In the last two decades, Mauritius has emerged as the international financial centre with a buccaneering spirit. As a small island developing state lost in the Indian Ocean, today, Mauritius is not only the ‘postcard perfect’ holiday destination but also a haven for investors who benefit from the ideal time zone, political and social stability, ultra-modern legislation and a plethora of expertise in wealth, as well as tax planning and management. With a series of treaties, Investment Promotion and Protection Agreements (IPPAs), and double-taxation agreements in place, Mauritius can proudly boast itself as a gateway for routing funds into Asia and Africa.
Ever since its independence in 1968, the country has successfully progressed from the sugar-based monoculture to a diversified economy that includes manufacturing, tourism, finance, and, if current plans bear their fruits, the high-tech sector will be called to contribute a significant part in the development of the country. Mauritius’s gross domestic product (GDP) has grown by more than 3.5 per cent annually over the last 30 years.
Some pundits averred that surely there must be some kind of tricks to boast what appeared to be bewildering figures. Mauritius has no exploitable natural resources but still managed to pave its way to economic bliss. The ‘Mauritian Miracle’ resides on essentially two factors. First, Mauritius embarked on policies that led to a higher level of social cohesion, welfare and economic growth while aiming at narrowing the level of inequality among its population. Home ownership is tuned above the 80 per cent mark, without fueling a housing bubble so far. Democratisation of the economy is spread in core sectors to provide free education, free transportation to school children and pensioners, as well as free health care. This distinction of merging social and economic equity is an example that curbing inequality is not just a matter of social justice but of economic performance.
Secondly, Mauritius recognised that its people are its only assets. The country’s human resources are highly acclaimed worldwide. The prevalent economic structure armed Mauritius to march on a new path of growth where the financial services sector had to play a crucial role in the island’s development. This financial service sector now represents more than 15 per cent of GDP. The scene for future growth is well greased.
New Legislative Amendments
The Finance (Miscellaneous Provisions) Act 2019 (FA 2019) provides for implementation of measures announced in the Budget Speech delivered on 10 June 2019. These new amendments further re-enforced Mauritius not just as a prime location for companies willing to harness the investment opportunities of existing markets, but also burgeoning African Markets.
A. Definition of Beneficial Owner or Ultimate Beneficial Owner
• Definition of ‘Beneficial Owner’ or ‘Ultimate Beneficial Owner’ under the Companies Act 2001 (CA 2001) updated as follows:
− Natural person on whose behalf a transaction or activity is being conducted in relation to a company; or natural person who ultimately owns or controls a company through: Direct or indirect ownership of shares in such percentage as may be prescribed;
− Voting rights;
− Ownership interest; or
− Control by other means.
• Where no natural person can be identified though the aforementioned criteria or there is doubt regarding the person identified as the beneficial owner, definition of natural person may be extended to include the natural person who:
− Controls the company in the manner a company controls another company as prescribed under the CA 2001; or
− Acts as executive directors or has equivalent executive powers.
B. Regulatory Changes
Definition of financial services extended to include:
− Fintech Service Provider;
− Robotic and Artificial Intelligence Enabled Advisory Services.
Real Estate Investment Trust (REIT)
- Introduction of REIT, defined as a collective investment scheme or a closed-end fund authorised as a REIT by the FSC;
- REIT not liable to income tax and CSR, subject to satisfying prescribed conditions;
- Beneficiaries or participants to the REIT shall be liable to income tax on their share of distribution made by the REIT;
- Exemption of the first MUR 50,000 of the amount receivable by an individual in an income year from a REIT.
C. Corporate Tax
Introduction of income tax exemption (Tax holidays)
− Eight-year exemption on income derived by a company from Intellectual Property (IP) assets developed in Mauritius on or after 10 June 2019;
− Eight-year exemption for new companies developing a marina, provided activity starts after 10 June 2019;
− Five-year exemption on income from operation of e-commerce platform derived by a company set up on or before 30 June 2025 and issued with e-commerce certificate by Economic Development Board (EDB);
− Five-year exemption on income derived from licensed operation of a Peer-to-Peer Lending platform provided operation starts before 31 December 2020.
The African Opportunities
Over and above the investment opportunities available in India and other emerging markets, African markets are also providing the untapped frontier. Demographic dividend, vast consumer base, and unused arable land anchorage outstanding potential for investment. Mauritius, as an international financial centre, is well positioned to provide the springboard into the African continent. Business-friendly environment with a simple tax system have contributed to the success of Mauritius as a preferred platform for investment into Africa.
Currently, the country has Double Taxation Avoidance Agreement (DTAAs) with 17 African countries. DTAA is a tax treaty/agreement between two or multiple countries, to prevent double taxation of income earned in both countries. The key objective of the DTAA is to ensure there is no tax evasion, exchange of information between two countries and to prevent double payment of tax. These agreements promote bilateral investments and promote more clarity and transparency.
