Mauritius

Global BusinessAuthor: Ramesh

What’s Mauritius?Mauritius is an island-republic of 720 square miles, located between Asia and East Africa. Structuring investments in other countries, through the Mauritius Global Business Sector, presents foreign investors and investment funds with significant fiscal planning opportunities. This is mainly because Mauritius is a low‐tax jurisdiction and it has Double Tax Treaties (DTT) with over 30 countries.

The absence of exchange controls, capital gains tax (CGT) or withholding tax (WHT) in Mauritius enhances further the attractiveness of the Mauritius Global Business Sector to investors. Around 34,000 Global Business Companies are currently registered, with investments predominantly directed to India, China, the Far East and Africa.

Mauritius is the leading financial centre through which funds are invested in India. The sector is regulated by the Financial Services Commission within a highly efficient legal and fiscal framework, which not only strikes out any risk of money laundering, but which is, also, continuously updated to maintain the attractiveness of the sector. Mauritius is recognised as being an excellent place for doing business. The country’s adoption of international best business practices and sustainable development policies has been acknowledged by international agencies such as the Organisation for Economic Cooperation and Development (OECD), the Financial Action Task Force (FATF) and the World Bank (WB).

Why invest through Mauritius? Ranked 1st in the 2010 Ibrahim Index of African Governance Ranked 1st Small Island Developing State on the Ease of Doing Business 2010 index by

the World Bank (1st in Sub-Saharan Africa and 17th globally) White-listed jurisdiction recognised by OECD Ranked 12th in the 2010 Index of Economic Freedom tracked by the Wall Street Journal

and The Heritage Foundation (1st in Sub-Saharan Africa) 36 active Double Taxation Avoidance Treaties (DTAs) No exchange controls. Attractive fiscal policies. An efficient banking system. A stock exchange opened to foreign investors Reliable and modern infrastructure Favourable time zone (GMT+4). Open Air Access policies. Efficient telecommunications system (connected to SAFE fibre optic network) Availability of qualified labour force Occupation / residence permits granted in three days Integrated Resort Scheme / Real Estate Scheme (which allows foreigners to acquire

property in Mauritius)

Investment Products for investors

Global Business Company Category 1 (GBC1) Global Business Company Category 2 (GBC2) Trust Registration of ships Integrated Resort Scheme

GBC1: Global Business Company Category 1 A GBC 1 can carry out any type of business activity such as investment holding, asset

management, portfolio holding, distribution of financial products, factoring & leasing, occupational pension scheme, pension fund administration, pension scheme management, treasury management, retirement benefit schemes, distribution of financial products, non CIS-Custodian services, credit financing and superannuation fund.

Investors in a GBC 1, benefit from low taxation, generous tax credits, no withholding taxes & capital gains tax, no estate duty, inheritance, wealth or gift taxes. They can also freely repatriate profits capital and interests. Asset protection is guaranteed.

A GBC 1 is a tax resident of Mauritius and investors benefit from the wide network of DTAs that Mauritius has signed. The effective tax rate of a GBC 1 is 3% and it therefore enjoys a very flexible regime.

A GBC 1 may also be incorporated to structure investment funds in single-tier or two-tier structure or even branches of foreign registered companies. Funds may be open ended or close ended, as a unit trust or limited partnership. Investment Funds can also be structured as Umbrella Funds with separate classes of shares and segregated portfolios are allowed.

Features of a GBC1•The GBC 1 may be a public or private company.•It may be limited by shares, unlimited or a limited life company.•Mauritian tax on offshore profits is 15% but with planning can be reduced to 3% - with the use of the tax credit system through the extensive DTA network.•The company requires a minimum of 2 directors, 1 must be local (resident) but for the company to be considered resident and maximize tax benefits the company will need 2 resident directors, no corporate directors are allowed for a GBC1.•The company requires a minimum of 1 shareholder, the shareholder does not have to be resident and can be corporate.•Shareholders and Directors can be nominees.•A local resident secretary and a local registered office are required.•Only registered shares are allowed, bearer shares are not allowed.•Shares can be held on behalf of the beneficial owners.•Annual audited accounts must be filed with the FSC.•Meetings must be held in Mauritius.•The beneficial owner must be disclosed to the authorities but there is no publicly accessible records kept about the beneficial owner, the directors, shareholders or company annual return.•Interest paid on bank deposits are tax exempt. Dividends paid by a GBC1 are tax exempt and royalties paid to non-residents are tax exempt.•A GBC 1 is allowed to employ expatriate staff.

