Focus onMauritius

Summer 2017

A warm welcome to our sixth issue of SANNE Connect and our first Mauritian focused edition. Connect is our regular technical bulletin aimed at fund managers, their advisors and investors.

Africa, the land of tremendous trade and investment opportunities With increased political stability, better governance and demographic changes, Africa is quickly transforming into a vibrant frontier market. In addition, the rising production costs in China provides a unique opportunity for African industrialisation. The East are fast seeing the benefits of Africa as a finance centre of excellence to structure and optimally manage risk, avoid pitfalls on the ground and generate superior returns for foreign direct, portfolio and private equity investments.

Mauritius an investment gateway between Asia-Pacific and Africa Mauritius has emerged as a tried, trusted and globally competitive jurisdiction built on exceptional political stability, repute and economic substance. This is due to a well-crafted strategy, bold economic reforms and attractive fiscal and non-fiscal incentives. The island’s strategic geographical location and close historic and diverse cultural population have helped to sharpen the attractiveness and competitiveness of the jurisdiction.

The country is a major player in regional economic cooperation and integration in Africa. As a member of the SADC and the Common Market for Eastern and Southern Africa, Mauritius provides duty free and quota free access to a market of around 600 million people.

Strengthening relationships with our business partners As we move into the second half of 2017, we thought it would be useful to critically evaluate the specific needs of Asia-Pacific investors looking to Africa for opportunities. This edition of Connect will explore the recent developments that aim to facilitate global investment and trade from Asia into Africa with a specific focus on Mauritius as an efficient investment platform.

In the first article, Akshar Maherally, Director (Taxation) at IFS – A SANNE Company, discusses the competitive advantage of Mauritius against some leading international financial centres in light of recent treaty changes.

It gives me great pleasure to introduce our first guest article from Malik Fal, who is an investor and Entrepreneurship Specialist, passionate pan-Africanist and private equity scholar. He chronicles the untapped economic benefits for supporting entrepreneurship in Africa.

I am delighted that Shefali Goradia (Partner) and Amisha Singal (Director) at BMR & Associates LLP, Mumbai, India have provided our second guest article which underscores the importance of outward Indian investments and unravels why Mauritius is a preferred international jurisdiction.

Our final guest article is authored by Edwin Zhiguo Li, Partner at Beijing Dentons Law Offices LLP. He explains why Chinese foreign investors deem Mauritius as a desired investment gateway into Africa.

I hope you find this edition of SANNE Connect interesting and insightful. Together with the team we commit to strengthening our successful partnership with you.

In this edition2 Mauritius Route to India - The Beginning of a

New Era - Mohammad Akshar Maherally

4 Supporting entrepreneurship in Africa – Malik Fal

6 Why Indian Investors consider Mauritius for outbound structures – Shefali Goradia & Amisha Singal

9 A gateway into Africa – Edwin Zhiguo Li

Doing business in Africa

Ramakrishna SithanenChairman and Director IFS - A SANNE Company e: rsithanen@ifsmauritius.com

The Mauritius International Financial Centre (IFC) has consistently been the preferred jurisdiction for structuring foreign investment into India for over two decades.

Ever since the setting up of the global business industry in Mauritius, which coincided with the liberalisation of foreign investment in India, intermediaries, including fund managers, tax and legal advisors, as well as international investors identified the island as a convenient, competitive and tax efficient platform for investing in India. Over the period April 2000 to March 2017, Foreign Direct Investment (FDI) from Mauritius accounted, on average, for 34% of total FDI into India, ahead of financial centres such as Singapore, the UK and the Netherlands.

Embracing success against all odds Inevitably, the steady ascension of Mauritius as the premier provider of Indian FDI worldwide did not go unnoticed, including by Indian tax officers and competing jurisdictions. In 2003, a retired Indian tax official unsuccessfully challenged the India-Mauritius tax treaty in the Indian Supreme Court. Subsequently, in 2005, Singapore negotiated with the Indian Government for similar capital gains taxing rights as under the India-Mauritius tax treaty. From time to time, Mauritius-based entities have been confronted with cases of treaty benefits denial from the Indian tax authorities, which were heard at various Indian judicial instances.

