Ludovic Verbist details the advantages to be gained through the use of private trust companies.
The Private Trust Company (PTC) is an efficient vehicle in many ways for wealthy families and high net worth individuals who wish to preserve and pass on wealth, assets, and business skills to future generations. It is a legal entity whose activity is restricted to that of trustee of a limited number of trusts, either for a single family, for different branches of a family, or for distinct (but related) family groups.
It offers various advantages over traditional trust structures, and even more so if set up under the laws of the Republic of Mauritius. In this article, we shall discuss the salient features of a PTC, the comparative advantages of setting up a PTC in Mauritius, how to establish and administer a PTC, and we shall end with a short note on investment funds in Mauritius.
The Salient Features of a PTC Quickness in Decision-Making
One of the major problems encountered with traditional trust structures is that, more often than not, professional trustees are entrusted with the responsibility of managing businesses in which they do not have the required expertise.
Their adopted approach has always been a prudent one, especially in light of the increasing number of court actions for breach of trust by unsatisfied beneficiaries.
The decision-making process is thus slowed down when trustees seek professional advice (not to mention the additional costs involved) and indemnity from beneficiaries before taking any investment decision. The PTC will have a board of directors (hereinafter “the Board”) to centralise and facilitate such decision-making by possibly having the settlor sit thereon, together with close advisers and family members who have acquired knowledge of the business.
This will result in closer supervision of the activities of the underlying trusts, quicker decision-making, and enhanced protection for beneficiaries.
The possibilities of deadlock at the level of the Board can also be minimised through skilful drafting of the constitution of the PTC.
Participation of the Settlor
By being appointed to the Board, the settlor can safely participate in the management of the underlying business without raising any ‘sham’ issue for the underlying trusts (provided he is not also the shareholder of the PTC). As a director of the PTC, he will not have any direct fiduciary duty towards the beneficiaries of the underlying trusts.
The Board can appoint junior family members and pass on working knowledge of the business to those whom it believes will be most suitable to run the business after the death of the settlor and/or of the other influential family members. This additionally gives those junior members the opportunity to become acquainted with the business and to demonstrate their aptitude to run it. The constitution of the PTC can be drafted to provide maximum flexibility in the appointment and removal of the directors of the PTC, in order to ease such transitions.
Keeping Essential Knowledge within the Family Circle
A PTC also ‘comes in handy’ where working knowledge of the business of the family needs to be preserved within the walls of the Boardroom, and passed on only to hand-picked persons among the restricted circle of trusted advisers and family members. Thus, reliance upon third-party knowledge is minimised.
Additionally, the laws of the Republic of Mauritius ensure utmost confidentiality for PTCs. There is no requirement to register the trusts under the PTC, nor to make public any information about the PTC, nor its beneficial owners, directors, shareholders, or other officers. The composition of the Board will also remain in the private domain.
Comparative Advantages of Mauritius
The PTC in Mauritius is set up very easily, quickly, and with minimum disclosure, especially as a tax-exempt Global Business Licence Category 2 (GBL2) company. It can also be structured as a Global Business Licence Category 1 (GBL1) company, making it subject to an effective tax rate varying between 0 per cent and 3 per cent, with access to the 33 Double Taxation Agreements in force in Mauritius.
There are very few particular requirements applicable to PTCs in Mauritius, other than it should, at all times, maintain a minimum paid up capital of US$5,000, and that it cannot offer its services to the public, but to connected persons only.
When compared to PTCs set up in other already over-burdened and expensive International Financial Centres (IFCs), the PTC in Mauritius offers definite cost advantages, especially where the property to be vested under the different trusts is of considerable value. Firstly, it will cost less to have a PTC arrangement in Mauritius than to set up individual trusts managed by professional trustees. Also, the setting up and administration costs of a PTC in Mauritius (by a licensed management company) are cheaper, with Mauritius’ providing quality financial services at far lower rates than other renowned IFCs.
The other specific advantage of Mauritius as a jurisdiction is that there is less regulatory control or other constraints than in most other IFCs. For example, there is no need to have a licensed management company representative act as director of the PTC, and no need of a ‘qualified’ trustee licence for the PTC to operate as corporate trustee of the underlying trusts.
Establishing and Administering a PTC in Mauritius
As mentioned earlier, a PTC can only be established in Mauritius through a licensed management company. It will administer the PTC, and can also provide directors, nominee shareholders, and other officers, upon request.
While other IFCs have long been the instinctive choice for the setting up of offshore investment funds, reputed institutional investors and fund managers worldwide are now turning to Mauritius, mostly for investment in Asia, Africa, and Europe.
This is because Mauritius is comparatively cheaper, has the appropriate legal framework, has a pool of highly-qualified personnel, and is headed by a forward-looking and probusiness government. Also, there are no exchange controls, no capital gains, free repatriation of profits and capital, no withholding taxes, and confidentiality is ensured.
There are presently around 460 investment funds licensed by the Financial Services Commission in Mauritius with a net asset value in excess of US$36 billion.
New amendments have been recently made to the Securities Act, 2005, to adopt a modern and innovative approach to this industry, while enhancing its regulatory standards in line with international best practices such as those of the International Organisation of Securities Commission (IOSCO).
Dr Ludovic C. Verbist
PhD, LLM, TEP, Managing Director of AAMIL (Mauritius) Ltd. Ludovic has contributed to a number of articles and interviews, including: Prudence et Préservation du Capital - Business Magazine (October 2017); Guaranteed Real Estate Investment – Cap Sur Maurice Magazine (October 2018); Luxury Property Market in Mauritius – Cap Sur Maurice Magazine (October 2019); Vendre Maurice comme une destination refuge – Le Mauricien Newspaper (May 2020); Jouer à fond la carte africaine dans l’ère post-Covid-19 – Business Magazine (May 2020); Global Business « Désamorcer la Bombe » - Business Magazine (June 2020); Liste Noire – La bataille se jouera sur le terrain diplomatique - Business Magazine (July 2020); Interview – « Parlons économie » - Radio Lac (October 2020); «Maurice face à la menace d’un maintien prolongé sur la liste noire » - Business Magazine (February 2021).