Tax Residency Certificate

In order for a GBC1 to benefit from the Double Taxation Agreements, it must be liable totaxation in Mauritius and be in possession of a Tax Residency Certificate. The applicationfor a Tax Residency Certificate takes approximately 3 weeks after the date ofincorporation. To qualify therefore it needs to fulfil the “place of management” test asfollows:

The company has at least two Mauritian resident directors The company holds its board meetings in Mauritius, however telephonic participation by

non-Mauritian directors is permitted provided that the meeting is chaired and initiated in Mauritius

The company has a local bank account through which investment funds flow The company has a qualified Company Secretary The Company has a Mauritian auditor Accounting records must be maintained in Mauritius in accordance with the Companies Act

2001 and the International Accounting Standards

Invest to India via MauritiusThe DTAT with Mauritius was signed in August 1982. The treaty specified thatcapital gains made on the sale of shares of Indian companies by investors residentin Mauritius would be taxed only in Mauritius and not in India. For 10 years thetreaty existed only on paper since foreign institutional investors (FIIS) were notallowed to invest in Indian stock markets. That changed in 1992 when FIIS wereallowed into India. The same year, Mauritius passed the Offshore BusinessActivities Act which allowed foreign companies to register in the island nation forinvesting abroad. The benefits? Total exemption from capital- gains tax, quickincorporation (a company is formed in Mauritius within two weeks), total businesssecrecy and a completely convertible currency.

For foreign investors willing to invest in India, it made sense to set up a subsidiary in

Mauritius and route their investments through that country. By doing so, they wouldavoid paying capital-gains tax all together -- India won't tax because the company

isbased in Mauritius and Mauritius had anyway exempted investors from capital-

gainstax. In addition, Mauritius also has low rates of dividend and income taxes.  Around42% of FDI and about 40% of FII fund flows into India are routed through the islandnation.

Cayman/British Virgin Island (BVI)to

Africa via Mauritius

Cayman/British Virgin Island (BVI) to Africa via Mauritius

Neither the BVI nor Cayman have any decent tax treaties for investing into Africa, and in fact the Africantax treaty network is somewhat sparse.

Mauritius is a low tax country (no capital gains tax, no withholding tax, no capital duty on issued capital,very low corporate rates of tax, no exchange controls). Mauritius also has a substantial network of treatiesand double taxation avoidance agreements in place, in particular with Africa.

In order to access the treaty network, investors need to establish a Category 1 Global Business Companyin Mauritius (a GBC1). The Mauritius company in the form of the GBC1 is then eligible for a Tax ResidenceCertificate, which allows it to claim benefits under the various treaties. Although the company is taxable inMauritius at a flat rate of 15% it is able to claim a credit in respect of foreign tax on income. If there is noclear proof for what that tax is then it is deemed to be an amount equal to 80 per cent of the Mauritius taxchargeable with respect to that income. As a result the effective tax rate is between 3% and 0% dependingon whether there is actually any underlying tax.

Mauritius currently has tax treaties with 13 African countries (Botswana, Lesotho, Madagascar,Mozambique, Namibia, Rwanda, Senegal, Seychelles, South Africa, Swaziland, Tunisia, Uganda andZimbabwe). 6 tax treaties have been signed with the countries of Malawi, Nigeria, Zambia, Egypt, Kenyaand Congo and are awaiting ratification. Additional treaties are currently being negotiated with BurkinaFaso, Algeria and Ghana.

Invest to China via MauritiusIf a company is established in a country other than China and conducts business insuch a way that the place of effective management and control of the company isperceived to be in China, then this is likely to result in the company being tax resident inChina. If the company is tax resident in China, the company will be liable to tax in Chinaat a potential rate of 25% on its world wide income.

A GBL1 company can avoid such taxation by taking advantage of the tax treaty. Underthe tax treaty, the GBL1 company would be assessed for tax only in Mauritius. Thus, aGBL1 company will instead be liable to tax on its income at 15% in Mauritius. However,the actual tax liability in Mauritius can be further reduced. A GBL1 company has adeemed 80% tax credit on its foreign source income bringing down the effective rate oftax to a maximum of 3%.

China would normally impose a capital gains tax of 10% (which may rise to 20% incertain circumstances). Under the tax treaty with China, a GBL1 company may benefitfrom a capital gains tax exemption if it disposes of shares in a Chinese company butonly if the shareholding is less than 25% of the shares in the Chinese company duringthe 12 month period preceding the disposal of such shares.

Invest to China via Mauritius

The tax treaty with China also establishes a favourable withholding tax as regards dividend and interest payments. China would normally impose a withholding tax ondividends of between 10%-15% and a withholding tax on interest of 15%. Under thetreaty, these are reduced to 5% (on dividends) and 10% (on interest).

Take for example a situation where a company from a non-treaty jurisdiction (such as theBVI) wishes to invest directly into China. Such an investment will attract withholding taxon dividends of between 10%-15% in China. However, if the company migrates toMauritius and continues as a GBL1 company, the withholding tax on dividends is reducedto 5%.