Mauritius overcame substantially all these regulatory, legislative, and competition hurdles, coming out much stronger, more

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The Mauritius route to India –

Key topics

+ What are the new terms of the tax treaty?

+ Mauritius compared to competing jurisdictions

+ The taxing rights on CGT explained

resilient and as a tried and tested jurisdiction. Amidst intermittent challenges and adverse press reports, the Mauritius route continued to be preferred over other IFCs in spite of fiercer competition from Singapore.

Changes to the tax treaty landscape Notwithstanding soaring FDI levels, in the light of India’s increasing adherence to source-based international tax principles and perceptions of tax leakages on account of the capital gains tax exemption under the India-Mauritius treaty, both countries agreed to amend the treaty in May 2016. This new arrangement was a critical stepping-stone for India to proceed with similar amendments with Singapore and Cyprus, the two other popular jurisdictions for Indian investments, in the same year.

Under the new terms of the treaty, effective 1 April 2017, the taxing rights on capital gains arising on disposal of shares held by Mauritius, Singapore and Cyprus resident entities shifted to India, with grandfathering provisions with respect to investments made up to 31 March 2017. Taxing rights with respect to capital gains on disposal of non-share instruments remained with the country of residence and are therefore exempted from tax. Mauritius and Singapore also negotiated for reduced tax rates during the transition period from April 2017 to March 2019. The changes secured short-term stability for the respective IFCs, avoided volatility in the Indian capital markets and, more importantly, brought certainty for international investors regarding completed investments and the cost of doing business in India going forward.

On the debt side, the provisions relating to withholding tax on interest were revisited only in the case of the Mauritius treaty. The rate was aligned at 7.5% for all lenders, including banks which were previously exempted from such tax.

Competitive advantage compared An interesting development around the amendments to the various tax treaties is the redistribution of competitive advantage on debt structuring. While Cyprus has traditionally been the debt-structuring route for India in view of the then competitive 10% interest withholding tax rate, compared to Singapore’s 15%, the withholding tax on interest negotiated by Mauritius is the lowest at 7.5% effective April 2017. The fact that capital gains taxing rights on disposal of debt-related instruments such as bonds and

Beginning of a new era

debentures remain with the country of residence further improves the attractiveness of the Mauritius offering. The increased popularity of leveraged financing in India augurs well for Mauritius as the upcoming favourite jurisdiction for debt structures.

On capital gains, while both Singapore and Mauritius residents are required to satisfy minimum expenditure levels to avail of the preferential tax rates during the transition window, the minimum expenditure required of Singapore entities is significantly higher than that of Mauritius residents. Cyprus was not granted any concessional transition period. In addition, unlike Mauritius and Cyprus, Singapore residents are required to also satisfy the minimum expenditure levels for claiming benefits under the grandfathering provisions.

With the revised Singapore-India treaty explicitly providing for treaty override and Cyprus just moving out from a three -year blacklisting by India, Mauritius retains a definite edge with regards to its leading position for structuring of investments, especially debt, into India.

New El Dorados elsewhere? With the treaty changes implemented, smart advisors are looking to alternative jurisdictions still benefiting from capital gains tax exemption under their respective treaties with India. While the provisions of the tax treaties with South Korea, Zambia and Sweden are interesting, their country specifics and domestic tax regimes reduce such attractiveness. On the other hand, structuring through jurisdictions such as France, Netherlands and Belgium may appear more appealing, however, such potential for arbitrage will only be short-lived.

India will, sooner than later, need to address the issues arising from these alternative jurisdictions. If not through bilateral negotiations, certainly through the Multilateral Instrument (MLI) proposed by the OECD under the BEPS initiative. In this respect, it should be noted that India has listed the tax treaties with the mentioned jurisdictions in its MLI as Covered Tax Agreements (CTA).

