The global business sector was established in the early 1990s to attract foreign investment into Mauritius and has gradually become one of the pillars of the economy today.
The initial regime introduced by the Mauritius Offshore Business Activities Act 1992 allowed offshore corporations and trusts to carry out offshore business activities such as offshore insurance, offshore funds management, offshore banking, international consultancy services, international financial services, shipping and ship management, aircraft financing and leasing, international trading and assets management amongst others.
By seeking to make the jurisdiction more attractive to foreign investors and with a view to further facilitate the ease of doing business in Mauritius, the regulatory landscape was modernised in 2007 with the advent of the Financial Services Act 2007 (the Act).
Investments at that time were conducted through corporations holding either a Category 1 Global Business Licence (GBL1) or a Category 2 Global Business Licence (GBL2).
The GBL1 licence offered investors an efficient vehicle for tax structuring and planning, as the holder of that licence was resident in Mauritius for tax purposes and could avail itself of tax benefits under the expanding network of double taxation agreements.
To benefit from those tax advantages, the holder of a GBL1 licence applied for one or more country-specific tax residence certificates or a general tax residence certificate issued by the Mauritius Revenue Authority.
The absence of capital gains tax, withholding tax of certain categories of income (such as foreign source dividends, foreign source interests and royalties), and inheritance tax were amongst the various advantages conferred by the GBL1 licence. With a deemed foreign tax credit of up to 80%, a GBL1 licensee was subject to an effective maximum rate of 3% on its chargeable income in Mauritius.
A GBL1 licensee was most commonly structured as a company, a trust, or a limited partnership under Mauritius law and could carry out any business activity (such as asset management, credit finance, distribution of financial products, factoring, treasury management and so on), provided that it was being managed and controlled from Mauritius.
The test for ‘management and control’ evolved over time and, prior to the reform in 2018, was determined by the Financial Services Commission (the FSC) based on the following factors:
- The appointment of at least two resident directors on the board, and all board meetings including these resident directors;
- The opening and maintenance of a principal bank account in Mauritius;
- Keeping accounting records in Mauritius;
- The audit of financial statements in Mauritius;
- Demonstrating economic substance in Mauritius by complying with at least one of the criteria below:
- having office premises in Mauritius;
- employing at least one person in Mauritius;
- holding assets worth at least USD 100,000 in Mauritius;
- having the GBL1 licensee’s shares listed on a securities exchange in Mauritius;
- complying with minimum annual expenditure requirements, depending on the activity conducted; or
- incorporating a clause in its constitutive documents, such that disputes would be resolved by arbitration in Mauritius.
It was also a requirement that a GBL1 licensee should be administered at all times by a management company, duly licensed by the FSC.
In contrast to the GBL1 licence, GBL2 licence was more flexible in that it did not carry out business in Mauritius and was therefore exempt from any Mauritian tax implications.
Another distinction was that a GBL2 licensee was entitled to appoint only one director, who need not be resident and could be an individual or a corporation.
The GBL2 licence was generally used for wealth protection, holding intellectual property or other assets, or conducting non-financial activities. The holder of a GBL2 licence was prohibited from (a) carrying out banking activities, financial services, collective investment schemes, trusteeship services, (b) acting as professional functionary of a collective investment scheme, or (c) providing registered office facilities and nominee, directorship and secretarial services.
A GBL2 licensee was administered by a registered agent licensed by the FSC. The registered agent provided a limited number of services to the GBL2 licensee, such as the filing of returns and liaising with the regulators (including the FSC).
The 2018 reform
The Finance (Miscellaneous Provisions) Act 2018 brought about significant changes to the global business sector. The GBL1 licence was renamed as a global business licence (the GBC licence) and the GBL2 licence was abolished and replaced by a new regime for authorised companies (AC).