If a multi national company incorporated in Singapore were to make a loan directly to asubsidiary in China, there would be a withholding tax in China of 15% on the interestpayments. This withholding tax can be reduced if the debt is structured through a GBL1company. Under the Singapore/Mauritius tax treaty, there is no withholding tax ondividends and interest payments made from Mauritius. Under the China/Mauritius taxtreaty, there is a withholding tax in China on interest payments of 10%. The withholdingtax on interest payments is therefore reduced from 15% to 10%

GBC2: Global Business Company Category 2Mauritius GBC2 are companies incorporated under the Mauritius Companies Act 2001with a category 2 Global Business Licence. GBC2 companies are designed for businessoutside of Mauritius and may not carry on business in Mauritius (subject to a number ofstatutory exceptions). GBC2s are commonly used for the holding / ownership ofinvestments and assets( real estate or shares or other property) commercial transactionsand international trading operations asset protection consultancy

BENEFITS OF MAURITIUS GBC2 COMPANIESFiscal Advantages:

Mauritius taxation on foreign income: No Mauritius stamp duty on transfer of GBC2 shares: No Minimum annual Mauritius Government License fee (aggregate): US$ 200

Mauritius Ship Registration

Registration of shipOwning a vessel through a Mauritius GBCI Company and its registration in MauritiusHas many advantages. Some of the advantages of registering your ship in Mauritiusinclude:

Mauritius registered vessels are exempt from tax on freight earnings. Dividends paid from the Mauritius shipping company are free of withholding tax. Ship's stores, consumables, spare parts and bunkers are exempted from customs

and excise duties. Crew are exempted from Mauritius income tax. No capital gains tax is payable upon the sale or transfer of a ship or of the shares in a

shipping company. No estate duty is payable on the inheritance of shares in a shipping company. There are no restrictions on the nationality of the crew and work permits are not

required. Mauritius has ratified most of the international conventions on maritime safety,

prevention of pollution and training and certification of seafarers.

Mauritius Trust

Mauritius TrustThe Trust Act 2001 provides the legal framework for the establishment and creation of a wide variety of trusts in Mauritius, namely charitable trusts, discretionary trusts, purpose trusts and trading trusts.

Advantages The advantage of a Trust is that its assets belong to the Trustees who can only manage and distribute those assets in the best interest of the Trust and of its beneficiaries.

The Trustee can pay to his account only fees and expenses that are agreed with the Settlor (i.e. the one who invested his Capital in the Trust initially).

The Trust offers a flexible instrument which protects the identity of the Settlor and of the beneficiaries to the Trust.

The establishment of Trusts can provide clients with the security and confidentiality they require regarding the management of the assets settled into the Trust.

Tax regimeOffshore Trusts can have access to Double Taxation Agreements and may be taxable at an effective rate of 3 per cent (after benefiting from the presumed tax credit of 80%), or they may lodge a declaration of ‘non-residence’ status for any income year with the Mauritius Revenue Authority, within 3 months after the expiry of the income year.  This should enable them  an exemption from income tax in respect of that income year.

A trust is liable to income tax at the rate of 15% if the Settlor is a non-resident.

Integrated Resort Scheme (IRS)

Integrated Resort Scheme (IRS)Launched in 2002, the Integrated Resort Scheme (IRS) allows investors to acquire Mauritian residency, providing substantial fiscal benefits such as low income tax and nocapital gains or inheritance taxes.

Under the IRS, foreigners are permitted to buy an IRS property with a minimum investment of US$500,000 and a fixed land registration duty of US$70,000 or 5% of thepurchase price, whichever is the higher. The acquisition of a freehold property for residential purposes by a foreigner under theIRS rules, allows the purchaser and their dependant family, to reside in Mauritius for aslong as they retain ownership.

Incorporating a company in Mauritius

The Companies Act 2001 provides for several types of companies: Domestic Company Company holding a Category I Global Business Licence Company holding a Category 2 Global Business Licence

The following documents must be submitted to the Registrar of Companies for the incorporation of a company:

Form 1 - an application for incorporation of a company. A notice of reservation of name issued by the Registrar; Form 7 - the consent of every director of the proposed company. (Note that a

company is only required to have a minimum of one director); Form 8 - (if applicable) – the consent of every secretary of the proposed company. Form 9 - the consent of every shareholder of the proposed company. Other documents to be submitted: Where the proposed company has a

constitution, a certified copy of the constitution by a law practitioner must be submitted together with the above mentioned documents.

Domestic companies are incorporated within 24 hours of submission of application. Certificates of incorporation for category 1 & category Global Business Companies aredelivered on the same day, pending approval from Financial Services Commission

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