With such listing being reciprocated by France, Netherlands and Belgium, all three

tax treaties will be amended to include a Principal Purpose Test (PPT) upon ratification of the MLI by the respective States. The PPT aims at denying treaty benefits if one of the main purposes of a transaction is deemed to be for obtaining the said treaty benefits. Interestingly, the treaties with Singapore and Cyprus have also been listed as CTA by India and vice versa, with the consequence that even grandfathered investments under these treaties will now be subject to scrutiny under the PPT.

While Mauritius is not expected to be shielded against the sweeping effect of the MLI generally, since it has not listed its tax treaty with India as CTA, the India-Mauritius treaty is not expected to be impacted by the MLI. Indeed, Mauritius has committed to engage into bilateral discussions with India with respect to BEPS minimum standards, however, it will have the benefit of freshly negotiated terms with India, which embody the updated intention of the two governments as regarding taxing rights.

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Mohammad Akshar MaherallyDirector, Taxation IFS - A SANNE Company e: akshar@ifsmauritius.com

The future’s shape While it is too early to empirically test the impact of the new international fiscal environment on the use of Mauritius for inbound India investments, official FDI data for the period April 2016 to March 2017, which covers practically a one-year period post announcement of the treaty change, reveals interesting trends. FDI from Mauritius almost doubled compared to previous years to reach US$15.7 billion (36% of total FDI). Singapore, on its part, saw its share decrease by 36.4% to reach US$8.7 billion (20% of total). The figures also attest a 27% increase in FDI from the Netherlands to US$3.4 billion (7.7% of total), a trend which may be in line with the argument that some investors could be testing alternative routes. France only recorded a meagre 2.7% increase.

On the ground, the reactions from stakeholders using the Mauritian IFC on the treaty change are globally positive. While some have concerns on the impact of the tax bill on the IRR and a few questioned the pertinence of a Mauritius structure in the new environment, most have simply factored the tax element in their cost of doing business

and hailed the consequential certainty and predictability that the change has brought about.

It is therefore no surprise that there continues to be interest in Mauritius, for fund structures and holding companies alike post April 2017. In addition, the changed fiscal dimension unveils a whole range of new opportunities for structuring through Mauritius in the debt space and this is likely to provide a new growth impetus to the Mauritius IFC.

Beyond the tax aspect, stakeholders continue to find in Mauritius a credible jurisdiction operating with high governance levels, endowed with remarkable

international ratings, demonstrating ease of doing business and having a pool of talented professionals at competitive costs as well as an unparalleled knowledge of the Indian market. While the capital gains tax exemption under the India-Mauritius treaty has been instrumental to Mauritius, the maturity of the IFC will certainly provide significant rationale for consolidating the India business in the future.

FDI Into IndiaApril 2000 to March 2017

FDI Into IndiaTop International Financial Centres

120

100

80

60

40

20

0

18,000

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0Mauritius

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Singapore Japan

Top five investor countries

Indian fiscal year (April to March)

USD

Bill

ion

USD

Mill

ion

U.K. Netherlands

UAE Cyprus Netherlands Singapore U.K. Mauritius

Aliou Ba, Momar’s long-time Production Director was a highly competent and ‘battle-hardened’ engineer. It had taken him two days to figure out which critical piece of the new system’s machinery had broken down, and he had already placed an order with their Italian equipment supplier. Upon arrival in Europe Momar was to stop in Italy and go to the equipment supplier. There he would check and collect the spare part, courier it to Aliou in Dakar, and continue with the rest of his family holiday.

Three days later, calling from Spain, Momar decided to check in with Aliou.

Momar: “Allo Aliou, how are you? We are in Spain now; we fly back on Friday next week. How are things at the plant? Did you receive the part? Is everything back on track?”

Aliou: “Allo boss. I am good thank you! Hope you and the family are too. I tried to reach you several times but your phone was off. We did receive notice from the post office that a package had arrived but they would

not release to us! Only you have access to the mailbox and they

wouldn’t budge!”

