In the last few years Mauritius has emerged and positioned itself as being an international financial centre (IFC) of excellence, choice and repute. Coupled with Mauritius’ continuing achievements in terms of good corporate governance – including Mauritius ranking 13th in the Ease of Doing Business list of the World Bank and being removed from the Council of European Union’s grey list following implementation of necessary tax and policy reform – the country has not only become an attractive proposition for the setting up and administration of private equity funds in Mauritius but has also evolved into a facilitator in bridging the gap between investors and jurisdictions in constant need of investment, mostly situated on the African or Asian continent.
Mauritius has signed double taxation avoidance agreements with 42 countries and has entered into Investment Promotion Protection Agreements (IPPA) with 36 countries, out of which there are 17 African countries. The IPPAs provide additional comfort to investors choosing the Mauritius investment channel. In a further effort to adhere to international standards, Mauritius has also adopted the relevant legislation to implement FATCA and Common Reporting Standards whilst also being a signatory to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting and implementing results from the OECD’s BEPS package domestically and through tax treaty provisions.
13th
Mauritius ranks 13th in the Ease of Doing Business list of the World Bank
In terms of taxation, any fund structure domiciled in Mauritius is subject to tax in Mauritius with its net chargeable income (i.e. taxable income less deductible expenses) at the rate of 15%. Subject to the fulfilment of substance requirements, the fund benefits from a partial exemption at the rate of 80% in respect of its “foreign sourced income”, namely dividend and interest derived from abroad, yielding an effective tax burden of 3% at the level of the fund. Furthermore, profits or gains arising from the sale of equity or debentures in operating vehicles are exempt from corporate income tax at the level of the fund in Mauritius. There is also no withholding tax payable in Mauritius in respect of payments of dividends to shareholders, payment of interests or in respect of redemption or transfer of shares.
For the purposes of being deemed a Mauritius tax resident, the fund will need to satisfy substance requirements, namely carry out its core income-generating activities in Mauritius, employ, either directly or indirectly, a reasonable number of suitably qualified persons to carry out the said core activities, have a minimum level of expenditure which is proportionate to its level of activities and demonstrate that it is controlled and managed from Mauritius through the fulfilment of the following:
• Having at all times at least 2 resident directors of reasonable professional background who can act independently;
• Maintaining at all times its principal bank account in Mauritius;
• Keeping and maintaining at all times its accounting records at a registered office in Mauritius and
• Preparing its statutory financial statements, which shall be audited in Mauritius.
The place of effective management of a Mauritius fund will be determined taking into consideration whether the strategic decisions relating to the company’s core income-generating activities are taken in, or from, Mauritius, and whether the majority of the board of directors’ meetings are held in Mauritius or the executive management of the fund is regularly exercised in Mauritius.
The Mauritius Financial Services Commission (FSC), as the integrated regulator for the non-bank financial services sector and global business, is mandated to license, regulate, monitor and supervise the conduct of business activities in Mauritius. The FSC, working as a joint panel with the Mauritius Revenue Authority, will ascertain, inter alia, the satisfaction of substance requirements by funds in Mauritius, as well as developing the necessary policies to enable a delicate balance between regulation and investment promotion.
Beyond the use of the typical special purpose vehicle, generally authorised as collective investment schemes (CIS) and closed-end funds (CEF), promoters are making use of the Mauritius IFC for the implementation of master and feeder funds as well as parallel funds, which tie up with fund vehicles in other jurisdictions. This allows for greater flexibility and customised solutions, be it for the purpose of reduction of trading costs and overall operating costs or catering for specific investors requirements such as shariah compliant investors.
Both the CIS and the CEF allow the promoter to arrange for distributions either at the discretion of the board of directors (or manager) of the fund or by way of a more restrictive distribution waterfall mechanism. In terms of exit strategy, the CIS allows for redemption of investor shares at the option of the investor whilst the CEF by nature is more restrictive due to redemption being at the sole option of the fund. As a trend, most CIS incorporated in Mauritius are organised as Professional Collective Investment Schemes or Expert Funds, which by default are available to sophisticated or expert investors, with the relevant minimum investment threshold. The advantage of such structures lie in that they are exempted from most CIS regulations applicable in Mauritius (namely the Securities (Collective Investment Schemes and Closed-end Funds) Regulations 2008) such as rules relating to, inter alia, statutory compliance and investment restrictions.
Whilst most funds invest in securities, debt instruments or traditional sectors (such as infrastructure, agriculture, etc.), major steps have been taken recently by the Mauritius government and regulators in order to diversify the investment strategy of funds in Mauritius such as encouraging a gearing ratio in respect of investment in equity and derivatives as well as facilitating structures seeking to invest in more innovative fields such as cryptocurrencies. Whilst recognising that investments in digital assets are high-risk, the FSC has recognised such digital assets as constituting asset-class for investment by sophisticated and expert investors, Professional CIS, Expert Funds and specialised CIS. This has provided a boost in promoters’ and investors’ confidence for the more advanced use of the Mauritius IFC to exploit such investment opportunities. It is nevertheless a fact that this represents a new and truly dynamic challenge for the legislator in respect of financial and non-financial services, given that there is currently no or else scant legislation in force to regulate the use of such technologies. To that end, it should be noted that the Economic Development Board of Mauritius (EDB) recently introduced the Regulatory Sandbox Licence (RSL), which offers the possibility for an investor to conduct a business activity for which there exists no legal framework, or adequate provisions under existing legislation in Mauritius. The RSL will be issued by the EDB to eligible companies willing to invest in innovative projects according to an agreed set of terms and conditions for a defined period. This should be followed by more specific fintech regulations to be issued by the FSC and even the Bank of Mauritius depending on the nature of the transactions.
Whilst the Mauritius IFC has truly emerged as a jurisdiction of choice throughout the last few years, it remains a country that is booming with potential, with a strong emphasis on adhering to international standards and its utmost endeavour to be categorised as a compliant jurisdiction by the relevant organisations. Mauritius is set to be a leading destination for structuring of investment funds into the African and Asian markets.
Commentary
Issue 145
Why Mauritius?
An attractive IFC for fund structuring and investment
Priscilla Balgobin-Bhoyrul, Senior Partner, Dentons (Mauritius) LLP
Originally published in the November | December 2019 issue