Mauritius has been consolidating its position as an International Financial Centre (IFC) in the last years. There is now a more elaborate regulatory framework with the Financial Services Commission (FSC) regulating non-banking financial services and the Bank of Mauritius (BOM) regulating banking financial services. We may briefly recap the products offered by the Mauritius IFC:
(i) The two most used entities are the companies holding a Category 1 or Category 2 Global Business Licence (GBL) and which are governed by the Financial Services Act 2007 and the Companies Act 2001. The Category 1 GBL Company is more sophisticated than the Category 2 GBL Company. The Category 1 GBL company is entitled to become tax resident in Mauritius and hence access the vast network of Double Taxation Avoidance Agreements (DTAAs) ratified by Mauritius. The company holding a Category 2 GBL will not be tax resident but is more user-friendly and bears resemblance to the International Business Company (IBC) available in other jurisdictions. The Category 1 GBL Company will pay corporate tax up to 3% on its corporate profits because of a deemed tax credit which it enjoys and the Category 2 GBL Company does not pay taxes in Mauritius as it is not tax resident.
(ii) Trusts may also be used and since Mauritius has a hybrid system of common law and civil law, specific legislation was enacted for trusts in the form of the Trusts Act 2001. This Act defines the responsibility of trustees, settlors, beneficiaries and also provides for protectors in the case of discretionary trusts and for enforcers in the case of purpose trusts. Trusts are now being used more commonly and the Trusts Act is proving to be a good piece of legislation.
(iii) Foundations were introduced by the Foundation Act 2012. The foundation which is essentially a civil law creature is used for wealth management and succession planning. The law contains the basics of foundations as found in other IFCs. Investors from civil law jurisdictions tend to prefer foundations whilst those from common law jurisdictions often prefer trusts.
(iv) Collective Investment Schemes (CIS) are governed by the Securities Act 2005 and are regulated by the FSC. The CIS often holds a Category 1 GBL and we now see more CIS companies being incorporated to service the African continent. An interesting feature of CIS activities concerns their listing on the Stock Exchange of Mauritius. Mauritius encourages listing on its Stock Exchange and this can be an interesting way for promoters to raise money or for already established businesses, to settle in the Mauritian jurisdiction and move ahead with a CIS licence.
(v) Limited Partnerships may now be used. We finally note that following the enactment of the Limited Partnership Act 2011, the limited partnership can hold Category 1 GBL and hence pay up to 3% corporate tax on its profits. The law regulates the relationship between the general partner and the limited partner. Limited partnerships are often used for private equity ventures.
In December 2003, Mauritius signed an Inter-Governmental Agreement (IGA) with the United States of America (USA) in relation to the US Foreign Account Tax Compliance Act (FATCA). The IGA was implemented into domestic legislation in July 2014. Mauritius was the first African jurisdiction to become FATCA-compliant. To date, the majority of banks, management companies, global business companies and other relevant financial institutions based in Mauritius have registered with the US Internal Revenue Service and have put in place the requisite due diligence and reporting systems in order to comply with the FATCA legislation. In October 2014, Mauritius was one of the 51 jurisdictions to sign the multilateral Competent Authority Agreement for the automatic exchange of information (CAA) developed by the Organization for Economic Cooperation and Development (OECD). It is inspired from FATCA and is intended to create a framework for the systematic and periodic transmission of bulk taxpayer information by the source country to the country of residence of the taxpayer. Mauritius has committed to implement the CAA by September 2017. The compliance of Mauritius with the FATCA legislation and the commitment to the OECD's CAA is an important step in further strengthening Mauritius' position as a sound, robust, transparent and clean IFC.
We finally note that Mauritius has a new government since the general elections of December 2014. This new government has provided for a new Ministry of Financial Services, Good Governance and Institutional Reforms, separate from the Ministry of Finance. This shows willingness to develop and strengthen further corporate and financial services in the country.