However disconcerting it may sound, this incident at

Tomate-Sen is emblematic of African

entrepreneurship. Thanks to a myriad

of historical, structural, geographic as well as leadership factors, Africa’s full economic potential is yet to be realised. Sadly, soon after the above incident, Tomate-Sen soon disappeared in existence. In just three years, on the back of 50,000 euros in

savings, great relationships with

local tomato farmers, and a zest of

entrepreneurial tenacity, Momar Sougna had

managed to build a seemingly successful business. However, soon after its initial success and thanks to a myriad of internal as well as external problems, the company collapsed.

The local landscape for African entrepreneurs To begin with, local supply and access to capital are critical for the growth of promising businesses. The International Finance Corporation estimates that up to 84% of small and medium-sized enterprises (SMEs) in Africa are either un-served or underserved, representing a value gap in financing of US $140-170 billion.

Then there is the issue of what type of financiers are needed at different stages of the entrepreneurial journey. Most people in Africa would say that the banks do not play their role in financing local entrepreneurs. In reality, the banks are neither structured nor geared up to finance entrepreneurs; their primary responsibility is to their own depositors, and knowing that about 80% of new businesses fail within the first five years, providing finance to SMEs is far too risky for banks.

Instead, what is needed in Africa is a much deeper financial community with different players for the different stages of the entrepreneurial journey; Angel Investors, Venture Capitalists, Private Equity firms, Banks and Stock Markets all have a role to play in the financing eco-system.

Attracting and retaining talent in Africa The cost implications of recruiting and continuous development often prevents African SMEs from professionalising and thus scaling their operations. In cases where entrepreneurs have technical backgrounds, such as IT or engineering, or where they have received little to no business management training, the need for experienced managerial talent to complement a company’s technical talent is all the more critical.

One aspect of this challenge for entrepreneurs in Africa (and elsewhere) is

With many countries in Africa facing difficulties, it is time for entrepreneurs to look at ways of transforming the way they do business to make themselves more resilient.

Success breeds success Across Africa, entrepreneurs are at the forefront of the continent’s struggle for prosperity. Whether operating in agribusiness, technology, services or any other industries, it is these men and women, through their ventures, who create wealth; not the governments under which they operate. As such, as Harvard Professor Michael Porter said, “governments’ responsibility is to do everything they can to help local entrepreneurs, except impede competition”.

For the continent to move forward, progress has been achieved to foster entrepreneurial environments in Africa. Africa has the talent, opportunities, and drive to build incredible businesses. For the first time in history and thanks to the emergence of greatly disruptive technological tools, the continent also has a unique opportunity to build great new businesses faster than ever before.

Realising Africa’s tremendous entrepreneurial potential will come down to massive shifts in African leaders’ support, the public sectors willingness to learn and invest in great local companies, and business leaders who can dream big but have the humility to understand and acknowledge their own limitations.

The tale of Mr Sougna’s mailbox The past two weeks had been extremely hectic and costly for Momar Sougna1. The pulp vacuum-evaporation system of his tomato paste plant had been down for ten days, right at the end of peak season. Tons of fresh produce stocks, straight from the last few weeks of the year’s main harvest, were about to rot. Thirty-five of his 42 production workers had been sitting idle for days on hand. And if things carried on that way, a major order from the country’s largest supermarket chain might be jeopardised. Entrepreneur in Africa is not for the faint hearted, Momar had gone through similar crises before; despite being exhausted he was looking forward to his annual overseas holiday. In any case, the plan to fix the problem was rather straightforward.

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Summer 2017

Key topics

+ The reality entrepreneurs face in Africa

+ What are the support structures needed?

+ Building successful networks

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“Entrepreneurs in Africa require training and education to allow them to succeed in starting or growing a business.”

A vignette on African entrepreneurship

continued overleaf...

With the exception of South Africa, large firms do not typically dominate most sectors and thus entrepreneurs are able to pursue market opportunities without being unfairly blocked by well-established firms. With the advent of greater connectivity and digital disruption, many more business opportunities have emerged but there as well, tremendous work is required to improve, clarify, and strengthen Intellectual Protection laws and regulations.

