Mauritius, though geographically one of the larger offshore jurisdictions, has remained off the radar for many in the offshore world. Once regarded as a key territory for the great European maritime powers of Britain, France and the Netherlands, Mauritius has since become a centre for international finance. Its industry is fairly mature and well-developed but, with the current surge of interest in Africa, could see a significant boom in activity over the coming years.
Like other offshore centres, the Mauritian offshore industry is founded on the establishment of companies within the jurisdiction used as investment vehicles into other countries.
Historically, India was the main target of this investment. The two countries signed a double taxation avoidance agreement in 1983, and when the Indian government liberalised its economy in the early 1990s, Mauritius became the most popular domicile for structures investing into India.
However, more recently that same tax treaty has become the cause of tension. The Indian government wants to plug a loophole that enables Mauritian companies to avoid paying capital gains tax in India. Lawyers believe the debate over the future of the treaty is one reason why investment into India through Mauritius has dropped off in recent years.
In particular, the Indian Supreme Court’s ruling in 2012 over Vodafone’s acquisition of a stake in Hutchison Essar, which overturned lower court decisions and meant that Vodafone was not liable to tax in India over the transaction, has caused significant debate.
Bedell Cristin Mauritius managing partner Yuvraj Juwaheer says the governments have both indicated their willingness to find a solution to the problem but in the meantime, investment into India through Mauritius has declined.
“Traditionally, up to 40 per cent of foreign direct investment [FDI] into India came through Mauritius. Currently, it’s about 30 to 35 per cent,” says Conyers Dill & Pearman Mauritius managing partner Stephen Scali.
Instead of to India, investment is now westwards, towards Africa.
“In the past, it used to be an Indian-focused jurisdiction but over the past 24 months there has been a shift where a great number of transactions that we see in Mauritius are all Africa-related,” reports Malcolm Moller,Appleby’s Mauritius managing partner.
Mauritius has double-taxation treaties with 14 African states, and is in the process of ratifying or negotiating several more. 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 lawyers, 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.
For law firms, this is good news. BLC Chambers partner Fazil Hossenkhan says his firm decided to focus on Africa from its foundation, rather than India.
“Our firm took the view that Africa, even in those days, had a lot of potential and although it hadn’t seen the traction, we’re seeing nowadays it was something worth being on the watch for,” he explains.
“The good thing is that our predictions did start to be somewhat true. There’s been a lot of interest lately for all types of transactions.”
Infrastructure work is the main driver in Africa, just as it was in India in the early days.
“There is a lot of investment going into infrastructure, oil and gas and energy,” says Bedell Cristin’s Juwaheer.
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).
However, a popular option for international investors seems to be to use a dual structure, normally involving the British Virgin Islands (BVI) or Cayman Islands.
“The advantage of using a dual offshore structure when focusing on Africa is that you get the advantage of the double-tax treaty agreements that Mauritius has with a wide variety of African countries,” says Harneys counsel Patrick Colegrave.
“At the top level you get investors going through a jurisdiction which is familiar to them. Underneath that you can either have the Cayman private equity fund investing into the African target jurisdictions through Mauritian subsidiaries or you can have the Cayman private equity fund fitting into a larger fund structure with an underlying Mauritian private equity vehicle,” he says.
Colegrave adds that it is development finance institutions (DFIs) which are among those using such structures.
“The jurisdiction is very investor-friendly. There’s tax on the level of the fund vehicle but what the investor takes out is generally free from tax in many ways,” says BLC Chambers’ Hossenkhan, explaining the attraction of Mauritius to the DFIs.
Conyers’ Scali says the links between Mauritius and Africa are fairly obvious. As well as the geographical proximity and its timezone, Mauritius’ legal system is a combination of English and French law and most professionals are bilingual, thus connecting it to much of the African continent.
The increase in work has helped attract offshore law firms to Mauritius too. The local bar association first opened up to foreign firms in 2008, allowing them to set up their own standalone offices, although Appleby was present before then, having launched in 2007. Since the change, Conyers Dill & Pearman and Bedell Cristin have also set up their own offices.
This year Harneys became the fourth offshore firm with a foothold in Mauritius when it forged an alliance with BLC Chambers.
