Mauritius: the Global Business Sector

The Institutional Environment

Thanks to skilful planning and economic diplomacy by the authorities, Mauritius has never been on any international blacklist. Over the past ten years, Mauritius has put in place various bodies to regulate the financial sector in its various aspects.

The Financial Services Commission (FSC) was set up in 2001. Its role is to licence and regulate the non-banking financial services sector. The non-banking financial sector includes institutions involved in insurance and pensions, capital market operations, leasing and credit finance, as well as global business activities.

The banks are supervised by the Central Bank, the Bank of Mauritius (BOM). The main purposes of the BOM are to safeguard the internal and external value of the currency of Mauritius and its internal convertibility, and to direct its policy towards achieving monetary conditions conducive to strengthening the economic activity and prosperity of Mauritius. The BOM has been set up as the authority which is responsible for the formulation and execution of monetary policy consistent with stable price conditions.

The Financial Intelligence Unit (FIU) was set up in August 2002. Its role is to monitor all financial transactions in Mauritius and to report any money laundering offences and activities, or transactions related to terrorism to the Independent Commission Against Corruption (ICAC). ICAC was also set up in June 2002, with powers to investigate corruption offences and any matter that may involve the laundering of money or suspicious transactions.

The laws in Mauritius have been updated to assist a novel approach towards regulation – through the use of organisations or associations comprising of industry professionals which assist the FSC in supervising and regulating the activities of licensees. These organisations shall be known as Self-Regulatory Organisations (SROs) and will be subject to detailed control by the FSC, including over their articles of association and shareholding, and their internal and industry rules. At the time of writing this article (October 2009), there is every indication that the FSC will issue new regulations before year end to enhance its processes for securing proper and adequate information on those who do business in Mauritius.

Briefly, to refresh the reader’s memory, any non-resident (corporate or individual) wishing to develop business outside Mauritius through Mauritian entities, falls into what is known as the Global Business Sector. If they wish to develop a regulated activity, as listed under the law (insurance, asset management, brokerage, etc.) and/or avail themselves of using DTAs, they will incorporate a Category 1 Global Business Company (GBL1). This is a resident company subject to 15 per cent corporate tax before available tax credits. Any other activity can be carried out through a Category 2 Global Business Company (GBL2), which is non-taxable.

While the FSC already collects all necessary information on beneficial owners and the activities of GBL1, it will expand this information gathering to GBL2. The FSC will henceforth collect data relating to beneficial owners, a business plan and filing of financial summaries for GBL2. These new requirements will help make the GBL2 more transparent and will allow financial intermediaries to be fully aware of their activities at all times.

It should, therefore, make these zero tax GBL2s more acceptable to countries which routinely put all ‘offshore’ companies onto their own national blacklists. To those clients who would find these new requirements too burdensome or costly by imposing to file financial summaries, other jurisdictions, such as the Seychelles, can still be proposed, which do not require communication of information to the authorities, nor keeping accounts of the IBC, nor filing of financial statements.

Finally, it must be noted that the Judicial Committee of the Privy Council of the House of Lords is the court of final appeal for all Mauritian cases. This allows for great legal certainty and coherence of jurisprudence in line with United Kingdom precedents. It is a good check, and insures that the judiciary applies the law as well as possible by maintaining the permanent threat of a revision by the Privy Council.

This is very important and too little attention is generally given to this by investors. As an example, Singapore, which split from Malaysia in 1965, also allowed appeals to the Privy Council. But when, in 1988, the Privy Council overturned a decision by the Singapore Courts against Mr Jeyaretnam, a member of the opposition, the Government of Singapore abolished the right of appeal to the Privy Council for its residents.

The Legislative Environment

Considerable efforts have been made to improve the legislative framework in the non-banking financial services sector in Mauritius by introducing amendments and new pieces of legislation.

The Financial Services Act was adopted with the aim of consolidating the whole licensing framework for the non-banking financial services and revisiting and updating the conceptual approach to global business. This Act clearly defines the activities of the FSC, whose functions are consequently broadened to guarantee the independence of the FSC as a regulator with a broad supervisory mandate.

In the insurance industry, recent amendments in the Insurance Act have removed certain administrative obligations on branches of foreign insurers operating in Mauritius, and provide for greater flexibility for the licensing of insurers.

The Securities Act was also amended to extend the scope of securities and exchanges, thus enabling the FSC to approve the trading of an expanded range of instruments, license commodities and other exchanges. These now include treasury bills, options, futures and derivatives. Moreover, the delay under which Collective Investment Schemes must comply with the requirements of the Securities Act has been shortened from five years to only three.

