The variable capital company is the fund vehicle GMC has built for managers who want several strategies, investor groups or asset classes under one roof without any of them being exposed to the others. Its share capital always equals its net asset value, so shares are issued and redeemed at value. It can stand alone as a single fund or be an umbrella holding cells, and the promoter chooses at establishment whether those cells are segregated portfolios inside one legal person or incorporated cells that are each a separate legal entity with their own constitution and tax identification number. That choice is made once and cannot be changed. Around the vehicle sits a short governance code: a fund manager or a self-managed proprietary structure, a director ordinarily resident in GMC, a licensed corporate service provider and an independent custodian.
In short
- A GMC VCC is a body corporate whose sole object is to be one or more collective investment funds. Its share capital always equals its net asset value, and it may be a standalone fund or an umbrella with cells.
- An umbrella uses either segregated cells or incorporated cells, never both. A segregated cell is a ring-fenced portfolio inside one legal person with one tax identification number at VCC level. An incorporated cell is a separate legal entity with its own constitution, tax identification number and winding up.
- The cell architecture is chosen when the umbrella is established and is irrevocable for the life of the fund. A manager who wants the other architecture establishes a second umbrella.
- Distributions may be paid out of capital. Cell assets are segregated by law, any inconsistent provision is void, and the register of members, accounts and constitution are private.
- The VCC is managed by a fund management company licensed by the Gelephu Financial Services Office (GFSO), by a manager from a Recognised Foreign Jurisdiction approved by GFSO, or, for a proprietary fund only, by itself, and it has a director ordinarily resident in GMC, a licensed corporate service provider and an independent custodian.
- A transitional waiver gives experienced foreign managers a three-year grace period, after which every manager holds a GMC licence or operates under the Recognised Foreign Jurisdiction framework. VCC-specific provisions will be added to the GMC Income Tax Act.
What a variable capital company is
A GMC VCC is a body corporate with one purpose: to be one or more collective investment funds. The feature that gives it its name is its capital. The share capital of a VCC is at all times equal to its net asset value. Shares are issued, redeemed or repurchased at a price equal to the proportion of net asset value each share represents, at the level of the VCC or of the relevant cell, so subscriptions and redemptions move capital in and out at value. The VCC may issue shares of varying amounts and in different classes with different economic and voting rights, so several investor classes can sit within one entity.
The GMC VCC is modelled on established international fund jurisdictions. It sits within the fund framework administered by GFSO, the independent regulator of all financial services and virtual asset activities in GMC, whose core rules for funds are in the Fund Rulebook (Funds) 2026. GMC will enact a Variable Capital Companies Act, and the Guidelines are to be read with, and subject to, that Act once in force. They apply to anyone who intends to establish, operate or manage a VCC in GMC and to every fund management company operating in GMC, whether licensed locally or in a Recognised Foreign Jurisdiction.
Standalone fund or umbrella fund
A VCC takes one of two shapes:
- Standalone fund. The VCC is a single fund with no cells. The pooling vehicle investors subscribe to is the same vehicle that invests in the underlying portfolio companies.
- Umbrella fund. The VCC contains multiple cells. Each cell can hold distinct assets, follow a distinct strategy and serve a distinct pool of investors while remaining legally segregated from every other cell, so diverse investments sit under a single governance framework with the risk of each cell isolated.
An umbrella may have different groups of shareholders for each cell, and each cell's assets and liabilities are separately managed.
The two cell architectures compared
Segregated cells. A segregated cell is a ring-fenced portfolio of assets and liabilities within the umbrella with no separate legal personality: the VCC remains a single body corporate and the cell is segregated for asset and liability purposes only. The assets attributed to a segregated cell may be used only to meet the liabilities attributed to that cell, and a creditor of one cell has no recourse to any other cell or to the general assets of the VCC. Because the cell is not a legal person, the VCC must disclose the identity of the relevant cell to third parties in all dealings and contractual documents. The Guidelines give two examples of use: separating asset classes such as real estate and private equity, and isolating high-risk investments from core holdings.
Incorporated cells. An incorporated cell provides full legal separation. Each is a separate legal entity with its own legal personality under the umbrella. It has its own constitution, holds its own assets and liabilities independently of the VCC and the other cells, and can contract, hold assets, sue and be sued, and be wound up independently. The winding up of one incorporated cell does not automatically begin the winding up of the VCC or any other cell. The Guidelines' examples are different investor groups participating in different strategies, and portfolios that may eventually be spun off.
Tax identification. Because each incorporated cell is a separate legal entity, each can obtain its own tax identification number. A VCC with segregated cells is a single body corporate whose cells are not recognised as separate bodies corporate, so it may obtain only a single, combined tax identification number at VCC level. The Guidelines direct managers to weigh this where separate tax reporting or identification is needed at sub-fund level.
A choice made once
An umbrella may have segregated cells or incorporated cells, but not both concurrently. A promoter who wants both establishes separate umbrella funds.
The choice is made when the umbrella is established and is irrevocable for the duration of the fund's life. A segregated-cell umbrella may not convert to or reconstitute its cells as incorporated cells, and the reverse is equally barred.