But the gradual internationalisation of the legal industry has, as in so many other countries, taken time and involved some controversy.
“I was one of the proponents to have offshore law firms in Mauritius. The reaction to the presence of offshore law firms made people quite apprehensive, but that was due to some misunderstanding,” says Juwaheer.
He explains that the bar drafted in a South African judge to talk local lawyers through the way that country had managed the entry of international firms, helping them understand that they would not be taking away local work but instead would be focusing on international commercial issues.
“The presence of international law firms can only enhance the credibility of our jurisdiction. Offshore law firms provide very good opportunities for our younger generation of lawyers,” Juwaheer adds.
Hossenkhan agrees there was a “bit of resistance” to the liberalisation of the bar but says there was also a substantial proportion of local lawyers who were more in favour. Since then, he believes things have settled down comfortably.
“There are demarcation lines. There’s an amount of competition and I think that’s healthy. The area in which the two overlap is narrow and the local bar has been co-existing with offshore firms quite well,” he says.
Harneys made the decision to add Mauritius to its roster of offices due to the connection with Africa.
“We’ve always had a strong focus on emerging markets, we have a very large and successful Latin American practice and we’ve equally always done a lot of work in the Far East and Asia,” says Colegrave.
“Taking into account Harneys’ history in emerging markets and looking at Africa, which is very much a fast-developing continent, it seemed logical to us that we would want to focus on Africa and Sub-Saharan Africa to develop our business lines. When we initially started looking at the Sub-Saharan region we realised that Mauritius was a very important part of the puzzle for doing business in that part of the world,” he adds.
The two firms have been working together since forming the alliance earlier this year to integrate systems and processes and enable joint pitches, and both Colegrave and Hossenkhan are positive about the partnership at this early stage.
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.
“We expected them to come in over the past four years,” says Moller. However, he is not expecting a rush of entrants now.
Scali agrees. “It takes a while to establish yourself here. I’d be surprised if many more firms came, to be honest.”
That does not mean he would not welcome more incomers. “The more top players you have in a jurisdiction the more you increase the level of credibility and trust that people have in doing business there,” he adds.
While Moller believes the process of establishing a firm in Mauritius is fairly simple, others say the issue can be identifying a suitable joint venture partner or finding local lawyers to run the office.
Even if no more law firms enter the market, lawyers are confident that Mauritius will continue to be a popular jurisdiction for investment purposes.
“We’d see Mauritius growing as an offshore jurisdiction in tandem with the economic developments and inflows of foreign investment that have come into Sub-Saharan Africa. It’s fair to say that Sub-Saharan Africa is on an economic development trajectory that’s likely to continue for some time. There’s a huge demand for infrastructure and there’s a growing middle class who are demanding certain goods and services. We don’t see that discontinuing or slowing down any time soon, we think that there’s likely to be a steady upward growth of the African economy and the development,” Colegrave says.
“We’re probably still at the beginning of a several-decade process,” adds Scali. “It won’t be easy; there’ll be hiccups.”
Mauritian lawyers and the business community are keen to stress the government’s efforts to maintain the country’s standing as an international finance centre, which hinges largely on it improving what it does in terms of transparency and making sure companies run from Mauritius have substance.
A Limited Partnerships Act was passed in 2011, and Scali points to this as an example of the government’s efforts to build the jurisdiction.
“The government and legislators are committed to continuing development. That’s the key especially with the way the world is and the emphasis on substance and clarity. We have to be even more responsive,” he argues.
Hossenkhan agrees: “Mauritius is trying to develop into a services-oriented economy and develop the substance within the economy – not only to setting up and administrating services but also the structure around doing business into Africa.”
India will also still have a role to play, say lawyers, despite the fact that its economy has slowed significantly in the past couple of years.
“There’s still Indian work coming through but the speed is reduced significantly. It just depends on the Indian economy and the size of its growth,” says Moller. “I think we’ll continue to see growth but if India gains momentum then we’ll see real growth in Mauritius.”
“What I tell people is that it’s not like it’s over. A fair amount of work is still India-related,” Scali says.
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).
Juwaheer believes the island has enough qualified people to keep its development going, summing up the overall positive mood.
“Despite the economic slowdown our economy has been doing very well. Our financial services industry is sustaining itself fairly well,” he concludes.