)
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Mauritius has enacted the VCC Act with many benefits for fund structuring. A Mauritius VCC is structured for investment funds with the specific ability to operate through sub-funds and/or special purpose vehicles (SPVs) within the same legal entity. It can opt to have a single sub-fund or have multiple sub-funds, where each sub-fund may opt to have a legal personality distinct from the VCC.
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The sub-funds can be structured either as a Collective Investment Scheme (CIS) or a Closed End Fund (CEF). 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.
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The key features of a VCC are as follows:
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A VCC can have one or several sub-funds
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There are cost efficiencies from using common service providers across the umbrella and its sub-funds for fund managers that choose to structure their funds as umbrella VCCs.
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The VCC comprising of its sub-funds constitutes as one legal entity.
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Fund managers are able to segregate assets into different sub-funds held within the same legal entity and then use each sub-fund to invest and directly hold a portfolio of different investments.
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As the assets and liabilities of each sub-fund are separated from each other, liabilities of a sub-fund under a VCC can only be discharged from its assets and not out of the assets of the other sub-funds.
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Provides flexibility in the issuance and redemption of its shares at net asset value as well as the option to pay dividends out of its capital.
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Eligible for partial exemption (3% tax instead of 15%)
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A company incorporated in another jurisdiction may be redomiciled in Mauritius as a VCC
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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
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Cross sub-fund investments and cross SPV investments are permitted within the same VCC. The board of the VCC should determine solvency prior to distribution of dividends.
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Taxation
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A VCC is a company incorporated under the Companies Act and carries its activities through its Sub-Funds (SFs) and Special Purpose Vehicles (SPVs).
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If a VCC elects to present consolidated financial statements, the VCC is allowed to file a single tax return and is 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 is not possible under generic fund structures. On the other hand, VCCs electing to present separate financial statements for each of its SFs and SPVs will be required to file separate tax returns.
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VCCs, SFs and SPVs are eligible to obtain a tax residency certificate upon filing of their tax returns. A VCC is also eligible for tax benefits including the partial exemption regime. As such, its effective tax rate may be considerably reduced.
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There is also no capital gains tax in Mauritius for investors in VCC funds.
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Other Benefits of using VCC
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Cost effectiveness - The VCC Act allows managers to appoint the same service providers – CIS Manager, CIS Administrator, custodian for all sub-funds – this facilitates favourable group fee quotes from service providers and functionaries for the VCC structure.
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Payment of dividends from Cpital – A VCC allows the payment of dividends from capital instead of retained earning like typical CIS & CEF
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Better protection of investors – VCC does not allow for voluntary winding up of sub-funds and SPVs unless the VCC presents a plan to the FSC.
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Flexibility in terms of tax filing – A sub-fund can elect to have a separate legal personality where it needs to file separate tax return. In the same VCC structure some sub-funds may elect to have separate legal personality where other sub-funds may prefer to be consolidated with the VCC. Sub-funds having separate legal personality will need to file separate tax return.
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Partial exemptions - The VCC will be eligible to claim the partial exemption on certain specific incomes to which the economic conditions must be met when filing the income tax return. Any foreign tax suffered may also be claimed if the entity does avail of the partial exemption benefit.​
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