DIFC Unveils Variable Capital Company Regulations for Next-Gen Investment Structures
Corporate Structuring / UAE
The Draft VCC Regulations are designed to provide a highly flexible, robust, and innovative corporate structure for a wide range of investment and asset-holding activities.
Law Update: Issue 379 – Saudi Arabia
Izabella SzadkowskaPartner,Corporate Structuring
Jogan PunjabiAssociate, Corporate Structuring
The Dubai International Financial Centre (DIFC) is poised to introduce a transformative legal framework with the proposed Variable Capital Company (VCC) Regulations 2025 (“Draft VCC Regulations”). This initiative, modelled on successful regimes in leading financial jurisdictions such as Singapore and Mauritius, is designed to provide unprecedented flexibility for investment vehicles, family offices, and asset-holding structures within the DIFC.
This law update provides a comprehensive analysis of the Draft VCC Regulations, examining their structure, key features, intended beneficiaries, and the consultation process initiated by the DIFC Authority (DIFCA). It also explores the practical implications for stakeholders, the regulatory safeguards embedded in the regime, and the broader context of the DIFC’s evolving legal landscape.
The concept of a Variable Capital Company is not new to the global financial community. Singapore pioneered the VCC model with its Variable Capital Companies Act 2018, which came into effect in January 2020, followed by Mauritius with its Variable Capital Companies Act 2022. These regimes have been lauded for their ability to facilitate collective investment schemes, particularly in the context of fund management, by allowing for the creation of segregated portfolios or “cells” within a single legal entity. In the DIFC, existing structures such as Protected Cell Companies (PCCs) and Incorporated Cell Companies (ICCs) have provided some degree of flexibility for regulated financial services, particularly in the context of funds and insurance.
However, these structures are limited to regulated activities and do not offer the same breadth of application or procedural flexibility as the VCC model. The Draft VCC Regulations seek to bridge this gap, making the benefits of variable capital structures available for a broader range of proprietary investment activities, including those conducted on a non-regulated basis.
The DIFC’s move to introduce VCCs is driven by several strategic objectives:
Enhancing the DIFC’s competitiveness as a jurisdiction for sophisticated investment vehicles and family office structures.
Providing a flexible, scalable, and legally robust platform for asset holding, structured financing, and collective investment activities.
Aligning the DIFC’s legal infrastructure with international best practices and the evolving needs of global investors.
The Draft VCC Regulations are designed to serve a diverse array of stakeholders, each with unique requirements and objectives. The primary beneficiaries include:
Family Offices and Family Members: Family offices, which manage the wealth and investments of high-net-worth families, often require structures that allow for the segregation of assets, tailored investment strategies, and efficient administration. The VCC regime enables the creation of bespoke investment cells, each ring-fenced from the others, allowing different family members or branches to pursue individual investment objectives while benefiting from the economies of scale and centralized administration of a single umbrella entity.
Private Equity Funds and Investment Managers: For private equity and alternative investment managers, the VCC regime offers a highly flexible platform for structuring funds. The ability to create multiple segregated or incorporated cells under a single VCC allows for the efficient management of different investment strategies, asset classes, or investor groups. This is particularly advantageous for managers seeking to launch new strategies or accommodate investor preferences without the need to establish separate legal entities for each fund or sub-fund.
Registered Persons and Authorised Firms in the DIFC: Entities already operating within the DIFC, including registered persons and authorised firms, can leverage the VCC structure for proprietary investment activities, asset holding, and structured financing. The regime’s flexibility in capital structuring, asset segregation, and corporate actions makes it an attractive option for a wide range of business models.
Legal Advisors and Corporate Service Providers: The introduction of the VCC regime creates significant opportunities for legal advisors, corporate service providers, and other professional intermediaries. These stakeholders will play a critical role in advising on the formation, structuring, and ongoing management of VCCs, as well as in ensuring compliance with the regulatory requirements.
Financial Institutions and Investors: Banks, investment firms, and other financial institutions seeking efficient, scalable, and legally robust investment structures will find the VCC regime particularly appealing. The ability to ring-fence assets, tailor investment vehicles, and facilitate complex transactions within a single legal framework enhances operational efficiency and risk management.
The VCC Regulations introduce a comprehensive legal framework that balances flexibility with robust regulatory safeguards. The core elements of the regime are as follows:
Structure and Flexibility A VCC is a private limited company that can be established either as a standalone entity or as an umbrella structure with multiple cells. The regime provides for two distinct types of cells:
Segregated Cells: These are legally distinct portfolios within the VCC, created in accordance with the company’s articles of association. While each segregated cell holds and manages assets and incurs liabilities separate from other cells and the VCC as a whole, they do not constitute separate legal entities. The VCC with segregated cells is a single legal person.