Finally in the area of Africa’s entrepreneurial culture, and here we speak of ‘opportunity’ and not ‘necessity’ ventures, it seems that the pursuit of entrepreneurship as a viable career has gained acceptance and legitimacy. More and more African professionals such as Momar Sougna decide to launch ventures instead of settling for conservative corporate jobs.

One recurrent challenge however, is that Africans may not yet fully appreciate the ‘entrepreneurial journey’ as opposed to the ‘entrepreneurial glamour’.

Having a romanticised image of the smart, impetuous, bold and rich entrepreneur who conquers markets and lives in luxury can be

very misleading if it is not coupled with an awareness of the countless hours of work, disconcerting moments of payroll uncertainty at month-end, struggles to keep operations going on razor-thin cash flows, and many other challenges that all entrepreneurs encounter.

Momar Sougna started well and could have built Tomate-Sen into a large, sustainable, regional success story. The challenges he faced, within himself, within his company, and within his environment, were not insurmountable. If only he had reached out and shared the key to his mailbox with more people.

severe competition with well-established corporate firms that have the means and security and hire young talent. As highlighted in the recent ‘Accelerating Entrepreneurship in Africa’ report, the existence (or lack thereof) of entrepreneurship training in the education system plays a crucial role in this discussion.

Entrepreneurs in Africa require training and education to allow them to succeed in starting or growing a business. Furthermore, entrepreneurs need a skilled workforce to meet their business goals. While 86% of colleges in Sub-Saharan Africa offer a course in entrepreneurship, Afro-entrepreneurs also need to provide their staff with mentoring, share incentives, enough autonomy, the relevant skills development and the relevant decision making powers.

Africa’s ability to compete Africa’s shortcomings in roads, access to water and electricity, telecommunications, and other specialised infrastructure deeply affect an enterprises’ costs and ability to scale. Coming back to Tomate-Sen because of poor storage and transport infrastructure, the cost of local produce inflated by sourcing inefficiencies and as a result,

Senegalese processors like Momar Sougna eventually found that it was cheaper to buy and dilute Italian tomato paste than purchase tomatoes from local farmers. This situation is not unique to Senegal, or to tomatoes; it pervades most value chains and industries and seriously compromises African entrepreneurs’ ability to compete.

It takes a village to raise an entrepreneur To develop a company one requires a variety of skills, contacts, and expertise. Many of these skills are often lacking in Africa leaving many entrepreneurs without the resources to hire the professional services it may need; lawyers, accountants, technical assistance, etc.

In many developed countries, or in some ‘entrepreneurial’ communities in less developed countries, entrepreneurs often benefit from family or informal networks from which they can access all kinds of advice, assistance and information in order to solve a multitude of day-to-day problems. Unfortunately, most entrepreneurs in Africa do not have access to these types of informal networks, and it is therefore essential to address this deficiency through

the provision of widely available, high-quality business support services. In addition, a number of other visible and invisible barriers such as cost, gender bias, and poor quality assistance have prevented the critical support needed by African entrepreneurs.

With regards to compliance, the general sense from African entrepreneurs is that while legislation is not perceived as a major hindrance, administrative burdens still weigh heavily across the continent.

Thanks to initiatives such as the World Bank’s annual ‘Doing Business Rankings’, more and more governments are recognising that entrepreneurship can be a huge contributor to economic growth. The pervasive informality on the continent allows entrepreneurs to operate ‘below the radar’ and outside the confines of formal laws. While this leaves many businesses economically excluded, with limited access to financial and consumer markets, most Afro-entrepreneurs believe that to successfully launch a new venture, it is acceptable to begin by operating in the informal sector.

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Malik FalInvestor and Entrepreneurship Specialiste: malik_fal@hotmail.com

1. The names mentioned in this piece have been disguised to protect the real identity of the protagonists.

“Angel Investors, Venture Capitalists, Private Equity firms, Banks and Stock Markets all have a role to play in the financing eco-system.”

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Indian businesses are maintaining a strong trend of investing globally. Outbound investment is no longer the exclusive turf for large business houses as many smaller Indian businesses and start-ups also nurture global ambitions. As per the data released by the Indian Ministry of Finance, India crossed US $33 billion in cumulative outflows injust over three years (April 2013 to August 2016) and Mauritius has consistently been amongst the preferred top-five outbound destinations.