The architecture is therefore decided before the constitution is drafted, by reference to the three things the Guidelines name: investment strategy, investor requirements and operational needs. The deciding questions are whether any cell will need its own tax identification number, whether any cell may be spun off, and whether investors will insist on a separate legal person rather than statutory ring-fencing. Where the answers are no, segregated cells give the same creditor protection with less documentation. Where any answer is yes, incorporated cells are the safer choice, because the decision cannot be revisited.
How the VCC operates
Six operational features follow.
- Flexible share capital. Capital equals net asset value at all times, with shares of varying amounts and multiple classes permitted.
- Distributions from capital. A VCC is not restricted to paying dividends out of profits. It may distribute from capital by reference to the net asset value of the VCC or the relevant cell. In an umbrella, every distribution must relate solely to the assets of the relevant cell and must not adversely affect other cells or the VCC's general assets.
- Asset segregation. The assets of each cell are segregated from every other cell and from the general assets of the VCC, and may not be used to discharge any liability of another cell or of the VCC itself, including in a winding up. Any provision of any constitution, agreement or contract inconsistent with that segregation is void to the extent of the inconsistency.
- Privacy. The register of members is not open to public inspection. The financial statements and the constitution are not publicly available.
- Accounting standards. Financial statements follow International Financial Reporting Standards, or another internationally accepted standard GFSO approves, and may be prepared at cell level.
- Re-domiciliation. A foreign corporate entity comprising one or more collective investment funds may apply to be registered as a VCC in GMC, subject to the prescribed requirements.
Who manages the VCC
A VCC must at all times be managed by a fund manager or, if it is a proprietary fund VCC established solely to manage the proprietary assets of its shareholders, be self-managed. The line is drawn at outside money: a proprietary fund VCC that subsequently admits third-party investors or offers its shares to the public must appoint a fund manager. GFSO may set out the detailed requirements for self-managed VCCs in separate Guidelines.
Three management arrangements are permitted:
- A fund management company licensed by GFSO.
- A fund management company from a Recognised Foreign Jurisdiction, licensed or regulated by the competent authority there and approved by GFSO to operate in GMC. A Recognised Foreign Jurisdiction is one GFSO has designated by notice on its website; the initial list is Singapore, Japan, ADGM, DIFC, Hong Kong and India. Such a manager informs GFSO and obtains a No Objection rather than a separate GMC fund management licence, subject to the conditions GFSO stipulates.
- Self-management, for a proprietary fund VCC only.
The mandatory appointments
Four further requirements apply.
- A director ordinarily resident in GMC. At least one director must be ordinarily resident in GMC, meaning a resident in GMC or the holder of a valid work visa or work pass. The test is residence or work permission, not citizenship.
- A licensed corporate service provider. The VCC must appoint a corporate service provider licensed by the Gelephu Corporate Registration Office (GCRO) to perform administrative, compliance and regulatory liaison functions. The provider maintains the VCC's statutory records and makes its filings with GFSO.
- An independent custodian. Unless GFSO grants an exemption, the fund manager must segregate the assets of the VCC, and of each cell, and maintain them with an independent custodian.
- Appointed representatives. Any individual who conducts fund management activity for the VCC, including providing inputs on portfolio composition, marketing or client servicing, must be duly appointed as a representative of the fund management company.
The transitional period for foreign managers
The Guidelines describe a transitional waiver framework with a three-year grace period to ease the entry of experienced foreign fund managers. The expectation at the end of the Transitional Period is stated plainly: every fund management company will either obtain a local GMC licence or operate under the Recognised Foreign Jurisdiction framework. A foreign manager launching a VCC under the waiver should choose its permanent route and build the file well before the period expires. GFSO reserves the right to amend, supplement or replace the Guidelines and invites managers to engage with it on any question arising from their application.
Tax: the fund incentives and the VCC provisions to come
A family office, fund or investment manager may take the form of a company, a variable capital company, a partnership or a trust, with no prescriptive requirement in the choice. Investment holding vehicles such as VCCs set up by funds enjoy tax exemption on all income from designated investments for up to the life of the fund, family offices for up to 15 years, with withholding tax exemption on interest payments. Investment managers pay 5% or 10% for 10 years, renewable to 20, with full exemption for the first five years where approved by GMCA on or before 31 December 2027.
For the VCC specifically, GMCA will introduce VCC-specific provisions in the GMC Income Tax Act to provide clarity on the tax filing requirements of a VCC and on how the provisions of that Act apply to it. One point already follows from the Guidelines: a manager who expects each cell to report separately for tax chooses incorporated cells, because only they carry their own tax identification number. Licensed entities also provide regulatory submissions and an annual audit report to GFSO.
How Basnet Law runs the engagement
- Scoping. We confirm whether the structure is a standalone fund, an umbrella or a self-managed proprietary fund, and whether third-party investors will ever be admitted.
- Cell architecture. We settle segregated or incorporated cells before any document is drafted, testing each planned cell against tax identification, spin-off potential and investor requirements, because the choice is irrevocable.