Incorporated Cells: Each incorporated cell is a separate legal entity, formed under the framework of the VCC. Incorporated cells are deemed to be private companies in their own right, with their own articles of association, rights, and liabilities. They are distinct from the VCC and from each other, and there is no parent-subsidiary relationship between the VCC and its incorporated cells.
A key restriction is that a VCC may not have both segregated and incorporated cells simultaneously; it must choose one structure.
Share Capital and Distributions The VCC regime departs from the traditional fixed capital company model by allowing for greater flexibility in the issuance, redemption, and buy-back of shares:
Shares and Cell Shares: The VCC can issue shares in respect of itself (non-cellular shares) or in respect of individual cells (cell shares). The issue price of shares is linked to the proportion of the net asset value (NAV) of the VCC or the relevant cell.
Redemption and Buy-Back: Shares and cell shares can be redeemed or bought back at a price equal to the proportion of the NAV represented by those shares. Repurchased or redeemed shares must be cancelled, and the issued share capital reduced accordingly.
Distributions: Distributions (including dividends) can be made from capital, not just profits, and are calculated by reference to the NAV of the VCC or the relevant cell. This provides significant flexibility in meeting dividend obligations and managing capital.
Capital Reductions: The VCC or a cell may reduce its share capital if authorized by special resolution and the articles of association, provided the reduction does not result in insolvency or a negative NAV.
Qualifying Requirements for Incorporation and Continuation To ensure the integrity and appropriate use of the VCC structure, the regulations set out specific qualifying requirements. An applicant wishing to incorporate or continue a VCC in the DIFC must satisfy the Registrar that the VCC (and any of its cells) meets at least one of the following criteria:
Controlled by GCC Persons: This includes natural persons who are citizens of GCC member states, or entities controlled by such persons.
Controlled by Authorised Firms: Entities licensed by the DFSA or a recognized financial services regulator.
Controlled by DIFC Registered Persons: Entities registered in the DIFC, excluding certain non-profit organizations and prescribed companies.
Established for Holding GCC Registrable Assets: Assets or property interests that must be registered with a GCC authority, such as land, shares, partnership interests, intellectual property, aircraft, or maritime vessels.
Established for a Qualifying Purpose: This includes aviation structures, crowdfunding structures, intellectual property structures, maritime structures, structured financing, or secondaries structures (corporate structures facilitating the transfer of investment assets or securities from primary to secondary investors).
A critical restriction is that a VCC (or any of its cells) may not be involved in the provision of financial services unless expressly permitted by the DFSA or a regulator in a recognized jurisdiction.
Asset Segregation and Creditor Protection The VCC regime provides robust mechanisms for the segregation of assets and the protection of creditors:
Cellular Assets: Assets attributable to a specific cell, including proceeds of cell share capital, reserves, and other assets.
Non-Cellular Assets: Assets of the VCC that are not attributable to any cell.
The Draft VCC Regulations ensure that:
Creditors of a particular cell have recourse only to the assets of that cell.
Creditors of the VCC’s non-cellular assets do not have recourse to cellular assets.
If cellular assets are wrongly applied to satisfy liabilities not attributable to the relevant cell, the benefiting party is liable to compensate the VCC, and the assets are held in a fiduciary capacity for the VCC.
Corporate Actions and Restructuring The VCC Regulations provide detailed procedures for a range of corporate actions, including:
Creation, Merger, and Transfer of Cells: The VCC may create any number of cells (subject to its articles of association). Transfers of cellular assets between segregated cells, or mergers/consolidations of cells, require special resolutions of the relevant cells, notice to creditors, and a no-objection process. If a creditor objects, the transaction is stayed pending resolution or court determination.
Conversion and Continuation: The regime allows for the conversion of a VCC with segregated cells to one with incorporated cells and vice versa, as well as the conversion of a VCC into a standard DIFC company or the continuation of a foreign company as a VCC in the DIFC. These actions require special resolutions, notice to creditors, and, in some cases, court approval if objections are raised.
Transfer of Incorporated Cells: Incorporated cells can be transferred to another VCC, subject to a transfer agreement, special resolutions of the transferor and transferee VCCs, and confirmation of solvency and compliance with constitutional documents.
Winding Up and Insolvency: A VCC cannot be wound up until all incorporated cells are either transferred, converted, or wound up. The DIFC Insolvency Law applies with necessary adaptations.
Governance and Officer Duties The Draft VCC Regulations impose explicit duties and liabilities on officers of a VCC:
Asset Segregation: Officers must ensure that cellular assets are kept separate and identifiable from non-cellular assets and from assets attributable to other cells.
Disclosure to Counterparties: When transacting, the VCC must inform counterparties of its status as a VCC, specify the relevant cell (if applicable), and clarify that only the assets of that cell are available to meet its obligations.