Mauritius offers a host of advantages to Indian companies looking to set-up offshore holding vehicles for easy movement of capital for overseas business units, such as a business-friendly legal, tax and regulatory framework. Mauritius also scores well on several other important commercial parameters, including:

• An established banking system and financial regulators

• A wide pool of highly trained professionals in finance, legal, accounting and administration services, many of whom have significant experience in working with Indian companies

• Convenience for Indian companies and / or directors in terms of physical proximity and time difference

• Locational advantage as a port

• Competitive tax rates; no withholding tax on dividends, interest or capital gains remittances

• A bouquet of trade agreements and treaty networks, especially with respect to the rest of Africa

• Flexibility in corporate restructuring and re-organisations (including cross-border mergers with Indian companies)

• Developed infrastructure

• Dual listing of companies on the Stock Exchange of Mauritius

• Relatively easy, fast and inexpensive compliances

The future investment outlook is promising as per the recent McKinsey & Co report, which highlights that India has a unique value proposition for African markets, especially in sectors such as IT, consumer goods, agriculture and power. The same report also mentions that India could aspire to boost its Africa revenues to US $160 billion by 2025. As a recognised ‘gateway’ for investments into Africa, Mauritius is likely to see a lot of such investment activity targeted towards Africa. The recent Budget proposal of making Mauritius a Fintech Hub for Africa will further foster investment from India into Mauritius. Also, the ‘Innovation Hub’ regime that offers 8 year tax holiday for all income generated from IP developed in Mauritius will be attractive to Indian companies.

Tax treaty competitive advantage The India-Mauritius tax treaty has undergone a significant revision recently and for India-inbound structures, the capital gains tax exemption has been phased out. Mauritius still remains an attractive jurisdiction especially for pooling vehicles as it offers the ease of administration and tax neutrality. In addition, on outbound interest payments from India, the treaty offers a concessional withholding rate of 7.5%.

The India-Mauritius tax treaty continues to offer a significant benefit of underlying tax

credit in India with respect to ‘Mauritius tax payable’ on profits of a Mauritius company that pays out dividends to an Indian resident, who owns at least 10% of the shares in the Mauritius Company. Since dividends received from an overseas associate company (i.e. where the Indian company owns at least 26% shareholding) are subject to a beneficial 15% tax rate under Indian domestic tax law (before surcharge and cess), when netted off against the Mauritius company tax rate of 15%, the same results in little or no tax leakage in remitting profits to India.

Key topics

+ The importance of using a well regulated jurisdiction

+ Why consider the unique value proposition of Mauritius

+ The competitive advantage of the tax treaty

“As a recognised ‘gateway’ for investments into Africa, Mauritius is likely to see a lot of such investment activity targeted towards Africa.”

US mn$ % share US mn$ % share US mn$ % share

Mauritius 1254.99 9.42% 621.36 9.34% 1174.65 12.63% 10.42%

Singapore 1476.61 11.08% 1589.85 23.90% 1303.76 14.02% 14.93%

USA 975.15 7.32% 1220.71 18.35% 1632.57 17.55% 13.08%

Netherlands 1778.53 13.35% 731.79 11.00% 994.58 10.69% 11.97%

BVI 2830.21 21.24% 106.84 1.61% 73.77 0.79% 10.28%

UAE 293.76 2.20% 442.3 6.65% 1739 18.70% 8.45%

Switzerland 414.98 3.11% 353.3 5.31% 727.45 7.82% 5.11%

UK 436.55 3.28% 332.09 4.99% 529.17 5.69% 4.43%

Jersey 0 0.00% 210.77 3.17% 99.34 1.07% 1.06%

Cyprus 113.86 0.85% 118.64 1.78% 59.69 0.64% 1.00%

Other countries

3751.26 28.15% 924.59 13.90% 967.8 10.40% 19.27%

Total 13325.9 100% 6652.24 100% 9301.78 100% 100%

FY 2013-14(April to March)Country

FY 2014-15(April to March)

FY 2015-16(April to March)

Cumulative % (Apr 2013 to Mar 2016)

Why Mauritius remains the preferred jurisdiction for India-outbound structures

continued overleaf...