Furthermore, with a view to protect investors’ interest, Mauritius has signed Investment Promotion and Protection Agreements (IPPAs) with 9 African states, including countries like Burundi, Republic of Congo or Senegal. Mauritius offers full protection of foreign investments in key African nations through its vast network of IPPAs. The IPPAs in place guarantee investment with respect to expropriation and untoward incidence in contracting countries. In addition, they provide for arrangements for settlement of disputes between investors and the contracting countries. Due to unpredictable characteristics of African countries, both politically and economically, it is useful to invest via Mauritius that has an IPPA with the relevant African country.
The suitability of Mauritius is further reinforced by its membership of nearly all the economic blocks in the African continent: the African Union (AU); the Southern African Development Community (SADC); the Common Market for Eastern and Southern Africa (COMESA); and the Indian Ocean Rim (IOR). Foreign investors using Mauritius as a gateway for African investments are also drawn to the fact that it has under its aegis a hybrid legal system. Mauritius boasts to be able to take advantage of both the French civil law and the British common law. The highest court of appeal is the Privy Council. The legal system in place offers additional layers of security and comfort.
In October 2019, AAMIL, in conjunction with AfricInvest (largest Private equity investor in Africa) and other partners, conducted a joint conference in Geneva, Switzerland in respect of fund structuring in Africa either through Mauritius or Luxembourg. Mauritius’ dynamic and established financial ecosystems, geographic location, cost advantage and embryonic treaties and IPPAs with African States provide key advantages for investors to use the country as an investment hub.
Accolade and Recognition
With a laudable track record, Mauritius has pushed beyond the boundaries of traditional financial services. Mauritius is ranked 13th out of 190 countries assessed according to the latest edition of the Ease of Doing Business Report which was released by the World Bank in October 2019. According to the World Bank, reforms which bear testimony in modernising the Mauritian economy included the automation of public services, reviewing of licensing procedures and regulatory amendments through the Business Facilitation (Miscellaneous Provisions) Act 2017 and the Business Facilitation (Miscellaneous Provisions) Act 2019 in line with international best practices. Some of the key reforms recognised by the World Bank include Registration of business, Constructions Permits, Tax Reforms, Registration of property and improvement in the legal framework for Resolving Insolvency. A new landmark was achieved by Mauritius.
Market diversification, reforms, and broadening of the entire plethora of activities and services will obviously play a huge part in adding stability and certainty to the Global Business sector. However, the global business environment is more challenging than it has been for years, economic growth is slowing, international trade is expanding at its slowest rate for the past three years and companies are facing levels of geostrategic uncertainty not seen before. Mauritius must be in a position to expand and inch up the value-added chain.
In the wake of the Digital era, Mauritius has consistently witnessed and embraced the wave of modernisation to establish itself as a world class innovation-driven destination. With a robust and dynamic communications infrastructure, considerable efforts have been made to establish the country as the FinTech hub of Africa. To date, there are no regulatory impediments to FinTech innovation in Mauritius. Banking activities are regulated by the Bank of Mauritius (BOM), and insurance activities are regu¬lated by the Financial Services Commission (FSC). Entities engaged in FinTech activities and providing banking or insurance services would need to be licensed by the Bank of Mauritius or the Financial Services Commission. FinTech provides the necessary platform to access services, such as banking and insurance. For example, 80 per cent of people living in Africa don’t have access to banking facilities, Fintech provides new ways to access banking services in low-income communities. The Africa FinTech sector is set to grow to US$3 billion from US$200 million by 2020 in Sub-Saharan Africa alone.
The ‘’Regulatory Sandbox Licence (RSL)” introduced in the year 2016 is facilitating FinTech projects. The RSL offers the opportunity for an investor to conduct a business activity for which there exists no legal ecosystem, or adequate provisions under existing legislation in Mauritius. The country has already positioned itself to act as digital asset custodians as part of its plan to create a FinTech hub in and for Africa. This disruptive technology offers vast possibilities from Artificial intelligence to cryptocurrencies. Much like the internet has forever altered how we live and work, cryptocurrencies have the potential to change how people participate in the global financial markets.
Driven by a process of evolution, with change at multiple speeds, Mauritius is well positioned to anticipate future trends. New regimes and incentives introduced through the years are delivering on their context slowly but surely. However, in order to maintain its competitive advantage, the country must further strengthen the eco-system to make it more conducive for the type of business that the jurisdiction wishes to attract. While the enhancements to the existing compliance and regulatory framework are necessary, the upliftment of talent is essential to respond to future demands. The historical ties with Asia and Africa must be further consolidated in order to offer a unique platform to facilitate trade and investment flows.
Devendra Kumar Seebaluck Executive Director, Fund Manager.
Dr Ludovic C. Verbist PhD, LLM, TEP, Managing Director