Personal Liability: Officers who knowingly, recklessly, or negligently breach these duties may incur personal liability for any resulting loss or damage, without a right of indemnity from the VCC if they acted in bad faith or with gross negligence.
Creditor and Shareholder Protections The Draft VCC Regulations embed a range of protections for creditors and shareholders:
Creditor Objection Rights: Creditors have the right to object to certain corporate actions, such as the transfer or merger of cells, or the conversion of a VCC into another company type. If an objection is raised, the transaction cannot proceed until the objection is resolved or the court determines the matter.
Shareholder Approvals: Special resolutions are required for key corporate actions, ensuring that significant changes are subject to shareholder oversight.
Dispute Resolution: The regulations provide for court intervention in the event of disputes regarding the attribution of rights, liabilities, or assets to particular cells.
Conduct of Business, Reporting, and Compliance The VCC must maintain accounting records and prepare accounts in accordance with the DIFC Companies Law No 5 of 2018. Incorporated cells must also maintain their own accounts. The VCC is required to file confirmation statements and comply with all relevant governance, regulatory, and anti-money laundering (AML) requirements. The Registrar may enter into arrangements with corporate service providers (CSPs) to facilitate filings and compliance functions.
Recognizing the significance of the VCC regime and its potential impact on the DIFC’s business community, the DIFCA has initiated a comprehensive public consultation process. The consultation paper invites feedback from all interested parties, with a particular focus on those who may use or advise on VCC structures, including:
Family offices and investment managers
Registered persons and authorised firms
Legal advisors and corporate service providers
Financial institutions and investors
The consultation seeks input on a range of critical issues, including:
Suitability and Consequences: The overall appropriateness of introducing VCCs in the DIFC and any potential adverse consequences.
Qualifying Requirements: The scope and appropriateness of the qualifying criteria for applicants and the types of activities permitted.
Asset Segregation and Creditor Protections: The adequacy of the mechanisms for asset segregation, creditor recourse, and dispute resolution.
Corporate Actions and Restructuring: The procedures for the creation, transfer, merger, and conversion of cells, and the protections afforded to creditors and shareholders.
Definitions and Use Cases: The clarity and sufficiency of definitions, particularly for qualifying purposes such as secondaries structures.
Governance and Officer Liability: The standards of conduct and liability for officers, and the practicalities of compliance and reporting.
Winding Up and Insolvency: The procedures for winding up VCCs and their cells, and the application of insolvency law.
The consultation process is designed to ensure that the final regulations are robust, practical, and aligned with the needs of the DIFC’s diverse business community. Stakeholders are encouraged to provide detailed comments and suggestions, which will be considered by the DIFCA before the regulations are formally enacted.
The introduction of the VCC regime in the DIFC has far-reaching implications for market participants, legal advisors, and the broader financial ecosystem. Key practical considerations include:
Structuring Flexibility: The ability to create multiple cells within a single legal entity, each with its own assets, liabilities, and investment strategy, offers unparalleled flexibility for structuring investment vehicles, family office arrangements, and asset-holding platforms.
Operational Efficiency: Centralized administration, streamlined corporate actions, and the ability to ring-fence assets and liabilities reduce operational complexity and enhance efficiency, particularly for multi-strategy investment managers and family offices with diverse interests.
Risk Management and Creditor Protection: The robust segregation of assets and the clear delineation of creditor rights mitigate the risk of cross-contamination of liabilities, enhancing the attractiveness of the DIFC as a jurisdiction for sophisticated investment structures.
Regulatory Compliance: The regime’s alignment with international best practices, combined with stringent governance and reporting requirements, ensures that VCCs operate within a transparent and accountable framework, reducing regulatory risk and enhancing investor confidence.
Market Opportunities: The VCC regime is expected to stimulate demand for legal, administrative, and advisory services, creating new opportunities for professional service providers and contributing to the growth of the DIFC’s financial ecosystem.
The Draft VCC Regulations mark a significant milestone in the evolution of the DIFC’s legal and regulatory landscape, introducing a flexible, scalable, and robust corporate structure designed to support a wide array of investment and asset-holding activities and further cementing the DIFC’s status as a leading global financial centre. The comprehensive consultation process highlights the DIFCA’s dedication to stakeholder engagement and regulatory excellence, inviting market participants to actively contribute their views by 24th July to ensure the final framework aligns with the needs and aspirations of the DIFC’s dynamic business community.
By unlocking new opportunities for family offices, investment managers, financial institutions, and professional advisors, while simultaneously safeguarding the interests of creditors and investors through strong legal protections, the VCC regime exemplifies the DIFC’s ongoing commitment to innovation, adaptability, and the highest standards of excellence in response to the evolving demands of the global financial sector.
For further information,please contact Izabella Szadkowska and Jogan Punjabi.
Published in August 2025