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In the same period, China’s investment into the African continent reached US $3.3 billion spread across the sectors of mining, manufacturing, wholesale and retail, construction, lease and business services.

The trade volume between China and Africa is around US $149.12 billion.

US $92.22 billion is the export from China to Africa, and US$56.8 billion is the import from Africa to China.

Although it is hard to calculate how much of the investment and trade between China and Africa went through Mauritius, entrepreneurs in Mauritius, other states in Africa and China need to give much more consideration on how to utilise Mauritius as an international hub for scalable investments and trades.

Although Mauritius has been selected by many foreign investors as the platform to invest into China, we have not seen the equivalent trend in Chinese investment into Africa. Some Chinese companies have established their operation headquarters for Africa in Mauritius such as CAD Fund, Huawei and Shanxi Tianli Enterprise Group. Given the attractiveness of Mauritius as a finance hub, it is only a matter of time before other Chinese investors follow.

When considering investment in and trade with Africa, Chinese investors need to structure the project and transaction from a tax, legal and commercial perspectives.

Favourable tax regime Tax planning should be one of the significant elements when Chinese investors make an ODI decision.

Summer 2017

The data published by the Mauritius central bank and central statistics bureau in April shows that China was the second largest foreign investor (US $70 million, following US $128 million from France) and the largest exporter (17.7%) to Mauritius in 2016.

Key topics

+ What trends to look out for

+ The importance of a stable legal framework

+ Why Chinese investors look to Mauritius

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Mauritius - The Gateway for Chinese investment into Africa

Amisha SingalDirector BMR & Associates LLP, Mumbai, India e: amisha.singal@bmradvisors.com

Shefali GoradiaPartner BMR & Associates LLP, Mumbai, India e: shefali.goradia@bmradvisors.com

Recent trends from India perspective Tax aspects - As more Indian businesses go global, Indian tax authorities are turning their attention towards outbound structures, particularly towards the use of SPVs in low-tax jurisdictions. Structures that facilitate deferral of taxes are frowned upon. The recent domestic tax reform to replace the existing tax residence test with the internationally recognised concept of ‘Place of Effective Management’ was a clear step in this direction. It is possible that Indian tax authorities may also invoke General Anti-Avoidance Rules, which have taken effect from 1 April 2017, to

question the place of residence of a company outside India where such residence does not have any substantial commercial purpose other than to obtain a tax benefit. Therefore, commercial substance and non-tax objectives in using a particular jurisdiction or a structure have become critically important. The recent Budget proposal which requires GBC1 companies to meet at least two substance conditions will further strengthen Mauritius’ image as a substance based jurisdiction.

Regulatory aspects - While individuals are prohibited from investing in Mauritius, Indian corporates are permitted to make such

investments under general permission route subject to applicable regulatory norms, such as that overseas investments should not exceed 400% of the Indian investor’s net worth. In the past, Indian regulators have raised concerns on ‘round-tripping’ where purportedly monies from India have been routed back using the Mauritius window. Due care should be taken to avoid such structures where money invested overseas is directly or indirectly invested back into Indian companies.

continued overleaf...

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Mauritius has concluded 50 Double Taxation Agreements (DTA) with other countries, 43 of which are in force and seven are waiting for ratification. There are another five DTA’s waiting for execution and 18 are still under negotiation1. Twenty-nine African countries are the parties to these DTAs. Utilising DTAs in countries like Egypt, Zambia, Republic of the Congo, Botswana, Madagascar, Uganda and Zimbabwe, offer Chinese investors a tax saving of up to 10.5% for dividends from Congo and up to 30% for capital gain from Uganda.

If such tax savings are taken into account when Chinese investors carry out the feasibility study report, many of the so called commercially infeasible projects will become viable.

