The Mauritian Bridge
Ramakrishna Sithanen, Chairman and Director, IFS Group - A SANNE company
By focusing on the substantive advantages which the Mauritius IFC can offer and capitalising on upcoming developments to turn threats into opportunities, Mauritius can enhance its competitiveness to attract investors to use the jurisdiction for their investments in Africa.
Located between Asia and Africa and, with over two decades of expertise in cross-border investment, Mauritius has, over the years, evolved into an International Financial Centre (“IFC”) of excellence. However, despite appearing on the ‘white list’ of the Organization for Economic Co-operation and Development (“OECD”) and The Financial Action Task Force (“FATF”), there has been a lot of unwarranted criticism from the international press regarding the integrity of Mauritius as an IFC, whereby it has been intermittently labelled as a ‘tax haven’. Such an epithet has been assigned as a result of vehicles, alleged to have been set up as conduit companies for the sole purpose of tapping into treaty benefits. Mauritius has always been on the front foot to vindicate its position of good repute as an IFC by being transparent, co-operative and demonstrating economic substance. In view of the current and upcoming developments geared towards an international crackdown on ‘treaty shopping’, where most IFCs are now on a level-playing field, would enhanced substance be the linchpin for Mauritius to demarcate itself from competing IFCs?
Substance, in simple terms, can be defined as the extent to which an entity’s operations are rooted in a jurisdiction. Substance is not conferred to an entity merely by virtue of being incorporated in a particular jurisdiction but, over and above this, the underpinning factor is whether the entity is centrally “managed and controlled” in a particular jurisdiction.
As of 1 January 2015, the Financial Services Commission (“FSC”) reinforced the criteria to determine whether an entity is effectively “managed and controlled” in Mauritius through six “enhanced substance” requirements. These initiatives by the Mauritian authorities shows the commitment of Mauritius to thrive as a substance-based IFC. From an international standpoint, the new rules based on OECD’s recommendations relating to Base Erosion and Profit Shifting (“BEPS”) are, inter alia, directed towards countering harmful tax practice and preventing treaty abuse. For instance Actions 5, 6 and 15 of the BEPS Action Plan aim at (i) countering harmful tax practices more effectively; (ii) preventing treaty abuse; and (iii) developing a Multilateral Instrument on tax treaty measures respectively. In line with the above action plans, Mauritius has actively participated in the Ad-Hoc Group set up by the OECD to work on the drafting of a Multilateral Instrument and, more recently, it has joined the Inclusive Framework to implement the BEPS recommendations and the new initiative on exchange of beneficial ownership information. These moves clearly show the country’s endeavour to align with the BEPS recommendations and illustrates its commitment towards greater transparency and substance on cross-border transactions.
Taking on board the efforts on the domestic front and the upcoming changes in the international regulatory environment regarding cross-border investment, the Mauritius IFC offers the right mix of ingredients as a gateway for Africa-bound investments. The various stakeholders of the industry are expected to place emphasis on the substantive advantages which our jurisdiction can offer and capitalise on the upcoming developments by turning threats into opportunities so as to enhance its competitiveness in order to attract investors to use the Mauritius IFC for their investments in Africa. These could include some of the following.
Promotion of Mauritius as a business platform of sound repute
The World Bank’s latest “Doing Business Report 2016” ranks Mauritius 1st in Africa and 49th globally for ease of doing business. The Mauritius IFC should consolidate its current standing in Africa by promoting itself as a business platform of sound repute to serve global business companies. This includes: (i) Mauritians’ bilingualism which provides an edge over other IFCs in dealing with English and French speaking African countries; (ii) good governance: the “Ibrahim Index of African Governance” on Good Governance positioned Mauritius 1st out of 54 countries; (iii) regional ties with the African continent (Mauritius being the only IFC that is a member of all major African regional organizations such as SADC, COMESA, African Union and IOR); (iv) signing of Investment Promotion and Protection Agreements (“IPPA”) with 37 African countries which provides additional comfort to investors to manage and mitigate risks associated to these countries; and (v) competitive pricing along with professional expertise.
Active engagement with African and Asian countries to use Mauritius as a platform
It will be important to actively engage with other African and Asian countries to use Mauritius as a platform for holding investor meetings, conferences and workshops to discuss investment and business opportunities across the African continent. These workshops and conferences could act as a connecting point for investors whereby the convenience of routing Asian investments through Mauritius into Africa can be imparted.
Moving up the value chain
There is a need to move up the value chain in the provision of financial services, thereby shifting Mauritius from an offshore to a “mid-shore” jurisdiction. Besides the traditional low tax structure inherent to typical offshore jurisdictions(which is bound to fade in view of current developments), Mauritius should scale up its financial services sector, including banking (Islamic banking as well), private wealth services, capital markets and insurance supported with enhanced governance and an appropriate economic and legal infrastructure. In addition, the development of a strong legal infrastructure and provision of incentives to international law firms to be present in Mauritius would certainly help to position the country as the Arbitration Centre for Africa. Mauritius should work towards positioning itself on the new side of the shifting paradigm so as to achieve the “mid-shore” jurisdiction status, similar to Singapore and Hong Kong, to avoid the intrinsic misconceptions around traditional low tax jurisdictions.
Relocation of regional HQs to Mauritius
The relocation of regional headquarters to Mauritius is a way to showcase that decisions are indeed being taken from the country of domicile. Recently, The Trade and Development Bank, an African regional development financial institution, set up a regional headquarters in Mauritius, with a focus on fostering trade, socio-economic development and regional economic integration across African States. Stemming from the Finance (Miscellaneous Provisions) Act 2016, new categories of licences have been introduced, such as the Global Headquarters Administration Licence, Global Treasury Activities Licence, Overseas Family Office (Single and Multiple) Licence, Global Legal Advisory Services Licence, and Investment Banking Licence, amongst others. Such innovative hybrid structures offer investors an array of possibilities to use the Mauritian jurisdiction for their business and investment activities.
Mauritius as a beacon of stability
Mauritius remains a beacon of stability, certainty and predictability in a continent that presents both risks in terms of political instability and rewards through significant prospects for investment and other economic activities. With the new initiatives taken by policy makers to enhance substance in the jurisdiction and the measures to meet the requirements of the global community, Mauritius is poised to sharpen its attractiveness as an effective and an efficient bridge between Asia and Africa for cross border investments.
This article was authored by Sarwan Kumar Ramphul, Kirteesingh Geerawor and Velleyen Kullean.