This paper first lists the main comparative advantages of Mauritius for establishment of investment funds and then discusses the specific merits of Mauritius as the natural domicile for Africa Funds.
General comparative advantages of Mauritius
Mauritius has all the advantages of a traditional international financial services center:
- flexible and appropriate legislation for establishment
and administration of various forms of investment
- exchange liberalization, free repatriation of profits and
- no withholding tax;
- no capital gains tax;
- no inheritance tax;
- no capital duty on issued capital;
- confidentiality of Global company information and banking
secrecy is enshrined in the law;
- well regulated offshore businesses and adherence to
standards of best practices;
- excellent time zone – being located at GMT + 4
hours, Mauritius can within one normal working day
communicate with all countries between the USA and
In addition to the above, three major comparative advantages of Mauritius are:
- cost efficient professional services – fund
administration & accounting, legal services etc. ;
- a network of 34 tax treaties that provides tax efficiency
which most traditional offshore centers generally cannot
offer – see Table 1;
- a system of foreign tax credit provided under Mauritius
domestic tax law that results into Mauritius tax liability on
foreign source income to an effective rate between 0% and
Specific advantages for Africa Funds
Capital gains tax savings
Capital gains tax, where imposed in Africa, are generally levied at a rate in the range of 30%-35%. However, all Mauritius tax treaties restrict taxing rights of capital gains to the country of residence of the seller of the assets. With Mauritius not taxing capital gains, there is a significant potential tax savings by using a Mauritius domiciled fund.
It is worth noting that many African nations do not currently tax capital gains. In the eventuality that they decide to do so, the only protection against domestic tax law changes in a country of investment is the use of a favorable bilateral tax treaty.
Mauritius currently has tax treaties with 12 African countries (Botswana, Lesotho, Madagascar, Mozambique , Namibia , Rwanda, Senegal, Seychelles, Swaziland, Tunisia, Uganda , Zimbabwe) and has signed tax treaties with 3 others (Malawi, Nigeria, and Zambia) which are awaiting ratification. Under these treaties, there will be no capital gains tax implication in the African states irrespective of the introduction of any eventual capital gains tax if the recipient of the gains is a Mauritius fund.
Minimising dividend withholding tax
Almost all African nations impose withholding tax on dividend paid to non residents, the rate of such imposition ranging generally between 10% to 20%. All Mauritius tax treaties limit the withholding tax on dividend. The treaty rates are generally 0%, 5% or 10%, thereby creating a potential tax savings of 5% to 20% depending on the country. The treaties guarantee a maximum effective withholding tax rate in the face of potential changes in fiscal policy in the investee countries.
Table 2 provides a comparison of domestic versus treaty withholding tax rates.
Investment Promotion and Protection Agreements – IPPAs
Being an African nation, Mauritius has signed IPPAs with 15 African member states, one of which (South Africa) is already in force (Source: Ministry of Foreign Affairs - Mauritius).
The IPPAs typically provide the following guarantees to investors from the contracting states:
- free repatriation of investment capital and
- guarantee against expropriation;
- most favoured nation rule with respect to treatment of
investment, compensation for losses in case of war, armed
conflict or riot etc.
- arrangement for settlement of disputes between investors
and the contracting states.
Mauritius is currently negotiating IPPAs with 3 more African nations. Table 3 shows the list of IPPAs signed and those currently under negotiation.
Common Investment Area – CIA.
One of the objectives of the regional organization, The Common Market for Eastern and Southern Africa (COMESA), is to create a Common Investment Area. A draft of an Investment Framework Agreement (IFA) is currently being reviewed by member states. This IFA shall be similar to a multilateral IPPA for all member states and one of its aims is to "progressively reduce or eliminate investment regulations and conditions which may impede investment flows and the operation of investment projects in COMESA".
The draft IFA provides, inter alia, for a 'most favoured nation rule', guarantee against expropriation, arrangement for settlement of dispute between an investor and a COMESA member state.
The COMESA currently consists of 20 member states.
A list of member states can be found in table 3.
Ideal time zone and bilingual
Mauritius is only 2 hours ahead of East Africa and 4 hours from West Africa. On the other hand, Mauritius, being ideally located at GMT+ 4 hours, can deal with investors and investment managers from USA to Japan within the same business day.
While an important part of Africa is French speaking, very few international financial services centers are so. Having been a French then a British colony for many years, Mauritius is perfectly bilingual. French is the main language spoken in Mauritius while English, which is the official language of the land and the medium of education from primary school level, is the main language used in business and government. Using a Mauritius administrator to deal with French speaking Africa can be an important advantage.
Member of African Union, SADC, COMESA, IOR-ARC
Mauritius has deep African roots, a third of the population being of African origin, and is the only offshore financial services centre being member of all the major African regional organizations, such as the African Union, South African Development Community (SADC), COMESA, The Indian Ocean Rim-Association for Regional Cooperation (IOR-ARC). Mauritius is also a signatory to more than 15 multilateral conventions relating to Africa.
Its membership in these regional organizations, and being a signatory to all the major African conventions, can make Mauritius the best offshore financial service centre for establishing any Africa fund, especially having regard to treatment of the investment.
On the other hand, while fully belonging to Africa, Mauritius is not a continental nation. This ideal geopolitical situation eliminates spillover effects of any eventual neighboring conflicts.
Conclusion - Acceptance by most development financial institutions
The most important factor investment managers/GPs consider for selecting the domicile of a new fund is the comfort of core investors/LPs. The core investors of Africa Funds remain development financial institutions. Over the past few years, numerous Africa Funds have been set up in Mauritius such that by now all the development financial institutions favour this jurisdiction as the natural domicile for investment into Africa. See Table 4 which is a fact sheet on Mauritius.
To view the tables please click here
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.