Mauritius investment

Corporate investment 

MAURITIUS: THE IDEAL INVESTMENT PLATFORM

Conyers Dill Pearman examines Mauritius as an investment destination

Strategically located at the crossroads of investments in the Indian Ocean, Mauritius has, since the launch of its global business sector some 15 years ago, emerged as the destination of choice to structure investments in emerging markets. The entities that can be set up in Mauritius are the Category 1 and Category 2 Global Business Companies (GBC1 and GBC2 respectively) and trusts. The GBC2, which is ideally suited for asset or investment holding, is similar in various aspects to the British Virgin Islands IBC or the Bermuda or Cayman Islands exempted company.

A GBC2 is not subject to any tax in Mauritius but unlike the GBC1, it cannot benefit from the numerous Mauritian tax treaties. A GBC1 is resident in Mauritius for tax purposes and is liable to taxes at a rate of 15%.  However, such companies benefit from a deemed foreign tax credit which results in an effective tax rate of 3% only. Underlying foreign tax credits may also be available. It should be noted that investment funds, and other entities engaging in certain financial business activities, must be set up as GBC1s and that a trust can obtain a GBC1 licence thus allowing it to enjoy all the treaty benefits.

Comparative advantages

Mauritius combines the traditional advantages of an offshore jurisdiction (no capital gains taxes, no withholding taxes, no capital duty on issued capital, confidentiality and free repatriation of profits and capital) with other comparative advantages. Unlike most other offshore jurisdictions, Mauritius is a treaty based jurisdiction. As at today, the country has concluded 33 tax treaties and is party to a series of treaties under negotiation. In addition to the famous India-Mauritius treaty, the country has entered into advantageous treaties with fast developing countries such as China, Thailand, Malaysia, the United Arab Emirates and several African countries including Botswana, Namibia, South-Africa and Uganda.

The Mauritius tax treaties provide for capital gains to be taxed in the country of residence of the seller of the assets (excluding immoveable properties which are generally taxed in the country where the property is situated). Since Mauritius does not impose tax on capital gains derived by a Mauritius GBC1 or levy any withholding tax on any gains, dividends or interest derived by an investor from the global investment entity, the funds or other vehicles which are tax resident in Mauritius will not be subject to any capital gains tax. This is a definite advantage compared to the traditional offshore jurisdictions that cannot mitigate any tax implications in the ultimate country of investments.

Moreover, most tax treaties provide for reduced withholding taxes in respect of dividends, interests and royalties. The continued development of the tax treaties network will reinforce the position of the country as a leading tax planning destination.In addition to the above mentioned fiscal advantages, the relatively low cost of professional services coupled with an excellent level of service and a favourable time zone (UTC+4) allowing  business to be conducted with the Far East in the morning, Europe by mid-day and the US at closing should also be underlined.

The combination of all these factors has contributed to the positioning of Mauritius as a world class international financial centre. Mauritius is now well known for being the world’s largest investor into India due to the unique incentives provided by the tax treaty and also to other factors such as the close cultural links with India since more than 60% of the population is of Indian origin.

Examples of tax treaties benefits  

Under the application of the India-Mauritius tax treaty and Mauritius domestic law, capital gains (both short term and long term) are tax exempt in both India and Mauritius. As regards dividend income, a Mauritius company may claim underlying foreign tax credit against Mauritius tax payable on dividends if it holds at least 5% (direct or indirect) of the share capital of the foreign company paying the dividend – in the case of dividends from India companies, this results in no residual tax in Mauritius. For smaller holdings, the maximum tax payable on foreign dividends is limited to 3%. In comparison, this tax can be of up to 15% in Cyprus or 18% in Singapore which are other jurisdictions used by investors for investing into India.  

Another noteworthy provision is that the underlying foreign tax credit may be claimed for an unlimited number of tiers provided a minimum direct or indirect 5% shareholding is satisfied at each tier. Most jurisdictions strictly limit underlying foreign tax credit to a specific number of tiers. Projects in the ICT and energy sectors, offshore debt funds and investment in real estate are the principal investments in India made out of Mauritius. Outbound investment from India is being liberalised and offer new opportunities for the use of Mauritius notably for investment in African countries.

It should also be underlined that following the implementation by China of the Unified Corporate Income Tax Law that became effective January 1, 2008, investment into China through a treaty based country like Mauritius will be the preferred approach due, inter alia, to the Corporate Income Tax Law eliminating the exemption on dividend withholding taxes. Mauritius also ranks first in respect of foreign direct investment in Indonesia for the period January to May 2008 and this despite having currently no tax treaty in force with this country.  

Major US and European institutional investors and fund managers have regularly been using Mauritius to structure their investments in emerging markets. According to the latest figures the number of funds set up in Mauritius has reached 597 as at August 2008 compared to 491 in January of the same year, confirming a significant growth.   

Recent trends have shown several private equity/venture capital funds are being set up as opposed to portfolio funds. The funds are being structured as one-tier and/or protected cell companies and other frequently used structures include:  Master feeder structure, side by side feeders with master fund in Mauritius, main fund and parallel funds with underlying special purpose vehicles. This is to a certain extent due to the availability of fully-fledged fund administration services in Mauritius.   

Future prospects 

For instance, most African countries impose withholding tax on dividends paid to non residents but owing to the tax treaties, a Mauritius based investment vehicle may potentially save from 5 to 20% tax depending on the country. For investors wary about investing in Africa, Mauritius can put forward the various investment promotion and protection agreements (IPPAs) which it has signed with African countries. These IPPAs inter alia provide for 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 armed conflict. It is worthwhile noting that Mauritius is a member of the major African regional organisations such as the African Union, South African Development Community (SADC), the Common Market for Eastern and Southern Africa (COMESA) and the Indian Ocean Rim-Association for Regional Cooperation (IOR-ARC).

Conclusion

The maturity and innovative legal framework together with a long-lasting political stability makes of Mauritius the perfect place to hold investments destined to Asian and African countries.