The African Adventure
Mauritius is a member of the African Union (AU), of the Southern African Development Community (SADC) and of the Common Market for Eastern and Southern Africa (COMESA). The membership of those three organisations by a country which is also an IFC is rather unique. Membership to SADC and COMESA brings money advantages in terms of trade, commerce and cross border transactions. SADC is an organisation covering a market of 277 million persons and COMESA covers a market of 389 million persons. Having a company incorporated in Mauritius and therefore flying the Mauritian flag gives access to those two huge markets. The island also has an impressive network of DTAAs of which 17 are with African countries. 19 have been signed and 15 have been ratified. These DTAAs open the way for entities which are registered in Mauritius and consequently tax residents of Mauritius to be able to claim benefits under the various treaties. The jurisdiction also has an interesting network of Investment Promotion and Protection Agreements (IPPAs), sometimes known as Bilateral Investment Treaties (BITs). Mauritius has 19 of such agreements signed with African states out of which 8 have been ratified. The IPPAs particularly afford protection to investments from nationalisation for those Mauritian incorporated entities in those African countries with which Mauritius has IPPAs in place. This affords additional protection which would not be available if the investor was using a special purpose vehicle incorporated in many offshore jurisdictions now commonly used by international investors. Mauritian professionals are bilingual, speaking and working in English or French and also often with knowledge of Hindi or Mandarin. This is helpful as most of the African States are either Francophone or Anglophone. Corporate, trusts or foundation documentation may be done in French or English and indeed a company's statute may also be in Mandarin. The Mauritian lawyer or accountant may with ease accompany clients towards their target destination in Africa. The island has a hybrid system of laws with a Code Civil, a Code de Procedure Civile and a Code de Commerce which are French inspired and cohabitating with English Law. This is a rather unique legal situation and due to the fact that the island was first a French colony and then a British colony before becoming independent in 1968. On top of this is the right of final appeal to the Judicial Committee of the Privy Council of Her Majesty the Queen, sitting in London for appeals from the Supreme Court of Mauritius.
Like many other countries, Mauritius is trying to position itself as an international arbitration centre. What is special to the jurisdiction is the setting up of the Mauritius International Arbitration Centre (MIAC) in conjunction with the London Chamber of International Arbitration (LCIA). It is a private institution known as the LCIA-MIAC and is governed by its own rules which are inspired by the rules of LCIA. The International Arbitration Act of 2008 enacts the law concerning international arbitration and is inspired by the UNCITRAL model. The Act was amended in 2013 to keep in touch with international developments. The Permanent Court of Arbitration (PCA) established at The Hague, in the Netherlands, is also based locally through the Host Country Agreement signed by the Mauritian government in 2009. This Agreement establishes the legal framework under which future PCA administered proceedings whether they are interstate or investor against state disputes can be conducted in the territory of Mauritius. The PCA has an office in Mauritius and is active in promoting the island as an arbitration hub.
Finally, the Mauritius Chamber of Commerce and Industry (MCCI), has signed an agreement with the Centre de Mediation et d'Arbitrage de Paris to develop and strengthen its arbitration services locally. This centre operates under the aegis of the Chambre de Commerce et d'Industrie de Paris.
The Mauritian government has backed those projects and is active through its support in the organisation of the 2016 Congress of the International Council for Commercial Arbitration (ICCA) on the island. It will be the first time that the ICCA congress will be held on African soil and promises to be a large gathering of arbitration experts. The Congress will certainly be a huge factor to put the island on the global map of international arbitration. It has also been the policy of government to add substance to global business companies using Mauritius as a platform to invest worldwide. New substance requirements were put into place by the FSC in the Guide to Global Business. These requirements came into effect on the 1st of January 2015. There are several options from which companies may choose to bring more nexus between their activities and the actual economy, i.e. to add economic substance. Global business companies are therefore encouraged to open up offices in Mauritius, employ residents on a full time basis, spend more money locally or if applicable to get listed on the Stock Exchange. One further innovative option which has been added is for these companies to have inbuilt in their constitution a clause that provides for disputes arising between shareholders to be settled by arbitration in Mauritius. This is specifically provided for in the International Arbitration Act 2008 and aims at attracting such companies to settle their future disputes by arbitration in Mauritius. A large number of companies have chosen the option of adding in their constitution a clause providing for arbitration locally in case of such shareholders' disputes. This is therefore an additional criterion for such companies to be deemed to be tax resident in Mauritius.
