Mauritius has become a leading jurisdiction for establishing and managing funds investing in Asia and Africa. The island has entered double taxation avoidance treaties with 46 nations and investment protection agreements with 45 countries. Additionally, there is no capital gains tax, no withholding tax on dividends, and no exchange controls, allowing for unrestricted repatriation of funds. Mauritius' friendly regulatory environment, robust AML compliance, political stability, and skilled workforce further enhance its attractiveness as a fund domicile.
Currently, over 1,000 investment funds, predominantly private equity funds, are licensed by the Financial Services Commission (FSC) of Mauritius. These funds are regulated under several legislative frameworks, which include the Securities Act 2005, the Financial Services Act 2007, and the Securities (Collective Investment Schemes and Closed-End Funds) Regulations 2008.
What are the different fund structures?
Collective Investment Schemes & Closed end funds | Company | Limited Partnership | Unit Trust | Protected Cell Company | Variable Capital Company
Collective Investment Scheme & Closed end funds
Alternative investment vehicle description
Mauritius Investment Funds can be either open-ended or closed-ended. Open-ended funds, also known as a Collective Investment Scheme (CIS) are schemes constituted as a company, a trust, or any other legal entity whose sole purpose is the collective investment of funds in a portfolio of securities, money market instruments or debt instruments including loans, debt obligations or similar instruments or other financial assets, real property or non-financial assets as may be approved by the FSC, have a variable share capital whereby there is an obligation to redeem a participant’s shares at their request, at a price corresponding to the net asset value of the fund.
Closed-end funds (CEF) are arrangements or schemes, other than a collective investment scheme, whose object is to invest funds, collected from subscribers during an offering or from sophisticated investors, in a portfolio of securities, money market instruments or debt instruments including loans, debt obligations or similar instruments or in other financial or non-financial assets, or real property, as may be approved by FSC. CEF have a fixed share capital, investors are locked in and distribution is at the option of the fund.
Mauritius offers five types of fund regimes: Retail CIS, Professional CIS (PCIS), Specialised CIS, Expert Fund, and Special Purpose Funds (SPF).
Key considerations for setting up a Collective Investment Scheme & Closed end funds in Mauritius
Fund regimes:
Retail CIS is a fully regulated scheme that is essentially meant for the public and largely confined to funds marketed locally in Mauritius. It should be established as open ended fund and is subject to full regulations by the FSC.
Professional CIS (PCIS) offers shares solely to sophisticated investors or as private placements. PCIS can be set up as open ended or closed end fund. Private equity and venture capital funds are typically set up as CEFs authorised as PCIS. PCIS is exempted from most obligations and regulations imposed on retail CIS and closed ended fund which are reporting issuers, latter being closed ended funds offered to the public or listed on a stock exchange.
Specialised CIS are funds which invests in specific assets classes such as real estate, derivatives, commodities or any other products authorised by the FSC. Such funds can only be constituted as open ended funds The FSC will determine on case by case basis which regulations will be applicable.
Expert Funds are only available to expert investors, that is, who make an initial investment of at least USD100,000, or sophisticated investors. Expert funds should be constituted as open ended funds. Hedge funds are typically set up as expert funds. Most of the obligations and restrictions governing retail funds do not apply to Expert funds.
Special Purpose Fund regime introduced by the Financial Services (Special Purpose Fund) Rules 2021, describes a SPF as a tax-exempt entity with a maximum of 50 investors and a minimum subscription of USD100,000, and offers its shares solely by way of private placement to investors with significant experience and knowledge. SPF can be set up as open ended or closed end fund and is lightly regulated.
Investment Manager:
A CIS is required to be managed by an investment manager licensed in Mauritius or a foreign regulated investment manager entity or can be a self managed scheme.
A CEF is required to be managed by an investment manager licensed in Mauritius or can be a self managed scheme.
Tax implications of establishing a Collective Investment Scheme & Closed end funds in Mauritius
When establishing funds, it is important to understand the tax implications.
- Funds are liable to an income tax rate of 15% with a partial exemption of 80% (95% for interest income) on income thus reducing the effective tax rate to 3% provided that it satisfies the prescribed economic substance requirements.
- SPF is a tax-exempt vehicle.
- There is no withholding tax on dividends and interests in Mauritius.
- There is no capital gain tax in Mauritius.
Company
Alternative investment vehicle description
A company is established under the Companies Act 2001 and operates as a separate legal entity from its shareholders, which can be either public or private. In a company structure, investors are admitted as shareholders and the management is vested with the Fund entity’s Board of directors.
Key considerations for setting up a Company in Mauritius
The advantage of structuring a fund as a company in Mauritius is:
- Shareholders have limited liability and are thus only liable for the company’s debts up to the amount of their investment.
Tax implications of establishing a Company in Mauritius
- Refer to above section on tax implication for Open ended fund and close ended fund
Limited Partnership
Alternative investment vehicle description
Funds like private equity funds can also be set up as limited partnerships under the Limited Partnerships Act 2011. A limited partnership must be set up with at least one general partner (GP) and one limited partner (LP). The GP is responsible for managing the fund and is personally liable for its debts and liabilities, while the LPs contribute capital and participate in returns but are not involved in management.
Key considerations for setting up a Limited Partnership in Mauritius
- The advantages of setting up a limited partnership in Mauritius are:
Limited partners (LPs) have liability restricted to their investment in the partnership, protecting personal assets from the partnership's debts and obligations. - Limited partnerships are governed by the partnership agreement, which can be tailored to meet specific needs and investment strategies, providing flexibility in terms of capital return and profit distribution.
