Mauritius as an International Financial Centre

“Mauritius offers investors the advantages of an offshore financial centre in the Indian Ocean, with a substantial network of treaties and double-taxation agreements, making it the gateway for routing funds into Africa and India.” — United Nations Conference on Trade and Development World Investment Report.

Mauritius was once celebrated as the “star and key of the Indian Ocean” for its strategic position on the maritime spice route. Several hundred years later, the phrase – now inscribed in Latin on the country’s coat of arms, along with palm trees and the once indigenous dodo – still resonates for policymakers who see Mauritius as a hub for global trade and investment, built on more than two decades of expertise in cross-border finance.

Located between Asia and Africa, Mauritius has evolved into an “international financial centre of excellence and repute,” says Pravind Jugnauth, Mauritius’ Prime Minister.

The most striking feature of Mauritius’s financial industry is its outsize offshore sector, which the IMF has described as “enormous” and accounts for $630bn of assets, some 50 times the level of GDP.

In international terms, only Luxembourg has a bigger stock of foreign direct investment relative to the size of its economy. “Investors choosing Mauritius as a favourable holding company jurisdiction for not only commercial reasons but also the high quality of service, the legal and regulatory frameworks, and the excellent reputation of the jurisdiction,” says Ravin Dajee, Managing Director of Barclays Bank Mauritius.

Even though their offshore industry accounts for only a few thousand jobs and just under 7% of tax revenues, it is critical to the economy, playing a vital role in the balance of payments.

Mauritius has “a favourable network of investment promotion and protection agreements (IPPA’s) and double taxation agreements, a focus on quality, a flexible yet rigorous regulatory framework, a conducive business-friendly environment, world class institutional support – all helping to fuel the emergence of the island as an international financial centre,” says Sunil Benimadhu, Chief Executive of the Stock Exchange of Mauritius. The country has also been accepted by the OECD as a “white-list” country.

Global standards are applied by their local regulators, either the Financial Services Commission or the Bank of Mauritius, and the country is among the first to implement the US Foreign Account Tax Compliance Act (FACTA) as well as a member of both regional African preferential trade networks SADC and COMESA.

Despite this, the country’s future has been called into question amid a global backlash against tax avoidance; according to the United Nations, offshore hubs such as Mauritius are facilitating investment but also responsible for the loss of $100bn a year in revenue.

Therefore, new rules have been agreed on by finance ministers from around the world to stop companies from moving profits to low tax centres. India, which has seen a third of its foreign direct investment flow through Mauritius, revised its tax treaty with the island in 2016.

As a result, the traditional tax advantages of using Mauritius to invest in India will not exist by 2019. This means that tax planners are now finding new ways to make use of the India treaty, and the Mauritian offshore sector is reorienting itself to channel investment to mainland Africa as part of a wider attempt to improve links and routes. “The change to the Mauritius-India treaty will force a positive evolution of our product and service delivery over long-term. We will have to adapt, but Mauritius has what it takes,” says Tej Gujadhur, Founder and CEO of GFin Corporate services.

This view is echoed by Vishnu Lutchmeenaraidoo, Minister of Foreign Affairs, Regional Integration and International Trade, who says that “there is a need, now, to focus on strengthening our ties with Kenya, Mozambique, Zambia, Tanzania, Madagascar, Senegal and Ghana – Africa is the name of the game now.”

At the same time, the government has been forced to rethink its tax-centered approach to attracting capital inflows. An international crackdown on “treaty shopping” – routing income through shell companies in low tax countries – means that multinationals will have to show that they have genuine activities in those domiciles. While Mauritius has always insisted that companies had more than just a “brass plate” on the island by, for example, employing local directors, they will now be required to do more.

Companies are encouraged to put down more roots in Mauritius, with the inducement of tax incentives designed to attract regional headquarters, treasury management centres, international law firms, and fund and asset managers. These new measures were unveiled in the recent budget by Pravind Jugnauth, in what he described as a “new thrust to the development of our financial services sector.”

The plan is to create an ecosystem of ancillary services which add value to the financial industry, which is already much more than an offshore sector. “Mauritius now needs to build on existing capabilities in order to generate more value added services. Our global business sector has been gathering experience and expertise by dealing with international investors, lawyers, and other service providers from all over the world, however our policy makers now have to sustain the marketing effort to put us on the world map,” says Nitin Collappen, Managing Director of Sunibel Corporate Services.

Future success will, therefore, depend on improving skills, infrastructure and institutions. The 2015 collapse of BAI, a financial conglomerate, exposed regulatory failings and there are frequent allegations of corruption among the political elite. While the island is less vulnerable to changes in global tax rules than smaller, less diversified financial centres, the international crackdown on tax abuses nevertheless present big challenges to the offshore finance industry.

With those at the apex of shaping it in agreement that now is the time to focus on more than tax, Ravi Yerrigadoo, Attorney-General, says that there is the “opportunity to completely reinvent the financial services sector and give it real substance.”

The road to going global

Given these changes to the international backdrop, Mauritius has been consolidating its position as an International Financial Centre (IFC) as Harvesh Seegolam CEO of the Financial Services Promotion Agency (FSPA) explained. “With the launch of the Mauritius IFC and the new strategy that we have embarked on, we are further poised to re-orientate the sector and act as a platform of choice for cross-border investments,” says Seegolam.

Mauritius now has a vision of graduating the products and services that they are able to offer to the international business community. “The country is continuously enhancing range of financial products and moving towards the provision of higher-end value added services,” says Dajee.

It was therefore axiomatic that the Mauritius IFC needed a new identity, one which was internationally recognised as a world jurisdiction, ideally synonymous with transparency, good governance and international best practices. “The launch of this new identity is the stepping stone towards this goal,” says Seegolam.

Today the Mauritian IFC is made up of 22 local and international banks. It offers a wide array of services, from traditional retail banking facilities to more specialised services such as fund administration, private banking, treasury, international portfolio management, structured trade finance, Islamic banking, investment banking and custody services. All banks are issued with a single banking license, which entitles them to conduct both domestic and international transactions.

The global business segment of the IFC, from modest beginnings in the early 1990’s, is now home to some leading funds from around the world. It boasts with over 1,000 funds with a collective AUM (assets under management) in excess of $80bn.

Having been designed to provide convenience, fiscal efficiency, and risk mitigation for companies engaged in international operations, it has been instrumental in driving investment and growth across continents. Global funds domiciled in Mauritius may also take advantage of the flexible listing rules of the Stock Exchange of Mauritius in order to list on one of the leading platforms in Africa.

Mauritius is therefore set to draw on its long-established links with India and Africa to position itself as a natural conduit for exponential growth in the emerging Africa and Asia trade corridor, while its wide network of treaties and a favourable tax regime make it the ideal stepping stone between the Western World and the emerging markets of Africa.

“Our objective is clear: Mauritius plans to now sell itself as a world class financial services hub,” says Benimadhu.