- Constitution and cell documents. We draft the VCC constitution, and a constitution for each incorporated cell, with share classes, net asset value pricing, distribution mechanics and segregation provisions written to the Guidelines.
- Management arrangement. We map the manager to a GFSO licence, a Recognised Foreign Jurisdiction No Objection, or self-management for a proprietary fund, and where the manager relies on the transitional waiver we set the timetable for the permanent route within the three years.
- Appointments. We appoint the director ordinarily resident in GMC, engage the GCRO-licensed corporate service provider, put the independent custodian in place for the VCC and each cell, and register every individual who conducts fund management activity as a representative of the manager.
- Registration, filings and incentives. We register the VCC, or the re-domiciling foreign entity, set up IFRS accounting at cell level, the annual audit report and the GFSO submissions the corporate service provider will file, and lodge the fund and manager incentive applications where they apply.
Frequently asked questions
The vehicle
What is a GMC variable capital company?
A body corporate whose sole object is to be one or more collective investment funds. Its share capital is at all times equal to its net asset value, so shares are issued, redeemed and repurchased at the proportion of net asset value each share represents. It may be a standalone fund or an umbrella with cells.
Can a foreign fund move to GMC as a VCC?
Yes. A foreign corporate entity comprising one or more collective investment funds may apply to be registered as a VCC in GMC, subject to the requirements prescribed by the relevant authority.
Cells
What is the difference between a segregated cell and an incorporated cell?
A segregated cell is a ring-fenced portfolio inside the umbrella with no separate legal personality, whose creditors have no recourse to any other cell or to the VCC's general assets. An incorporated cell is a separate legal entity with its own legal personality under the umbrella. It has its own constitution, holds its own assets and liabilities independently, can contract, hold assets, sue and be sued, and can be wound up independently without triggering the winding up of the VCC or any other cell.
Which cell type gets its own tax identification number?
An incorporated cell, because it is a separate legal entity. A VCC with segregated cells is a single body corporate and may obtain only one combined tax identification number at VCC level.
Can one umbrella have both segregated and incorporated cells, or switch between them?
No to both. An umbrella may have segregated cells or incorporated cells, but not both concurrently, and the choice made at establishment is irrevocable for the life of the fund. A promoter who wants both, or wants to change, establishes a separate umbrella fund.
Operation and governance
Can a VCC pay distributions out of capital?
Yes. A VCC is not restricted to paying dividends out of profits and may distribute from capital by reference to the net asset value of the VCC or the relevant cell. In an umbrella each distribution must relate solely to the assets of the relevant cell and must not adversely affect other cells or the VCC's general assets.
Are the VCC's accounts, register and constitution public?
No. The register of members is not open to public inspection, and neither the financial statements nor the constitution is publicly available. Financial statements are prepared under IFRS and may be prepared at cell level.
Who may manage a VCC?
A fund management company licensed by GFSO, one licensed or regulated in a Recognised Foreign Jurisdiction and approved by GFSO, or, for a proprietary fund VCC managing only its shareholders' own assets, the VCC itself. A proprietary fund VCC that admits third-party investors or offers its shares to the public must appoint a fund manager.
What appointments must every VCC make?
A director ordinarily resident in GMC, meaning a resident or a holder of a valid work visa or work pass; a corporate service provider licensed by GCRO to keep the statutory records and file with GFSO; and, unless GFSO exempts it, an independent custodian holding the segregated assets of the VCC and each cell.
What happens at the end of the three-year transitional period?
The transitional waiver gives experienced foreign fund managers a three-year grace period to enter GMC. On its expiry every fund management company is expected either to hold a local GMC licence or to operate under the Recognised Foreign Jurisdiction framework.
The bottom line
The GMC variable capital company gives a fund promoter one vehicle for many products: capital that tracks net asset value, distributions from capital, statutory ring-fencing between cells, private accounts and register, IFRS reporting at cell level, and a re-domiciliation route. The one decision that cannot be undone is the cell architecture, made at establishment and fixed for the life of the umbrella, with the tax identification number as the practical difference. A promoter who settles the architecture and the management arrangement first, and documents the rest to the Guidelines, has a vehicle that launches cleanly and carries the fund and manager incentives the wider framework provides.
Related guides
Sources
- Gelephu Mindfulness City Authority, GMC Guidelines on Governance and Management of Variable Capital Companies (VCCs), released 20 September 2026, sections 1 to 6.
- Gelephu Mindfulness City Authority, Frequently Asked Questions: Family Offices, Funds and Investment Managers, released 20 September 2026.
- Gelephu Mindfulness City Authority, GMC Guidelines on Regulatory Requirements and Tax Incentives for Funds and Investment Managers, released 20 September 2026.
- Fund Rulebook (Funds) 2026.
- Variable Capital Companies Act (to be enacted by GMC).
- GMC Income Tax Act (VCC-specific provisions to be introduced by GMCA).
You may contact Basnet Law at basnet@basnetgmc.com or office@basnetgmc.com for any legal queries related to GMC.
