Mauritius, with its modern democracy and its established track record of political stability, is a proven route for international investors wanting to do business in Africa. Mauritius has business friendly legislation, a diversified economy with good growth rates, successful fiscal and monetary policies and no exchange regulations.
There are specific advantages for setting up investment vehicles in Mauritius for foreign direct investment in Africa, some of which are discussed below.
Treaties and other Agreements
Mauritius currently has double taxation agreements (DTAs) with Botswana, Lesotho, Madagascar, Mozambique, Namibia, Rwanda, Senegal, Seychelles, Swaziland, Uganda and Zimbabwe. It has also has signed DTAs with Malawi, Nigeria, Tunisia and Zambia, with a further eight treaties awaiting ratification. Mauritius also boasts access to a number of bilateral agreements with several African countries. In addition to the DTAs and bilateral agreements, Mauritius has signed Investment Promotion and Protection Agreements (IPPA) with 15 African member states.
It is also of note that Mauritius is the only international financial services center that is a member of all the major African regional organizations such as the African Union, the 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). Its membership in these regional organizations, and being a signatory to all the major African conventions, can make Mauritius the best offshore financial service centre for establishing any Africa fund or holding company.
Tax Minimizaton
Capital gains tax, where imposed in Africa, is generally levied at a rate ranging from between 30 to 35%. However, with the DTAs in force, Mauritius restricts taxing rights of capital gains to the country of residence of the seller of the assets. Since there is no capital gains tax in Mauritius, the potential tax savings for the Mauritius incorporated entity are significant.
The majority of African states impose some withholding tax on dividends paid out to non-residents. These rates vary from between 10% to 20%. The DTAs in force in Mauritius limit withholding tax on dividends. The treaty rates are generally 0%, 5% or 10%, thereby creating a potential tax savings of between 5% to 20% depending on the investee country. In respect to capital gains tax, the DTAs guarantee the maximum effective withholding tax rate should changes occur in the fiscal policy in the countries on investment.
Mauritius GBCs
Mauritius now has in place a new simplified regulatory regime that distinguishes between Mauritian companies conducting business in Mauritius and those conducting business outside Mauritius. These companies are known as Global Business Company 1 (GBC1), and Global Business Company 2 (GBC2). The focus of this article will be on the GBC1 company.
The substantial advantage offered by the GBC 1 Company is that it may be structured to be tax resident in Mauritius, and may thereby access the multiple DTAs that Mauritius has. This makes it extremely attractive to invest in one of these countries through a Mauritius GBC1 Company as taxation treaties provide that profits can then be withdrawn from that country either without the imposition of withholding tax or subject to a substantially reduced rate of withholding tax.
A GBC1 company is liable to corporate tax at a rate of 15%; however, it may claim a foreign tax credit in respect of the actual foreign tax paid or 80% presumed foreign tax credit, whichever is higher. As such, a GBC1 company has a maximum effective corporate tax rate of 3%. Capital gains are exempted from tax in Mauritius.
A GBC1 company is the best vehicle to use when overseas income is predominantly in the form of interest and capital gains, royalties and dividends,and when the benefits that arise from the double taxation agreements are required.GBC1 companies can only conduct business with Mauritian residents with the consent of the Financial Services Commission. All business activities must be conducted in a currency other than the Mauritian rupee.
These companies are subject to compliance and reporting regimes similar to those of Hong Kong or UK companies.Licenses are granted on a case by case basis by the regulatory authorities in Mauritius, in respect of companies seeking to benefit from GBC1 status.This application process requires,among other things, the submission of a detailed business plan and disclosure of ultimate beneficial ownership.
GBC1 companies have commonly been used by foreign investors to structure investments and projects with those countries that have DTAs with Mauritius. It is clearly a viable structuring option that should be considered when contemplating investing in the more high risk jurisdictions.
