The use of offshore structures as an alternative means of achieving the multiple goals of investment appreciation, asset protection and tax planning is already well known among international businesses. The selection of an appropriate offshore domicile for companies will often hold the key to successfully accomplishing such goals and Mauritius has consistently made clear that it remains committed to developing and maintaining conditions that are conducive to attracting international business.
Indeed, Mauritius has been fortunate in playing host to a growing number of significant investments in India, China, and Africa — through the so-called qualified global business licence companies.
Many of the companies have been formed by large institutional players, attracted by Mauritius’ well-established reputation as a centre of excellence and innovation and as an outstanding international financial centre.
Corporate entities in Mauritius
A corporate entity qualified to carry on business activities from Mauritius is known as a ‘qualified global business’. This is defined under the Financial Services Development Act 2001 (FSD Act) as a corporation holding either a Category One Global Business Licence (GBL1) — which is qualified to take protection of the double tax agreements to which Mauritius is a party, if the corporation comes within the definition of a resident under the taxation laws of Mauritius — or a Category Two Global Business Licence (GBL2), which is exempt from the provisions of the Income Tax Act and is declared as a non-resident of Mauritius for tax purposes.
These companies must carry on certain business activities, which are defined under the FSD Act and which are conducted in foreign currency, from within Mauritius with persons who have no access to the international tax arrangements and all of whom are resident outside Mauritius.
The GBL2 provides greater flexibility for holding and managing private assets. However, these companies are prohibited from raising capital from the public or from conducting any financial services, such as trustee services.
Robust anti-money laundering legislation
In keeping with its longstanding commitment to ‘keep out the unscrupulous’, Mauritius enacted sweeping anti-money laundering legislation in 2003. The Financial Intelligence & Anti-Money Laundering Act 2003 complies with the recommendations of the Financial Action Task Force established by the G7 countries in 1989.
Mauritius has embraced the passage of this Act and its subsequent codes issued by the Mauritius Financial Services Commission (FSC).
According to the FSC: “These codes aim to preserve high standards of practice and the integrity of Mauritius as a reputable financial services centre… and the minimum criteria to be followed by companies and market intermediaries to prevent the exploitation of the financial services industry in Mauritius.”
Compliance has not proved difficult for most client companies, as Mauritius has always had a deep-seated ‘know your client’ culture. The Act applies to all Mauritius companies and it is important for all Mauritius-incorporated entities to establish and observe appropriately high standards of client identification and verification, record-keeping, internal reporting and employee training.
In this regard, many large bluechip institutional companies have welcomed the opportunity to be (and to be seen to be) subject to such standards of business conduct, which clearly accord with their own high operating standards in the international marketplace and underline the high standard being applied in Mauritius.
Responsible asset protection law
Mauritius has always been a unique bilingual platform for trade and business. Its legal system is a fusion of French and English sources and combines civil and common law practices.
It is an independent sovereign nation and a republic, yet still remains a member of the Commonwealth with right of appeal to the Privy Council preserved.
Mauritius has never sought to be a leading contender among offshore jurisdictions in the area of asset protection. Asset protection can mean many things — for example, protection from exchange controls, taxation or expropriation — but the term is more commonly used in legal circles to mean protection from creditors.
It is possible to achieve such protection by transferring assets to a trust, or to a GBL1 or GBL2 company owned by a trust established in Mauritius, for structured finance debt transactions such as securitisations on collateralised debt obligations or collateralised bond obligations.
By contrast with the legislation of certain other common law jurisdictions, which have restricted the rights of creditors, Mauritius has taken a more business-friendly approach, attempting to establish a reasonable balance between the interests of the business and those of its legitimate creditors. The legislation is viewed as fair and sensible in international circles and underscores the advantages of the selection of Mauritius as a jurisdiction for the increasingly sophisticated structures required for international transactions.
Why Mauritius?
The success of Mauritius is not only the result of the current regulatory environment and extensive tax treaty network; it can also be attributed to a variety of elements created by supportive government policy and extensive expertise that has been developing since 1992.
Mauritius also benefits from its ‘natural’ resources, including a large pool of well-educated, well-qualified labour and its geographic and time zone proximity to major emerging markets such as India, providing a low-cost jurisdiction compared with many European or other offshore centres. Mauritius has a long history of commercial credibility and political stability, based on a real economy that is becoming more developed and diversified. The combination of these positive attributes has produced impressive results.
Mauritius has developed into an ideal jurisdiction through which large manufacturing groups in Southeast Asia can raise finance on the institutional markets. It is now increasingly also used for debt and equity investment into China, while Mauritian special purpose vehicles are used to provide debt finance to Singapore.
South African companies use Mauritius predominantly as a centre for group treasury operations, trade finance, international holding companies and cell captive insurance services. India, which traditionally used Mauritius for inbound investment, now has a platform to coordinate outbound investment as Indian companies expand internationally.
Increasingly Mauritius is seen as the ideal vehicle for investing into the Far East, India and the African emerging markets due to its flexible and conducive regime for offshore business and the tax planning opportunities that are available.
Looking ahead
The Government of Mauritius intends to continue to streamline licensing procedures while ensuring that the appropriate regulatory and supervisory standards are maintained as part of the expansion of financial services in Mauritius. The goal is to develop Mauritius into the leading business and financial services centre in the region.
The cornerstone of this process will be the Financial Services Development (Amendment) Act 2005, which, once enacted, will grant the FSC a wider range of administrative sanctions and the power to institute criminal proceedings, subject to the director of public prosecutions’ consent, while at the same time creating a Financial Services Review Panel to provide an avenue to appeal FSC decisions.
The Securities Act 2005 will replace the existing Stock Exchange Act 1988, using the standards set by the International Organisation of Securities Commissions. This will establish a modern framework for the effective regulation and supervision of all aspects of the securities markets and its various participants, so as to provide a balance between protection of investors and the interests of markets.
This Act will also include the introduction of new Securities (Collective Investment Schemes) Regulations with specific focus on Mauritius’ global business fund industry.
Finally, the Insurance Act 2005 will repeal the existing Act, incorporating the International Association of Insurance Supervisors standards and principles to further refine specific regulatory issues relating to capital adequacy, solvency and corporate governance for the protection of policy holders.
Mauritius’ reputation rests on sound regulation. There is sufficient oversight to ensure probity and accountability, but the Government does not dictate how the business of Mauritian companies must be carried on, which is left entirely to their own management.
Mauritius has gained international recognition for the regulation of its offshore sector with a strong regulatory framework and due diligence practices. The advantages of this high-level infrastructure supported by sophisticated business and professional services, such as accounting and banking services and significant new developments in legal services, will make Mauritius a powerful focus for international transactions and structures with an Asian or African focus.
Malcolm Moller is managing partner of the Mauritius office of Appleby Hunter Bailhache.