We may here look at certain new products being developed within the Mauritian IFC:
(1) Captive Insurance
A new Bill is to go through Parliament soon to enact a Captive Insurance Act to set up the regulatory framework for captive insurance. Mauritius has the capacity to be the domicile of choice for captive insurance in relation to the African Continent and indeed for other markets too. Essentially, captives are a form of self-insurance whereby the insurer is wholly owned by the insured. The captive insurance company can be a subsidiary of the parent company to provide insurance to it. They are established to meet the risk management needs of the company and once set up will act like a commercial insurer. It will not generally offer insurance to the public but only to the company which owns it.
A jurisdiction like Bermuda is well known for captive insurance business. Insurance represents 16.1% of the GDP of Bermuda and provides employment in the form of white collar jobs to Bermudians. Another jurisdiction like the Cayman Islands also has a large captive insurance industry and we will also find niche captive insurance jurisdictions like Vermont in the USA, Guernsey in the Channel Island or Anguilla in the Caribbean. Mauritius should in fact aim at becoming an insurance hub, not only for captives but also for insurance generally.
(2) Aircraft Registration
To further diversify the corporate and the financial services sector, the opportunity exists to develop aircraft registration and aircraft finance. The Civil Aviation Act 2007 is already in place and the regulations under this law became effective in 2010 to provide for the new scheme of fees related to the registration of aircraft. An aircraft registry means fees for the country when aircrafts are registered but it also means work for banks, law firms, accountancy firms and management companies. Further revenues are also generated through the annual inspection by the Department of Civil Aviation which is the regulatory body for aircraft registration. It is estimated that more than 1,200 new commercial aircraft will be bought by African countries by 2030. Ownership or leasing of aircraft also require the incorporation of special purpose vehicles, therefore also generating further revenues through licensing fees to the FSC and the Registrar of Companies (ROC), management fees to the management companies and accountancy and audit fees for accounting professionals. The experience of the Isle of Man which in a few years has more than 600 registered aircraft consisting mostly of business jets is an impressive example. Mauritius will need to ratify the Cape Town Convention and its Aircraft Protocol which defines international standards for the registration of international interests in airframe and engines in the nature of liens, leases, conditional sale contracts and further provides for remedies in case of defaults. It will also need to ratify the Montreal Convention which concerns uniformity of rules relating to the international carriage of passengers, baggage and cargo. The Montreal Convention which was adopted in 1999 amends the well known Warsaw Convention and attempts to re-establish uniformity and predictability if rules. A window of opportunity also exists at the moment because owners of aircraft today look for neutral jurisdiction like Mauritius to register their aircraft so as to avoid their aircraft being the target of terrorist activities.
(3) Shipping Registry
Just like the aircraft registry, an active shipping registry for the registration of ships is another activity to develop and diversify corporate and financial services. Shipping is governed by the Merchant Shipping Act 2007 which is itself based on the UK Merchant Shipping legislation. It is hoped that the Mauritian Ship Registry will aim at quality rather than quantity in terms of its clients. The registration procedure also needs streamlining to be more efficient and less time consuming and be adapted to the local specificities and needs.
The window of opportunity mentioned above concerning owners of vessels wishing to sail a neutral flag like Mauritius evidently applies so as to minimise chances of attacks by terrorist groups. Aircraft and shipping registration will generate activities in aircraft and shipping finance and further possibilities exist in the field of international tax planning through the use of the Mauritian jurisdiction and its extended network of DTAAs.
Services represent today more than 70% of the GDP of the island and there is no other alternative but to develop them to create jobs and add value to the economy. The jurisdiction continues to be the ideal platform for investments in India but as of late has shown its capacity to be the hub of reference for facilitating investments into Africa.
Published in Offshore Investment magazine (May 2015)
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