Ambitious Mauritius

Mauritius may be a newer offshore destination, but it can hold its own. By Keith Turberville

There is a feeling among UK advisers that we do not need any more offshore financial centres (OFCs), and that a relative newcomer such as Mauritius does not compare favourably with longer-established competitors such as those in the Caribbean and the Crown Dependencies.

However, there are some key features of Mauritius that suggest it can hold its own in the offshore finance arena.

Some are easily identified, such as the range of financial structures available, while others are more subtle – for example, the constructive working relationship that the Mauritius Financial Services Commission (MFSC) retains with the local financial community. In some OFCs, dissatisfaction is sometimes heard from the local financial communities that their regulators are “too hands-on” or “out of touch with commercial reality”.

An example of the MFSC’s constructive approach is the practical guidance it issued recently on the regulation of private trust companies. The guidance clarifies that, where a private trust company acts for a limited number of trusts for the benefit of a family or related family groups, rather than offering its services to the public in general, it will not be regarded as carrying on business in Mauritius. Provided that it satisfies various safeguards, it will not, therefore, be required to be licensed under the Financial Services Development Act 2001.

This approach strikes a reasonable balance between ensuring on the one hand that the level of regulation is not too heavy-handed and on the other that the MFSC is fully aware of the private trust company structures under local management and is in a position to exercise its regulatory powers.

This contrasts with the position in, for example, the Cayman Islands, where a private trust company requires a ‘restricted trust licence’ which entails a rigorous application procedure. New Zealand provides a good example of a jurisdiction that is at the other end of the spectrum: private trust companies in New Zealand are not subject to any kind of licensing procedure or local regulatory supervision.

Does Mauritius satisfy the essential requirements for an OFC?
A ‘sensible’ regulator is only one of the vital ingredients of a successful offshore financial centre. Others include the political stability of the jurisdiction, the availability and quality of local legal advice and how closely it compares with the English common
law principles, and the integrity of the courts. In all these areas, Mauritius can be regarded as passing the test. Specifically:

  • Mauritius is regarded as politically stable.
  • The legal system is hybrid. Various substantive laws, such as the Civil Code and Commercial Code, are codified, but the more modern corporate, banking and finance laws, such as the Companies Act 2001, derive from the English legal model. The Trusts Act 2001 provides a single regime for trusts and is based on the Trusts (Jersey) Law – therefore the principles should be familiar to private client practitioners in England.
  • The courts are well respected. Importantly for trust law matters, the Supreme Court also sits as a court of equity and the English equitable remedies are available. The Judicial Committee of the Privy Council still serves as the court of final appeal.
  • Within the legal profession, barristers (there are more than 220 admitted locally) specialise in advocacy and consultancy, and the majority have English or French legal training.
  • The finance industry is well developed, with more than 80 local management companies providing financial services. Within the industry there is a highly skilled workforce, many of whom are multilingual.
  • The Financial Intelligence and Anti-Money Laundering Act 2002 provides a robust anti-money laundering regime.
  • Mauritius domestic companies
    Companies may be incorporated with a Global Business Licence (GBL) or as domestic companies. The GBL category is further divided into companies holding a Category 1 Licence (GBL1) and those holding a Category 2 Licence (GBL2). A key feature of GBL1s is that they are resident in Mauritius for tax purposes and are liable to tax at 15 per cent, but with an automatic presumed foreign tax credit of 80 per cent, which reduces the effective rate to 3 per cent. GBL1s can take advantage of the extensive network of double taxation agreements. GBL2s, on the other hand, are wholly exempt from income tax in Mauritius, hence the reason for their exclusion from the scope of the double taxation agreements. As at July 2004, there were 23,792 GBL companies on the register.

    Mauritius domestic companies are generally subject to a 25 per cent tax. This may be helpful in avoiding the impact of the UK-controlled foreign company provisions, while at the same time the foreign tax credit mechanism in Mauritius means that a credit of up to 25 per cent may be claimed in respect of tax paid on foreign source income.

    Other distinctive legislation
    Mauritius offers incentives for inward investment. Its ‘permanent resident scheme’, for high-net-worth individuals, allows residency to be established without any statutory requirement for a number of days to be spent annually in Mauritius, provided that certain criteria are met, including a minimum of $500,000 (£280,500) deposited as inward investment.

    A further example is the Investment Promotion (Regional Headquarters Scheme) Regulations 2001. These present incentives to companies that are considering establishing a company in Mauritius to provide certain services to other related companies located in any member country of a regional organisation of which Mauritius is also a member, including the Southern African Development Community and the Indian Ocean Rim Association. These incentives include a 10-year tax holiday on foreign-sourced income of the Mauritius headquartered company, provided that at least 80 per cent of the income is derived from outside Mauritius.

    It can be seen that Mauritius is striving hard to avoid being labelled as ‘yet another OFC’. There are clear distinguishing features which in turn present clear opportunities for UK advisers and their clients.

    Keith Turberville is managing director of Investec Trust (Mauritius). He was assisted in this article by Richard Williams, a solicitor at Investec Trust (London)