Mauritius as an international financial centre and the The MIFC’s road to going global

 “Mauritius offers investors the advantages of an offshore financial center in the Indian Ocean, with a substantial network of treaties and double-taxation avoidance agreements, making it the gateway for routing funds into Africa an India” – UNCTAD 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 center of excellence and repute” says Pravindh Jugnauth, the finance 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. “With investors choosing Mauritius as a favorable 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 CEO of Barclays Bank Mauritius.

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

With “a favorable 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, with world class institutional support all helping to fuel the emergence of Mauritius as an international financial center” according to Sunil Benimadhu CEO of the Mauritian Stock Exchange” coupled with the fact that the country has been accepted by the OECD as a “white-list” country.

With global standards applied by their local regulators the Financial Services Commission or the Bank of Mauritius, with the country being amongst the first to implement the US Foreign Account Tax Compliance Act (FACTA) and also being a member of both regional African preferential trade networks SADC and COMESA.  

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

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

As a result, the traditional tax advantages of using Mauritius to invest in India will not exist by 2019. Meaning tax planners are now eyeing 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 build up the countries links. “This 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 CEO of GFin Corporate services.

A view echoed by Vishnu Lutchmeenaraidoo, Mauritius’s foreign minister, “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. Whilst Mauritius 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.  

With companies being encouraged to put down more roots in Mauritius with the inducement of tax incentives designed to attract regional headquarters, treasury management centers, international, law firms, fund and asset managers. These new measures being unveiled in the recent budget by finance minister Jugnauth, in what he described as a “new thrust to the development of our financial service sector.”

The plan being to create an ecosystem of ancillary services that adds value to the finance industry, which is already much more than the offshore sector. “Mauritius needs now to build on our existing capabilities 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, but 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. 2015’s collapse of BAI, a financial conglomerate, exposed regulatory failings and there are frequent allegations of corruption amongst the political elite. While the island is less vulnerable to changes in global tax rules than smaller, less diversified financial centers, the international crackdown on tax abuses nevertheless presents big challenges to the offshore finance industry.

With those at the apex of shaping it in agreement that it is now time to focus on more than tax “This is an opportunity to completely reinvent the financial services sector and give it real substance” - says Ravi Yerrigadoo, the island’s attorney-general.   

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 head of the body overseeing financial services promotion 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.”

Hitherto Mauritius had been operating primarily as an offshore financial services sector, heavily reliant on tax treaties and orientated mostly to back-office operations. It now has a vision of graduating the products and services that they 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 Ravin Dajee CEO of Barclays Bank Mauritius.

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 Harvesh Seegolam.

Today the Mauritian IFC is made up of 22 local and international banks, offering 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. With all banks being issued with a single banking license, which entitles them to conduct both domestic and international transactions.

The global business segment of the IFC, starting from modest beginnings in the early 1990’s is now home to some of the leading funds from around the world, boasting 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 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, whilst its wide network of treaties and a favorable tax regime make it the ideal bridging step between the Western World and the emerging markets of Africa. Their financial and corporate services are once more taking the lead in the development of the island as a financial services hub.

“Our objective is clear Mauritius plans now to sell itself as a world class financial-services hub” - says Sumil Benimadhu CEO of the Stock Exchange of Mauritius.