What is a Variable Capital Company?
The Variable Capital Company (VCC) is a legal vehicle specifically designed for open-ended investment funds. Unlike traditional fixed-capital companies, the VCC can freely issue and redeem its own shares, without having to follow the complex procedures for reducing or increasing capital set out in the Companies Act 2001.
Governed by the provisions of the Companies Act 2001 and the Securities Act 2005, and supervised by the Financial Services Commission (FSC), the VCC is the preferred vehicle for fund managers wishing to offer liquidity to their investors (open-ended funds).
The VCC principle
Variable capital: the share capital automatically increases on subscriptions and decreases on redemptions. Investors enter and exit the fund at net asset value (NAV), without any legal procedure to amend the capital.
Key features of the VCC
Variable capital
The fundamental feature of the VCC is its variable capital. The share capital automatically increases or decreases depending on subscriptions (issuance of new shares) and redemptions (cancellation of shares). This flexibility eliminates the administrative and legal burden associated with capital changes in a classic company.
Issuance and redemption of shares
- Subscription: an investor pays in funds and receives new shares issued by the VCC at the net asset value (NAV) of the day
- Redemption: an investor requests the redemption of their shares, which are cancelled, and receives the amount corresponding to the NAV
- Frequency: the frequency of subscriptions and redemptions is set out in the prospectus (daily, weekly, monthly, quarterly)
- Protection mechanisms: possibility of gates (limits on redemptions), lock-up periods and side pockets to protect remaining investors
VCC vs classic company comparison
| Feature | VCC (variable capital) | Classic company (fixed capital) |
|---|---|---|
| Issuance of shares | Free, at NAV | Formal capital increase |
| Redemption of shares | Free, at NAV | Capital reduction (cumbersome procedure) |
| Share capital | Permanently variable | Fixed (unless statutory amendment) |
| Number of shares | Variable | Fixed |
| Investor liquidity | Regular (as per prospectus) | Secondary market or dissolution |
| Main use | Open-ended funds | Holdings, operating companies |
Types of funds using the VCC
Open-ended funds
Funds offering regular liquidity to investors. Entries and exits at NAV according to the frequency set out in the prospectus (daily, weekly, monthly).
Hedge funds
Alternative strategies with defined liquidity windows. Gate and lock-up mechanisms to manage flows. Qualified investors (min. USD 100,000).
Funds of funds
Investment in other underlying funds. The VCC allows subscriptions and redemptions of its own investors independently of the liquidity of the underlying funds.
Equity and multi-asset funds
Funds investing in listed equities, bonds, multi-asset or African and Asian emerging markets. Benefit from access to DTAs and the 0% rate on capital gains.
Taxation of the VCC
With a Global Business Licence, the VCC benefits from the GBC tax regime:
| Tax item | Rate |
|---|---|
| Effective taxation on foreign income | ~3% (80% FTC exemption) |
| Tax on capital gains | 0% |
| Withholding tax — outgoing dividends | 0% |
| Withholding tax — outgoing interest | 0% |
| Access to tax treaties | Yes (45 DTAs in force, MRA 2026) |
| Exchange controls | None |
Key advantage for funds: the absence of tax on capital gains is particularly advantageous for investment funds, a significant portion of whose performance comes from capital gains on the disposal of securities. DTAs help reduce withholding taxes on dividends and interest received in investment countries.
Regulatory framework
Fund categories
The FSC distinguishes several categories of Collective Investment Schemes (CIS), each with its own requirements:
| Category | Target investors | Requirements |
|---|---|---|
| Expert Fund | Qualified investors (min. USD 100,000) | Simplified prospectus, accelerated FSC approval |
| Professional CIS | Professional investors | Accelerated FSC approval, flexible framework |
| Specialised CIS | Sophisticated investors | Tailored regulatory framework |
| CIS Manager Licence | Fund manager | Minimum capital, qualified staff, compliance |
Mandatory service providers
- Management company: registered agent licensed by the FSC for administration and compliance
- CIS Manager: fund manager holding a CIS Manager licence (investment management)
- Custodian: licensed depositary for the safekeeping of the fund's assets
- Fund administrator: NAV calculation, investor register maintenance, processing of subscriptions/redemptions
- Auditor: auditor licensed in Mauritius for the annual audit
- Compliance officer: responsible for regulatory compliance and AML/CFT
Setup process
-
Strategy design
Definition of the investment strategy, liquidity parameters (subscription/redemption frequency), fee structure (management fees, performance fees) and target investor profile.
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Legal documentation
Drafting of the prospectus or offering memorandum, the constitution of the VCC, and service agreements with providers (custodian, fund administrator, auditor).
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Selection of service providers
FSC-licensed management company, licensed CIS manager, custodian, fund administrator and auditor. Negotiation of terms and fees.
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Due diligence and licences
KYC on promoters, directors and seed investors. Submission of the application to the FSC to obtain the Global Business Licence and the CIS licence.
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Operationalisation
Opening of bank accounts, setting up of administration, first NAV calculation, onboarding of the first investors and start of investment operations.
| Phase | Estimated timeframe |
|---|---|
| Design and documentation | 2 – 4 weeks |
| Due diligence | 1 – 2 weeks |
| Incorporation and FSC licences | 3 – 6 weeks |
| Operationalisation | 1 – 2 weeks |
| Total | 4 – 8 weeks |
Costs
| Expense item | Indicative amount (USD) |
|---|---|
| VCC incorporation (one-off) | 3,000 – 6,000 |
| Annual FSC licence (GBL + CIS) | 1,500 – 3,000 |
| Annual management company | 2,000 – 4,000 |
| Annual fund administrator | 2,000 – 5,000 |
| Annual custodian | 1,000 – 3,000 |
| Annual audit | 2,000 – 5,000 |
| Registered office | 500 – 1,500 |
| Total annual budget | 5,000 – 10,000+ |
These amounts exclude investment management fees (CIS Manager), which are generally covered by the management fees charged to the fund. For a detailed budget, see our costs guide.
VCC vs PCC: which structure for your fund?
| Criterion | VCC | PCC |
|---|---|---|
| Key concept | Variable capital | Protected cells |
| Open-ended fund | Ideal (subscription/redemption at NAV) | Possible but less natural |
| Multi-strategy | Possible (share classes) | Ideal (one cell per strategy) |
| Risk isolation | No (a single vehicle) | Yes (legal protection per cell) |
| Investor liquidity | Subscription/redemption at NAV | Subscription/redemption per cell |
| Cost | Comparable | Comparable (+ cost per cell) |
| Combination | Possible: PCC with variable-capital cells | |
The best of both worlds: for multi-strategy funds requiring both risk isolation between sub-funds and variable capital, it is possible to combine the two structures with a PCC whose cells operate with variable capital.
Advantages of Mauritius for VCC funds
- Taxation: 0% on capital gains, ~3% on income, access to DTAs for investments in Africa and Asia
- Proportionate regulation: the FSC offers a regulatory framework suited to the size and sophistication of the fund (Expert Fund, Professional CIS, Specialised CIS)
- Competitive costs: significantly lower than traditional fund jurisdictions (Luxembourg, Ireland, Singapore)
- Speed: FSC licensing process faster than in European jurisdictions (4-8 weeks vs 3-6 months)
- Local expertise: complete ecosystem of service providers (fund administrators, custodians, Big 4 auditors)
- Strategic time zone: GMT+4, ideal for African and Asian markets
- Gateway to Africa: DTAs with numerous African countries, member of SADC and COMESA
The information presented is provided for guidance only and does not constitute investment or legal advice. The setup of an investment fund is subject to FSC regulation and requires specialised professional support.