Undoubtedly, the pole of attraction for investments in the coming decade will be the African continent. With African countries taking unprecedented measures to modernise their economies and maintain political stability, investors are seeing numerous opportunities arise in various sectors like minerals and energy, technology and telecommunications. The flow of foreign direct investments into the continent is expected to rise considerably and Mauritius, through its strategic positioning, is becoming the gateway to route funds into Africa.
Mauritius is considered to be the success story of the African continent with its favourable investment climate, political and social stability. It is also internationally recognised for its rule of law. Such factors make it a destination of choice for those wishing to invest in Africa by using the Mauritian financial sector as a cross border platform. The country provides investors with a number of tax incentives. It has no exchange controls and export-oriented operators enjoy duty-free privilege for their inputs and equipment. In the same vein, Mauritius has signed non-double taxation agreements (DTAs) with 43 countries so far. Four are awaiting ratification. Mauritius is signatory to Investment Promotion and Protection Agreements (IPPAs) with 42 countries. Around one third of the DTAs are with African countries, while around half of the IPPAs signed are with African states. This stance has been further amplified by the government’s resolute strategy to develop the country’s double taxation treaty network and to sign additional Investment Promotion and Protection Agreements.
Several Mauritian groups have for many years themselves invested in African countries, either on their own, or with local or non-African partners. These investments generally target sugar plantations, mines, fish breeding and the services industry.
Doing Business with Mauritius
Doing business in and from Mauritius is both easy and smooth and complies with best practices in terms of transparency, good governance and ethics. Mauritius ranked first in Africa in the World Bank ‘Ease of Doing Business Report’. Investment regulations are consistent with the WTO's Agreement on Trade Related Investment Measures (TRIMS) and the Government of Mauritius does not discriminate between local and foreign investors. Another attribute to the country is its highly disciplined and educated workforce, fluent in both English and French, which provides increased access to Francophone and Anglophone Africa. The legal system is also a combination of English and French law with the Judicial Committee of the Privy Council of UK as Court of last resort
Mauritius is indeed the most effective conduit to invest in Africa due to the DTAs in force. Investors wishing to invest in the African continent will seek to do so in a secure and tax efficient way. The best approach to achieving this is by making use of investment structures in reputable and internationally recognised jurisdictions.
Mauritius is white listed by the Organisation for Economic Co-operation and Development, the Financial Action Task Force and is compliant with the Foreign Account Tax Compliance Act. In addition, Mauritius has been ranked first by several organisations including for example, the World Bank Doing Business 2016, the Global Competitiveness Index 2015-2016, the Mo Ibrahim Index of African Governance 2015 and many more.
Regional African Cooperation Agreements
While endowed with a small, but increasingly affluent local population, Mauritius has secured preferential access to markets of several hundreds of millions of consumers, with the US under the Africa Growth and Opportunity Act (AGOA); with Eastern and Southern Africa, through the Common Market for Eastern and Southern Africa (COMESA), through the Southern African Development Community (SADC) and through its membership to African – Pacific – Carribean (ACP).
Under the AGOA, Mauritius has duty free access to the US Markets for over 7,000 products including apparel, footwear, wine, motor vehicles components and agricultural products. Mauritius along with the other twelve African member states of the COMESA is part of a Free Trade Area in which customs duties are eliminated. As a result, COMESA imports do not suffer any duties.
SADC consists of 15 other African states, which has the goal to further socio-economic cooperation and integration as well as political and security cooperation among its members. The foreign policy of SADC is that of coordination and cooperation, while a tighter coordination is in progress in the area of trade and economic policy, with a view to one day establishing a common market with common regulatory institutions. This ensures access to a credible number of markets.
The ACP group's main objectives are sustainable development and poverty reduction within its member states, as well as greater integration into the world's economy. In this stance, all of the members’ states except Cuba are signatories to the Cotonou Agreement with the European Union, which provides for trade related assistance.
