Mauritius

Author: | Published: 3 Oct 1999
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Since its beginning as an offshore fund centre in 1992 Mauritius has gained significant recognition as a credible and reliable jurisdiction. More than 150 funds have been set up in Mauritius to date with assets under management in excess of $4 billion.

The growth of the fund industry in Mauritius is attributable to various factors: first and foremost, its user-friendly regulations and the quality of the local service providers. Trust and management companies are licensed by the regulatory authority to provide, with the support of local law firms, a whole range of services relating to the setting up and administration of investment funds. Mauritius also developed an extensive tax treaty network with favourable clauses particularly with regards to capital gains. The launching of the Mauritius offshore sector back in 1992 coincided with the opening up of the Indian economy and the extremely advantageous tax treaty between the two countries coupled with a favourable tax regime enjoyed by the offshore companies made Mauritius the obvious choice. While India provided a platform from which to grow, many other factors also contributed to a great extent. Among these is the strategic location of Mauritius, being four hours ahead of Europe and four hours behind of the Far East, the absence of exchange control regulations, the availability of support services and state-of-the-art telecommunications.

Structures available

There is a whole range of investment structures that are available in Mauritius. Funds have been established as corporate entities and as trusts. Although, strictly speaking, investment funds cannot be set up as partnerships, it is possible to set up the vehicle as a limited life company which has most of the characteristics to qualify the company as a partnership for US revenue purposes.

To be qualified as a limited life company, the vehicle must have at least two subscribers or members and its life should be limited to any period not exceeding 50 years in its memorandum of association. The life can be extended to periods not exceeding in aggregate 150 years from incorporation by passing a special resolution to alter the memorandum.

The regulations allow the articles of association to provide firstly for prohibition of transfer of shares absolutely or provide that transfer may only be done by unanimous resolution or resolution passed by such proportion as specified in the articles. They also provide that the members may manage the affairs of the company and lastly provide that a member will be liable generally to the creditors of the company. The investment funds registered to date have single-tier, two-tier or branch structures with the option of either being open-ended or close-ended. The parent company of the two-tiered structures are located in jurisdictions such as Guernsey, Luxembourg, Cayman Islands, Ireland, Singapore, Jersey, the UK and Switzerland. Some of the single tier corporations and parent companies are listed on exchanges such as Luxembourg, Ireland, London, New York, Zurich and Amsterdam. The trend has evolved, with promoters having more confidence in Mauritius, to more single-tier structures being set up in Mauritius as compared to two-tier structures.

These funds invest in a wide range of investment products, including but not limited to portfolio securities, venture capital, direct investments and debt securities.

The targeted countries are mainly in the Asian continent, however investments are also being channeled to Africa and Europe.

REGULATORY FRAMEWOK

Investment funds are registered under the Companies Act 1984 and are licensed under the Mauritius Offshore Business Activities Act 1992 (MOBA Act 1992) and subsequent regulations, while the Income Tax Act 1995 make provisions for their fiscal regime.

The definition of an offshore investment company is given by the regulations under MOBA Act 1992: "a company whose business consists of investing its funds mainly in securities with the aim of spreading investment risk and giving members of the company the benefit of the results of the management of its funds". This provides the basis for the classification of companies as investment funds by the authorities.

The procedure for setting up an investment fund in Mauritius is a two-stage process. Firstly, an application for a letter of intent must be submitted to the Mauritius Offshore Business Activities Authority (MOBAA). This consists of submitting a structure paper. The latter sets out the objectives and strategies, structure, investment restrictions and policies and the functionaries of the company. The second step is to apply for incorporation and an offshore certificate. This will require the submission of the various constitutive documents namely the memorandum and articles of association, and agreements between the company and the other parties. The documents submitted to MOBAA will have to be reviewed by a Mauritian legal adviser who will issue a legal certificate. Once the Offshore Certificate is issued the company is operational. The investment fund can then apply for a Tax Residence Certificate, which is important in order to use the double taxation treaties. This is done after the first board meeting of the company, once it has been resolved that all the steps have been taken for the company to be managed and controlled in Mauritius.

CONTINUING REQUIREMENTS

After the investment fund has been set up there are various continuing requirements, which it must abide to by virtue of the legislation that governs it. They are broadly the calculation of Net Asset Value (NAV), the filing of audited accounts annually, holding of an annual general meeting and board meeting, filing of returns with the authorities, maintaining a member's register, maintaining its banking transactions through a bank account in Mauritius, maintaining its accounting records and reporting on a quarterly basis on the operation of the investment scheme to the MOBA Authority.

Full investment fund administration services are now provided in Mauritius, including the calculation of NAV from source documents. This is made possible with the availability of integrated fund accounting software among service providers.

TAXATION

Investment funds are taxed on their worldwide income. Those companies incorporated before July 1 1998 can elect to pay tax at a rate ranging from 0% to 35%. They can also elect by irrevocable notice in writing given simultaneously to MOBAA and the commissioner of income tax to be taxed at 15%. Those incorporated on or after the July 1 1998 will be taxed at a flat rate of 15%. However, by application of the Income Tax (Foreign Tax Credit) Regulations, it is possible to reduce the tax liability to an effective rate of 1.5%. If the investment fund is treated as a resident of Mauritius, additional advantage may be obtained by a reduced rate of withholding tax on dividends and the avoidance of capital gains tax.

FUTURE DEVELOPMENTS

There is currently no separate legislation governing investment funds in Mauritius. A Collective Investment Schemes legislation is being envisaged in order to consolidate the framework within which offshore funds will operate. A draft bill envisages four categories of schemes for approval. Firstly, fully authorized schemes registered in Mauritius and designed as retail funds to be offered to the public. Secondly, recognized schemes, which are to be distributed in or through Mauritius. Thirdly a professional schemes fund appealing to professional and institutional investors and high net-worth individuals with net assets in excess of $2 million. Lastly, permitted schemes essentially in the nature of venture capital funds, private schemes etc. A set of core requirements will be put in place to govern the collective investment schemes. It is expected these will contain the general provisions, which broadly cover areas such as:

  • creation, cancellation and redemption of units/shares;
  • valuation, pricing and dealing of units/shares;
  • disclosure requirements, restrictions and fees; and
  • charges.

It is also envisaged that there will be new legislation to create enabling structures, such as the English-style limited partnership and the protected cell company specially to facilitate the operations of umbrella fund vehicles reducing the risk of intra-cell liability contagion.

CONCLUSION

Mauritius has achieved recognition as a reliable emerging investment funds jurisdiction over a relatively short period of time. However, being in such a competitive and dynamic industry, one should not rest on one's laurels. Legislation needs to be constantly reviewed and updated and quality of services must be kept to highest possible standards. When the new pieces of legislation are enacted Mauritius will have all the ingredients to consolidate its reputation and further grow as a well-recognized services centre for investment funds.


Contact Details:

Multiconsult

10 Frere Felix de Valois Street

Port Luis

Mauritius

Tel: 202 9500

Fax: 212 5265

Collendavelloo Chambers

10 Frere Felix de Valois Street

Port Luis

Mauritius

Tel: 208 5164

Fax: 211 7401