In order to better attract the listing of investment funds, the Stock Exchange of Mauritius Ltd has developed a new highly transparent and user-friendly specific investment funds listing regime. This is essentially meant for investment funds seeking investment opportunities in Africa and Asia.
A number of alterations have been made to the listing rules to attract specific investment funds who wish to benefit from investment opportunities in Africa and Asia. The new listing rules are considered to be more transparent and user-friendly. The SEM ensures a speedy processing of applications, within two weeks once the application is complete.
In October 2010, the Global Board of Trade (GBOT) was launched in Mauritius. This is an international multi-asset class international derivatives exchange. GBOT trades mainly in currency and commodity futures and is innovating by trading in two African currencies namely the Mauritian Rupee and the South African Rand. It plans to expand to include other currencies later.
GBOT operates as an electronic exchange, which allows buyers and sellers from various parts of the world to place their orders anonymously. Trading in futures enables risk mitigation and safeguards the investor from fluctuations in both the prices of commodities and currency fluctuations. GBOT has served to reinforce the country’s stance as an international finance centre in the African region. It has been set up to simultaneously allow global investors to connect to Africa and Africa to connect to the global markets. GBOT operates within internationally acclaimed and accepted rules and regulations. Thomson Reuters and GBOT have recently entered into an agreement whereby Thomson Reuters will carry the data from GBOT in real-time. Hence users of Thomson Reuters will be able to view the bid and ask prices, volumes, latest trades and related information and news on the commodities and currencies.
The Financial Services Commission
The Financial Services Commission (FSC) is the regulator of the non-banking financial activities in Mauritius. It was awarded the ‘Most Innovative Capital Market Regulator of the Year Award’ in 2010 by Africa Investor at a summit organised by Africa Investor in collaboration with New York Stock Exchange (NYSE) Euronext.
The criteria considered for the award were the basis of commitment to increasing transparency and efficiency, support for innovative technologies, employment of best regulatory practice, openness to foreign investors and investor protection, participation in industry associations such as IOSCO and efforts to create an enabling environment for the capital markets industry. The summit was organized with the hope of promoting investment opportunities in Africa mainly for fund managers and US pension funds. The FSC anticipates American fund managers to structure investments in Africa through the Mauritius International Financial Centre.
The Global Business Sector
The Companies Act 2001 applies to all companies incorporations. Any non-resident wishing to set up a company under the laws of Mauritius, but not active within the Island’s territory, will incorporate a Global Business Company. It will either hold a licence category 1 (GBL1) or 2 (GBL2).
A GBL1 can act as a holding company or in financial activities (insurance, asset management…) or be incorporated as an investment fund. It can benefit from the double taxation agreements (DTA) network Mauritius has established. Today, there are 34 such DTAs in force. GBL1 are used frequently as investment vehicles or to receive royalties from countries such as India, China, Luxembourg or South Africa, countries with which Mauritius has what is seen as very attractive DTAs.
GBL1 are taxed on their corporate income at the flat rate of 15 per cent. Mauritius tax law allows an underlying foreign tax credit up to the amount due in Mauritius; the effective tax rate varies therefore between 0 per cent and 3 per cent. There is no capital gains tax nor withholding tax on dividends and interest paid to non-residents.
While GBL1 benefit from a very attractive tax regime, GBL2 are not subject to any taxation. GBL2 are ideally suited for example for trading purposes, international contracts or holding of assets. It is equivalent to the IBC type company. The procedure to incorporate is carried out quickly. The subsequent administration is simple with few statutory and filing requirements.
However, the FSC brought changes to the filing requirements of GBL2 in 2010. Henceforth, management companies will be required to provide details to the FSC on the identity of the beneficial owner before incorporation, an outline of the business objective (already in force before) and annual financial summaries.
To those clients who would find these new requirements too burdensome or costly, other jurisdictions, such as the Seychelles, can still be proposed. These do not require such communication of information.
Although these measures increase the cost of such GBL2, by the need to hold accounts, there is a great advantage to these new rules. By now making these GBL2 fully transparent, these zero tax GBL2 should be acceptable to countries which routinely put all ‘offshore’ companies onto their own national blacklists. GBL2 should no longer be on such blacklists. This would then allow the beneficial owner to operate in full legality a company with limited liability and with a zero corporate tax rate.
E*Trade Mauritius: capital gains exempt from tax in India
E* Trade Mauritius Ltd (E*Trade), a Mauritius company, sold its shareholding in IL&FS Investmart Ltd (IL&FS), an Indian company, to HSBC Violet Investments (Mauritius) Ltd (HVI), a second Mauritius company. E*Trade then made an application to the Indian Tax Authorities to allow HVI to pay out the full amount of the acquisition of said shares to it, by pointing out that according to the double taxation agreement (DTA) between Mauritius and India, it was not liable to capital gains taxes on the sale of these shares. The Tax Authorities refused.
E*Trade subsequently filed a writ petition in the Bombay High Court against the tax authorities. The Court instructed E*Trade to file a revised application to the Director of Income Tax (International Tax) (DIT). DIT confirmed the position taken by the tax authorities. The Bombay High Court then instructed HVI to withhold taxes and pay the Government.
E*Trade then turned to the Authority for Advance Ruling (AAR). In its ruling pursuant to the request, the AAR recently upheld that under Article 13(4) of the DTA, capital gains are not liable to tax in the hands of E*Trade.
The AAR also made strong reference to the Azadi Bachao Andolan case, where the Indian Supreme Court had confirmed that Tax treaty shopping was not against the law, and that it was even very understandable that taxpayers would try to lower their taxes, as long as it was done within the scope of the law.
This serves as a reiteration of the permanency of the tax benefits existing under the DTA in Mauritius.
International opening and residency
Fundamentally, successive governments in Mauritius have successfully transformed the economy from a rather agricultural one into a service oriented one. The Global Business Sector is contributing significantly to the GDP. So is the Business Process Outsourcing (BPO), which has created over 10,000 workplaces in just a few years. Mauritius has truly opened itself to the international world. The services industries represent today 72 per cent of GDP.
In turn, these new industries favour the return of many educated Mauritians from abroad and the influx of expatriates. Indeed, those Mauritians who were educated abroad and stayed there to work in better jobs can now find similar jobs in Mauritius. Likewise, the expansion in foreign investment brings with it the arrival on the island of many expatriates. These two factors, combined with the passage of many tourists each year, bring about a very cosmopolitan and international way of life in Mauritius.
Governments have favoured this opening to expatriates by making it increasingly easier to obtain and renew work permits in Mauritius. The accession to property by foreigners has also been eased considerably. While until recently, no foreigner could purchase any real estate in Mauritius (unless by special consent of the Prime Minister), this has now been changed. After three years residency, any foreigner has the right to purchase residential property anywhere in Mauritius. Commercial property can be purchased on the day of the investment in any business.
Through the Integrated Resort Scheme (IRS), launched in 2002, it is possible to any foreign individual without prior residency or to any domestic company to buy freehold homes in dedicated resort-type residential developments, generally providing catering and hotel services, a golf course and several other amenities. Several projects are currently on the market; the minimum investment must be US$500,000. A purchase of a house in such a project allows the foreigner and his / her close relatives to become resident in Mauritius, benefiting from a highly pleasant lifestyle and a very attractive tax environment, where only locally earned or remitted income is taxed at the single rate of 15 per cent. There are no gift or estate taxes.
And then there are those beaches....
Dr Ludovic C. Verbist
PhD, LLM, TEP, Managing Director