The African continent is among the most rapidly growing economic regions. Real GDP is expected to rise to 4.5 per cent in 2015 and to 5 per cent in 2016. The mineral, energy, telecommunications, banking and retailing industries are flourishing. Construction is booming. Private-investment inflows are surging. Africa boasts an abundance of riches since it has reserves of oil, gold and metal. Hence, huge investments are being made in Africa and these are expected to grow further in the future.
Investing Through the Global Business Sector
The Global Business sector of Mauritius offers investors an ideal platform of routing investments into Africa in a tax efficient manner. Currently, DTAs signed with African countries include Botswana, Congo, Egypt, Lesotho, Madagascar, Mozambique, Namibia, Rwanda, Sengal, Seychelles, South Africa, Swaziland, Tunisia, Uganda, Zambia and Zimbabwe.
Category One Global Business Companies (GBL1) and Category Two Global Business Companies (GBL2) are two structures that can be set in the Global Business sector. GBL1 can qualify as a tax resident in Mauritius and thus benefit from the tax treaty network Mauritius has established. It is therefore ideally suited, for example, for all investments to third countries, with whom Mauritius has signed a DTA, and which are likely to generate a flow of income in future years, be it as dividends, interest, royalties or capital gains. As such, GBL1 are used frequently as investment vehicles, particularly into African states with which Mauritius has favourable DTA.
GBL1 are taxed at the flat rate of 15 per cent. Mauritian law allows an underlying foreign tax credit, equal to the amount of foreign taxes paid, up to the amount of tax due in Mauritius. In the absence of proof, the amount of foreign tax paid is presumed to be 80 per cent of the Mauritius tax. The effective tax rate will thus be between zero per cent and three per cent. There is no capital gains tax, nor withholding tax on dividends and interest paid to non-residents.
GBL1 can also be structured as investment funds. Mauritius is home to some 800 such funds today, investing mainly in India, but increasingly in Africa.
GBL2 are ideally suited for trading purposes, invoicing, international contracts or holding of assets. GBL2 are not subject to any tax. In addition, there is no withholding tax on dividends or interest paid to non-residents. GBL2s are incorporated within a short period of time, generally within five days and they involve relatively low incorporation and operational costs. GBL2s also provide total business confidentiality.
The Limited Partnerships Act 2011 was enacted on 11 November 2011. It provides for the registration of limited partnerships with the Registrar of Companies and all matters regarding their governance. Limited partnerships will be structured to consist of general and limited partners.
The limited partnership may opt to have a legal personality or a non-legal personality, whereby the general partners will be held liable. The limited partnership which elects to have a legal personality must file a declaration with the Registrar of Companies.
The limited partner will not be entitled to participate in the conduct or management of the limited partnership. The general partner will be the one to possess the general authority to conduct the business and affairs of the limited partnership.
Investment Promotion and Protection Agreements
Besides its increasing network of DTAs, Mauritius has also signed Investment Promotion and Protection Agreements (IPPAs). It has signed IPPAs with several African countries, namely Benin, Burundi, Cameroon, Comoros, Gabon Ghana, Guinea Republic, Kenya, Madagascar, Mauritania, Mozambique, Republic of Congo, Rwanda Senegal South Africa, Swaziland, Chad, Tanzania, Zambia, Zimbabwe. These IPPAs provide additional comfort to investors since they significantly reduce investment risks in those countries where there may exist some risk of nationalisation or expropriation.
The IPPA normally guarantees the following to the investors from the contracting states: free repatriation of investment capital and returns; guarantee against expropriation; most favoured nation rule with respect to treatment of investment, compensation for losses in case of war or armed conflict or riot; and arrangement for settlement of disputes between investors and the contracting states.
The IPPAs signed are designed to protect and encourage Mauritian investments overseas and they actually contain clauses stating that the investments shall enjoy continuous protection and security. This is very beneficial since a lot African countries have suffered from political instability, though otherwise they may represent excellent investment opportunities due to a number of inherent factors.
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).