With the current global crisis challenging conventional banking and financial products, there is an increasing interest in Islamic products complying with the principles of Shari’a law. Mauritius wants to position itself as a jurisdiction of choice for world-class Islamic financial services by offering a combination of both fiscal and non-fiscal benefits. In this context, Mauritius has already amended its legislation and issued the necessary guidelines to facilitate the implementation of Islamic banking and Shari’a-compliant products.

The Business Environment

The good reputation of Mauritius, to a large extent the consequence of a strictly regulated environment, has enabled strong growth in the global financial services sector, formally launched in 1989. It should be noted that there has been a reduction in the number of new incorporations in the global business sector so far this year, likely due to the global financial and economic crisis.

As per statistics made available by the FSC, as of June 2009 there were 32,895 global business companies registered and in good standing in Mauritius, out of which 9,883 GBL1 (including 619 investment funds) and 23,012 GBL2. The figures from the Mauritius Chamber of Commerce and Industry put the total net asset value of all Mauritius registered investment funds at close to USD50 billion. Most of these funds are invested in India.

On a macroeconomic level, Mauritius has been doing very well in light of the world crisis. The country ranked 17 of the 183 economies covered by the report “Doing Business 2010: Reforming through Difficult Times”. It is the top sub-Saharan economy for the second year in a row in terms of the overall regulatory ease of doing business. It adopted a new insolvency law, established a specialised commercial division within the court, eased property transfers and expedited trade processes.

The Mauritius Stock Exchange indicators are up more than 40 per cent since the beginning of the year, with foreign investors being increasingly active. Banks, sugar cane and hotel operators, as well as public work contractors, are among the most traded shares.

The Integrated Resort Scheme, launched in 2002, opened the property market for the first time to international investors. It allows foreign individuals or companies to buy freehold homes in dedicated resort-style residential developments, generally providing hotel service and a golf course. Several projects are currently on the market. A purchase of a house in such a project allows the foreigner and their close relatives to become resident in Mauritius, benefiting from a very pleasant lifestyle and a highly attractive tax environment, where only locally-earned or -remitted income is taxed and where there are no gift or estate taxes.

Finally, parliamentary elections are due to be held by June 2010 at the latest. Whether the incumbent government retains power or the opposition usurps them, it is widely anticipated that the next government will pursue the pro-development economic policies adhered to by the various governments of the past years.

Conclusion

Mauritius has taken, and will continue to take, all necessary steps to remain on any ‘white list’. In the words of Hon. Rama Sithanen, Vice Prime Minister and Minister of Finance, Mauritius has “graduated to the ‘white list’ of clean, transparent, cooperative and compliant jurisdictions”. This means anyone wishing to deal with Mauritius can do so in a fully compliant environment, one which will facilitate any transaction worldwide.

The International Environment

The year 2009 will certainly go down as one which will have fundamentally changed the approach to offshore financial services centres, known as ‘Global Business Sectors’ in Mauritius. But the trend toward change here started in the late 1990s.

Over the past decade, several international organisations or groups of countries have pursued efforts to obtain transaction information from banking and non-banking financial intermediaries on their clients’ behalf. Initially, it was claimed, this was to combat money laundering. Soon after ‘9/11’, though, this goal was expanded to include tax evasion generally, to enable governments to tax their residents’ income and wealth more effectively.

The Organisation for Economic Cooperation and Development (OECD) published its first blacklist, named “Harmful Tax Practices”, on 20 June 2000, which targeted 35 countries listed as ‘tax havens’. This was then followed by similar actions by the Financial Action Task Force (FATF), the Financial Stability Forum (FSF), the Basel Committee’s Paper on Customer Due Diligence (which has been subsequently endorsed by the FATF), IOSCO’s Principles on Client Identification and Beneficial Ownership for the Securities Industry, and IAIS’ Anti-Money Laundering Guidance Notes for Insurance Supervisors and Insurance Entities. To this (non-exhaustive) list must be added the United States Qualified Intermediary Rules and the European Union Directive on Taxation of Savings, which is currently undergoing its first revision.

I was invited in September 2000 by the Government of the Seychelles to address a conference on “The Future of the Offshore Centres”. My recommendation then was already ‘bend or die’, meaning that if countries would not go along with the recommendations of international bodies, they would simply disappear as financial centres.

This is certainly still true today, when one notices that countries such as Switzerland (far from being a small exotic island) were put on the wrong side of the most recent list published by the OECD (Spring 2009). It subsequently scrambled to get at least twelve revised or new double taxation agreements (DTAs) or tax information exchange agreements (TIEAs) in place before October 2009 in order to be included on the white list. Regrettably, Mauritius, which has a network of 34 DTAs in force, was not to be included among Switzerland’s new treaty partner countries.

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).