- In Mauritius, a limited partnership can elect to have or not to have a separate legal personality and can change its legal personality at any time, providing flexibility to adapt its structure as business needs evolve.
Tax implications of establishing a Limited Partnership in Mauritius
When establishing a limited partnership in Mauritius, it is important to understand the tax implications, which can vary based on whether the partnership elects to be tax transparent or tax opaque.
- Tax transparent: The partnership itself is not taxed. Instead, the partners pay tax on their share of income in their respective jurisdictions.
- Tax opaque: The partnership is subject to tax in Mauritius on its chargeable income at a rate of 15%, with potential reductions under the partial tax exemption regime.
Unit Trust
Alternative investment vehicle description
A Unit Trust is established through a trust deed, which outlines the terms of the trust, the roles and responsibilities of the trustee and the rights of the investors, also known as unit holders. The trust is managed by trustees, who hold the assets on behalf of the unit holders and ensures adherence to the trust deed and fiduciary duties. The investment decisions and management of the fund are typically handled by a professional fund manager, who operates under the oversight of the trustees.
Key considerations for setting up an Unit Trust in Mauritius
The advantages of setting up a unit trust in Mauritius are:
- Trusts do not possess a legal personality, therefore do not require formal registration or incorporation, simplifying the set-up process. It must however be authorised by the FSC.
- Trusts can be structured as a non-resident trust, exempting them from tax in Mauritius.
Tax implications of establishing an Unit Trust in Mauritius
When establishing a unit trust in Mauritius, it is important to understand the tax implications.
- Resident unit trusts are liable to an income tax of 15%, subject to a partial exemption of 80% (95% for interest income), reducing the effective tax rate to 3% (0.75% in case of interest income) provided the CIS or CEF meets the relevant economic substance requirements.
- Non-resident trusts are exempt from tax in Mauritius.
Protected Cell Company
Alternative investment vehicle description
A Protected Cell Company (PCC) is a corporate structure, limited by shares, which consists of a core (non-cellular) and an indefinite number of cells (cellular). The assets and liabilities of each non-core cell is legally protected from the failure of another non-core cell. PCCs in Mauritius are governed by the Protected Cell Companies Act 1999.
A PCC is governed by a Board of Directors responsible for the overall management of the entire legal entity. Typically, a PCC issues two classes of shares: ordinary or management shares, which carry voting rights and control the core, and cellular shares, which do carry limited voting rights and are specific to individual cells. The cellular shares of a cell are distinct and separate from the core and other cells within the PCC.
Key considerations for setting up a Protected Cell Company in Mauritius
The primary advantage of setting up a PCC in Mauritius is:
Each cell within a PCC is legally separated, which allows for segregation of risks as well as assets and liabilities of different individuals cells under a shared structure.
Tax implications of establishing a Protected Cell Company in Mauritius
When establishing a PCC in Mauritius, it is important to understand the tax implications.
- A PCC is taxed as a single legal entity.
- A PCC is liable to an income tax rate of 15%, subject to a partial exemption of 80% (95% for interest income), reducing the effective tax rate to 3% (0.75% in case of interest income) provided the CIS or CEF meets the relevant economic substance requirements.
Variable Capital Company
Alternative investment vehicle description
The Mauritius Variable Capital Company (VCC) is a company incorporated under the Companies Act which carries its activities through its sub-funds and special purpose vehicles (SPV), where the sub-funds can operate as a CIS or CEF. It is subjected to the Variable Capital Companies Act 2022. The sub-funds and SPVs may elect to have a separate legal personality from that of the VCC fund.
A VCC may allocate shares of differing amounts within its sub-funds or SPVs and dividends may be disbursed in respect of the shares of the sub-funds/SPVs based solely on the assets and liabilities that are specifically associated with that sub-fund/SPV.
Key considerations for setting up a Variable Capital Company in Mauritius
The advantages of setting up a Mauritius VCC are:
Flexible Structure: The VCC can be set-up as a single fund, or an umbrella structure with multiple sub-funds that can be incorporated or unincorporated as CIS and CEF all within one shared structure. There is no limit on the number of sub-funds that can be established.
Segregation of assets and liabilities: Each sub-fund/SPV operates with its own distinct liability, ensuring ring-fencing of assets and liabilities of each sub-fund in case of insolvency.
Economies of scale: Each sub-fund may pursue distinct activities and investment strategies. However, the management of the sub-funds is streamlined under an umbrella structure, leading to enhanced operational efficiency and cost savings through shared service providers.
Set-up Flexibility: Companies incorporated in Mauritius can be converted into VCCs and foreign companies can be redomiciled to operate as VCCs.
Tax implications of establishing a Variable Capital Company in Mauritius
When establishing a Mauritius VCC, it is important to understand the tax implications.
- VCCs and sub-funds/SPVs are liable to an income tax of 15% subject to a partial exemption of 80% on foreign sourced income reducing the effective tax rate to 3%.
- VCC and the sub-funds/SPVs can avail the benefits of Mauritius’ network of Double Taxation Agreements.
- The sub-funds and SPVs licensed as CIS and CEF can benefit from a 95% tax exemption on interest income derived.
- The VCC can file a single tax return and pay income tax on the combined income of its sub-funds and SPVs, allowing it to utilise tax losses from certain sub-funds or SPVs.
- If the VCC opts to file separate tax returns, the Mauritius Revenue Authority (MRA) will only have recourse to the assets of the owing sub-funds or SPVs for recovery of income tax, in case there is tax due.
Fund Domiciliation - Resources and insights
