Can Mauritius take the offshore world by storm?
The main commercial centre of Mauritius at its capital Port Louis, Source: mauritiusattractions.com Mauritius is increasingly in focus as a gateway to Africa as commercial interest in the continent shoots through the roof.
While geographically one of the larger offshore jurisdictions, the island nation has not yet come into its own in the offshore world. But, with Africa becoming the latest investor paradise, Mauritius can be expected to be increasingly used as a springboard for African investments.
The Mauritian offshore industry, like any other, consists of companies which are under its jurisdiction but are used as investment vehicles into other countries.
Earlier, India was the main target of investments routed through Mauritius, culminating in a double taxation avoidance agreement signed between the two nations in 1983. When liberalization and globalization swept India off its feet in the early 1990s, Mauritius became the primary investment gateway for the thriving sub-continent economy.
However, recently, the very same treaty has become a bone of contention between the two nations as the Indian government wants to plug a loophole that enables Mauritian companies to avoid paying capital gains tax in India. The debate over the future of the treaty is cited increasingly as a reason for investments into India through Mauritius having dropped off in recent years. The Indian Supreme Court’s ruling in 2012 over Vodafone’s acquisition of a stake in Hutchison Essar stating that Vodafone was not liable to tax in India over the transaction, has sparked significant debate.
But now, instead of to India, investment is moving westwards, towards Africa. Infrastructure work is the main driver in Africa, just as it was in India in the early days.
The island nation’s status as a gateway to Africa is reinforced by double-taxation treaties with 14 African states, and with several more in the process of being ratified or negotiated. It also has Investment Promotion and Protection Agreements (IPPAs) with a number of African countries, designed to protect investors’ rights.
Investment is flowing into all parts of Africa from Mauritius, say tax treaty experts, pointing to countries like Mozambique and Nigeria as being particularly popular, as well as South Africa and Kenya – indeed most of Sub-Saharan Africa seems to be a target for investors coming through Mauritius.
Most structures in Mauritius use Category One of the well-established ‘global business licence’ structure, designed for international business. The licence’s popularity has remained steady over the past few years since it was introduced in the Financial Services Act 2007. A management company is responsible for acting as an intermediary between clients and the Financial Services Commission (FSC). Another popular option for international investors seems to be to use a dual structure, normally involving the British Virgin Islands (BVI) or Cayman Islands.
However, there remains mild surprise within the Mauritian market that only four offshore firms are there, especially given the general global expansion of the market in recent years.
India will also still have a role to play, say tax treaty experts, despite the fact that its economy has slowed significantly in the past couple of years.
Other initiatives that will help the continued development of Mauritius as a financial services centre include its recent signing of a co-operation agreement with the European Securities and Markets Association (ESMA), which will ensure that Mauritius-licensed funds can be marketed in the EU through private placement regimes following the recent implementation of the alternative investment fund managers’ directive (AIFMD).