Approval for VCC Structure to Elevate India as a Global Financial Hub

The Variable Capital Company (“VCC”) structure, introduced in Budget 2024, marks a progressive change in the country’s financial landscape, aimed at attracting global investors to the International Financial Services Centre (“IFSC”). The VCC structure allows fund managers to manage multiple investment strategies and investor profiles under one umbrella entity by enabling the investors to establish companies in which the capital is not static. The investors in VCCs derive several benefits such as the flexibility for pooling of funds, repatriation of profits and an option to withdraw capital, subject to certain conditions. Global investment hubs such as Singapore and Mauritius have gained immense popularity and drawn investors by the introduction of VCCs in their respective jurisdictions.

The need for VCCs in IFSCs in India was recognized by the International Financial Services Centres Authority (“IFSCA”) back in September 2020 when the IFSCA set up the Krishnan Committee to examine the feasibility of the VCC structure in India and basis the report of the Krishnan Committee, an expert committee for drafting a legal framework for allowing VCC structure in the IFSCs was established. The expert committee conducted a comprehensive examination of legislations governing VCCs in different international jurisdictions, including Singapore, United Kingdom, Mauritius, Ireland and Luxembourg to arrive at best dispensation in the context of the IFSCs in India and proposed the legal framework for VCCs under the IFSCA Act, 2019, along with the suggested changes to the Income Tax Act, 1961 to accommodate VCCs and their sub-funds.

This VCC structure has emerged as a preferred entity structure as it integrates the benefits of a company and a trust, while eliminating some of their key limitations. The approvals for VCC structures in India will significantly enhance the IFSC’s appeal and redirect offshore financial services business to India.