The transitional provisions between the pre-2018 and the post-2018 regimes permitted holders of GBL1 licences and GBL2 licences issued on or before 16 October 2017 to be grandfathered by the Act until 30 June 2021, following which GBL1 licences would be deemed to be GBC licences. However, GBL2 licences will lapse after 30 June 2021 and holders ought to have applied for a GBC licence or sought authorisation to operate as an AC by the June 2021 deadline.
Similarly, GBL1 licences issued after 16 October 2017 continued until 31 December 2018, after which they were deemed to be GBC licences. GBL2 licences issued after 16 October 2017 lapsed on the expiry of the December 2018 deadline and were either subsequently licensed as GBC licences or ACs.
Global business companies
The amendments ushered in 2018 did not significantly distinguish the the GBC licence from its predecessor as the GBC licence shared a number of characteristics to the GBL1 licence.
The holder of a GBC licence must:
- be held or controlled by non-citizens of Mauritius holding a majority of shares, voting rights, or legal or beneficial interests in the licensee;
- conduct business principally outside of Mauritius or with certain categories of persons prescribed by the FSC;
- conduct its core income-generating activities in or from Mauritius by (i) directly or indirectly employing a number of qualified persons to carry out its core activities and (ii) having
a minimum level of expenditure proportionate to its activities;
4. be managed and controlled from Mauritius; and
5. be administered by a management company licensed by the FSC.
The criteria in paragraphs (c) to (e) were in essence identical to the features of a GBL1 licence. Moreover, in determining whether the GBC licensee is managed and controlled from Mauritius, the FSC considers the same criteria as it would have for a GBL1 licence.
Similarly to GBL1 licensees, GBCs may avail themselves of tax advantages under the DTAs.
Although the result of paying a maximum effective tax rate of 3% is similar, the mechanism of foreign tax credits applicable to GBL1 licensees was removed and replaced with a partial exemption regime.
A GBC benefits from a partial exemption of 80% of the Mauritian tax liability on certain categories of chargeable income (e.g. foreign source dividend, foreign source interest, income derived by companies engaged in ship and aircraft leasing, profit attributable to a permanent establishment of a resident company in a foreign country, and foreign-source income derived by a collective investment scheme, closed-end fund, manager of a collective investment scheme, administrator of a collective invesment scheme, investment adviser or asset manager, licensed or approved by the FSC).
The introduction of the AC regime was the most notable overhaul. Whilst a GBL2 licence and an AC both qualify as non-residents in Mauritius for tax purposes, the attributes of an AC are substantially different from those of its predecessor.
GBL2 licensees were not necessarily structured as companies. In contrast, an AC is by definition a company incorporated under Mauritius law, and must seek the AC authorisation from the FSC where:
- the majority of its shares, voting rights or legal or beneficial interest is held or controlled by non-citizens of Mauritius;
- it conducts business principally outside of Mauritius or with prescribed categories of persons; and
- its place of effective management is outside of Mauritius, whereby:
- the strategic decisions relating to the core income generating activities of the AC are taken outside of Mauritius; and
- either the majority of its board meetings are held outside of Mauritius or the executive management of the AC is regularly exercised outside of Mauritius.
In view of the impending deadline, holders of GBL2 licences ought to apply for a GBC licence or submit an application to be authorised as an AC depending on the nature of their activity. Considerations to be taken into account include:
- (a) The appointment of two resident directors, if the holder of a GBL2 licence seeks a GBC licence. Such an appointment would also have cost implications;
- Structural changes in the shareholding. In contrast to their predecessors, the majority of shares, voting rights or legal or beneficial interest of a GBC or an AC must be held or controlled by non-citizens of Mauritius; and
- Tax implications.
The processing of applications is expected to take between five to ten business days after the submission of a complete application to the FSC.
If a GBL2 licence lapses, the entity nevertheless remains subject to the obligations of a licencee of the FSC and must continue to comply with any terms and conditions determined by the FSC (including with any directions for the orderly dissolution of business and the discharge of liabilities)