Into Africa

After signing tax treaties with China, the United Arab Emirates and a number of African countries, Mauritius is fast emerging as the ideal investment platform. By Anthony Whaley, Nicolas Richard and Sameer Tegally

Into Africa Since the launch of its global business sector 15 years ago, Mauritius has become the destination of choice for structuring investments in emerging markets.

The entities that can be set up in Mauritius include category one and two global business companies (GBCs). A GBC2, which is ideally suited for asset or investment ­holding, is similar in various aspects to the British Virgin Islands international ­business company or the Bermuda or Cayman Islands exempted company.

A GBC2 is not subject to any tax in ­Mauritius but, unlike the GBC1, it cannot benefit from the numerous Mauritian tax treaties. A GBC1 is resident in Mauritius for tax purposes and is liable to taxes at a rate of 15 per cent. However, such companies benefit from a foreign tax credit which results in an effective tax rate of only 3 per cent. Underlying foreign tax credits may also be available. Investment funds and other entities engaging in certain financial business activities must be set up as GBC1s.

Comparative advantages

Mauritius combines the traditional advantages of an offshore jurisdiction – no capital gains tax, no withholding tax, no capital duty on issued capital, confidentiality and free repatriation of profits and capital – with other comparative advantages.

Unlike most offshore centres, Mauritius is a treaty-based jurisdiction. In addition to the famous India-Mauritius treaty, the country has entered into advantageous treaties with fast-developing countries such as China, the United Arab Emirates and several African countries including South Africa and Uganda.

The Mauritius tax treaties provide for capital gains to be taxed in the country of residence of the seller of the assets. Because Mauritius does not impose tax on capital gains derived by a Mauritius GBC1 or levy any withholding tax on any gains, dividends or interest derived by an investor from the investment entity, entities that are tax resident in Mauritius will not be subject to any capital gains tax.

This is a ­definite advantage compared with the ­traditional offshore jurisdictions that cannot mitigate any tax implications in the ultimate country of investments. Moreover, most tax treaties provide for reduced withholding taxes in respect of dividends, interests and royalties.

These factors have contributed to the positioning of Mauritius as a world-class international financial centre. Mauritius is now well-known for being the world’s largest investor into India due to the unique incentives provided by the tax treaty and also due to other factors such as the close cultural links with India as more than 60 per cent of the population is of Indian origin.

New opportunities

Projects in the energy and information and communication technologies sectors, offshore debt funds and investment in real estate are the principal investments made in India from Mauritius. Outbound investment from India is being liberalised and offers new opportunities for the use of ­Mauritius, notably for investment in African countries.

Following the implementation by China of the Unified Corporate Income Tax Law, which became effective on 1 January 2008, investment into China through a treaty-based country like Mauritius will be the preferred approach due to, among other things, the Corporate Income Tax Law eliminating the exemption on ­dividend withholding taxes.

Major US and European institutional investors and fund managers have ­regularly been using Mauritius to structure their investments in emerging markets. According to the latest figures, the number of funds set up in Mauritius reached 597 in August compared with 491 back in January, ­confirming a significant growth.

Recent trends have shown that several private equity/venture capital funds, rather than portfolio funds, are being set up. The funds are being structured as one-tier or protected cell companies. Other frequently used structures include master-feeder ­structures, side-by-side feeders with master funds in Mauritius, main funds, and ­parallel funds with underlying special purpose ­vehicles.

Future prospects

In addition to investment in Asia, investors are increasingly looking at Mauritius for investment destined for South America and Africa. The potential for highly profitable foreign investment in Africa is huge and Mauritius has a vital role to play since the country has concluded tax treaties in a ­number of African states.

For investors wary about investing in Africa, Mauritius can point to the various investment promotion and protection agreements (IPPAs) that it has signed with African countries. These IPPAs provide for free repatriation of investment capital and returns, guarantee against expropriation, include a most-favoured nation rule with respect to treatment of investment, and ­provide for compensation for losses in case of armed conflict.
The maturity and innovative legal framework together with a long-lasting political stability makes Mauritius the perfect place to hold investments destined for Asian and African countries.

Anthony Whaley is a partner and Nicolas Richard and Sameer Tegally are ­consultants at Conyers Dill & Pearman