Stable legal framework Domestically, Mauritius has a unique hybrid of French and English legal system providing a sound and stable legal and regulatory framework for foreign investors. There is no foreign exchange control and funds can be remitted in and out of Mauritius without any hindrance from the Government and financial institutions. Free movement of money may not be realised in most African countries, which can be a concern to some foreign investors.

Moreover, Mauritius has concluded 45 Investment Promotion and Protection Agreements (IPPAs) with other countries, 23 of which are from Africa. For those African countries which China has not concluded Bilateral Investment Treaty’s (BIT) with such

as Burundi, Zambia and Senegal, Mauritius comes highly recommended as a holding company destination for African investments.

More sensible commercial connection With the globalisation of Chinese companies, investment and trade with African countries not only means that the business solely occur between China and Africa, but also can expanded to anywhere else in the world.

Under the African Growth and Opportunity Act (AGOA), Mauritius is one of the eligible countries to enjoy duty-free for around 6500 kinds of products to enter the United States (US) if such product is eligible under the Generalised System of Preferences

(GSP) or Normal Trade Relations (NTR), known formerly as Most Favoured Nations (MFN). This will give option to Chinese manufacturers on those anti-dumping and countervailing duty investigations frequently brought by the US Department of Commerce.

Mauritius signed the Economic Partnership Agreement (EPA) with the European Union (EU) in 2009. The EPA includes the elimination of duties and quotas for imports from these countries to the EU, and rules of origin, fisheries, trade defence, development cooperation provisions and mechanisms for settling disputes.

Therefore, through Mauritius, Chinese investors will have more opportunities to

extend their business to the US and EU with well-designed structure.

Mauritius, as an island in the Indian Ocean, can not only be the gateway for the investment and trade between China and Africa, but the hub for Chinese investors to step-up to the international platform.

Edwin Zhiguo LiPartner Beijing Dentons Law Offices, LLP e: zhiguo.li@dentons.cn

Summer 2017

1. http://www.mra.mu/index.php/taxes-duties/double-taxation-agreements

Following the acquisition of IFS Group in January 2017, SANNE now include Mauritius as part of its global footprint.

With more than 20 years of expertise and service in the global sector, IFS provide tax-compliant and cost-efficient solutions that deliver investor protection, capital efficiency as well as administrative and compliance ease to clients.

Following the successful integration into SANNE our offices in Mauritius work closely with our colleagues in Europe, the Middle East, Asia and the Americas as cross border investment between these key global investment regions grows. As part of our extensive service offering we also provide third-party administration services for funds registered in other jurisdictions.

SANNE provide both fund and corporate services including the establishment and ongoing servicing of investment vehicles and holding entities in many jurisdictions across the globe including Mauritius, the Caribbean, Singapore, Hong Kong, Jersey, the UK, Netherlands and Ireland as well South Africa and the Americas.

Should you wish to find out more about our services and operations in Mauritius, or our global offices please speak to us, we would be delighted to hear from you.

About our offices and network in Mauritius and beyond

Information on Sanne and its regulators can be accessed via sannegroup.com

sannegroup.com

linkedin.com/company/sanne-group

twitter.com/SanneGroup

“We take great pride in understanding the unique needs of each individual client to create bespoke business solutions. ”

Fareed Soreefan Director, Compliance and Control IFS – A SANNE Company t: +230 4671700 e: fareed@ifsmauritius.com

Rubina ToorawaChief Operating Officer IFS – A SANNE Company t: +230 4671300 e: rubina@ifsmauritius.com

About Sanne Group plc

Experiencethe difference

Over 1,000 peopleworldwide

Over £160 billion assets under

administration

Fastest growingadministration

business

FTSE 250Listed business

Valérie MantotDirector CRM - Asia-Pacific t: +65 6809 3777 e: valerie.mantot@sannegroup.com

Ramakrishna SithanenChairman and Director IFS – A SANNE Company e: rsithanen@ifsmauritius.com

Mohammad Akshar MaherallyDirector, Taxation IFS - A SANNE Company e: akshar@ifsmauritius.com