A comprehensive guide to establishing a closed or open-end investment fund in MauritiusPosted: 23 Sep 2021
Mauritius is an island off Africa's southeast coast located in the Indian Ocean and east of Madagascar. It is geologically located within the Somali plate. Mauritius has a booming and stable financial economy and is a potential option for any fund manager, institutional investor or private investor considering setting up a fund or trust structure. In recent years it has gained popularity with leading infrastructure, administration options and relatively straightforward and familiar fund structures.
Recently it introduced variable capital companies (2020/21) which will add other ways to structure Mauritian funds. In October 2020 there were 1070 global (open-end and closed-end funds) located in Mauritius. It is also recognised as a key ground for growth in digital assets, cryptocurrency, blockchain projects and other alternative asset classes.
If you are considering setting up a structure in Mauritius (or offshore) this article will guide you through the main requirements, considerations, and documentation.
The advantages of Mauritius
- Low tax – (Partial Exemption Regime – applicable to domestic and global business companies (GBCs) – 80% of foreign-source income from collective investment schemes (CIS), closed-end funds (CEFs), CIS manager or administrator will be exempted from income tax. And a tax rate of just 3%.
- Recently strengthened CTF and AML laws
- No capital gains tax and no withholding tax on dividends and interest
- No exchange controls and no repatriation fees
- Politically and economically stable
- Strong, flexible and effective legislative and Court system
- Geographic and time zone advantages for the global markets (GMT +4) (or the same as GST) - Investment Promotion and Protection Agreements (IPPAs) - There are some clear advantages for establishing a fund here, the offshore island enjoys a low tax regime bolstered by the safety of double tax treaties (DTAAs) with other jurisdictions – you can access a list of jurisdictions here.
- Low-cost jurisdiction for services
- Risk mitigation platform into MENA and GCC
- Range of structuring options with varying advantages (Global CIS, Professional CIS, Specialised CIS and Expert Fund)
Core Legislation and regulatory bodies
The Protected Cell Companies Act 1999
Companies Act 2001
The Trusts Act 2001
The Financial Intelligence and Anti-Money Laundering Act 2002
The Securities Act 2005
Securities (Disclosure Obligations of Reporting Issuers) Rules 2007
The Securities Licensing Rules 2007
Securities Public Offers Rules 2007
The Financial Services Act 2007
The Securities (Collective Investment Schemes and Closed-end Funds) Regulations 2008
The Financial Services (Consolidated Licensing and Fees) Rules 2008
The Limited Partnerships Act 2011
The Financial Services (Special Purpose Fund) Rules 2013
The Guidelines for Advertising and Marketing of Financial Products 2014
The Code of Business Conduct 2015
The National Code of Corporate Governance for Mauritius 2016
The United Nations (Financial Prohibitions, Arms Embargo and Travel Ban) Sanctions Act 2019
The Financial Services Commission (FSC) is the regulator
The Registrar of Companies
The Registrar of Limited Partnerships
Stock Exchange of Mauritius (SEM)
Typical process for establishing a fund
- Identify company structure, legal vehicle and classification (if substantially operating outside of Mauritius the entity will require and Global Business Licence (GBC)
- Prior to application reserve proposed name(s) for the entities with the Mauritius Registrar of Companies/Registrar of Limited Partnerships (if approved the proposed name will be reserved/valid for two months)
- Concurrently apply for authorisation and GBC (or if no GBC required, just authorisation) with the FSC
- Documentation on submission will include: complete application form, fund documents (including company, constitutions, shareholders agreement (if required), limited partnership agreement (if required), investment management agreement (IMA), trust deed (if required), subscription agreement and advisory agreement – the drafts of which should be submitted to the FSC in their near final form.
- (if required) a draft offering memorandum or prospectus
- A consent form for initial shareholders/directors/partners
- KYC documentation/policy (which may apply to any or all promotors, beneficial owners, proposed directors, general partners, partners or trustees (as applicable)).
- Certificates of incorporation and other confirmations/documents
*The FSC may from time to time require further information to clarify or justify certain documents, structures or additional due diligence information.
Type of Fund: Open-end, Closed-end and Alternative Investment Funds
The distinction between open-end and closed-end funds is with open-end funds there is an obligation to redeem a participant’s shares at their request, at a price corresponding to the net asset value of those investments (less fees and commission). With closed-end funds this obligation does not exist.
(Retail) Open-end or Collective Investment Schemes (CIS) are commonly structured as a public or private company, a unit trust or a protect cell company (PCC). These can be targeted towards retail and non-retail investors. Open-end funds are subject to stricter regulation that closed-end funds.
(Retail) Closed-end funds or Closed-end Funds (CEF) are characterised by the fact that investors do not have control on when and how they exit the fund. These are the typical structures used for private equity funds. The typical vehicle is a private company limited by shares of a limited partnership (LP). They can be targeted towards retail and non-retail investors. Closed-end funds are subject to less regulation that CIS’.
(Professional only) Alternative Investment Funds (AIF) are classified as an expert fund or professional collective investment scheme (PCIS) and can only be offered to professional and sophisticated investors (or elected sophisticated investors). These can be set up as companies, limited partnerships, protected cell companies or trusts.
Specific types of Open-end and Closed-end
Collective Investment Schemes (CIS): the type of investors, nature of the investments and regulators requirements include:
- Retail scheme: capital invested primarily by individual investors such as mutual funds and ETFs
- Global scheme: A CIS that holds a Global Business Company (GBC) licence (allowing a fund whose primary objective is to invest outside Mauritius and which is also ultimately owned by non-citizens) – the purpose of this is to expedite operations and investments outside of Mauritius.
- Professional CIS: only targeting sophisticated investors or via private placement (PPM).
- Specialised CIS: invests in high-risk or illiquid assets including derivatives, certain more complex securities, and real estate.
- Expert fund: restricted to expert and sophisticated investors.
Closed-end funds (CEF)
- Closed-end Fund (reporting Issuer)
- Professional Collective Investment Scheme
The Legal Vehicle
For Open-end funds can be established as companies, limited partnerships (LP), trusts, Sociétés (French form of partnership) or PCC.
For Closed-end funds can be established as a company or limited partnership (LP)
Companies – companies can be private or public and are incorporated under the Companies Act 2001. Shareholders own shares in the company. The private company is limited to a maximum of 50 shareholders and cannot offer shares to the public. The main features are the limitation of liability up to the amount the shareholder has invested, the board is subject to the principles of fiduciary duties, the company (much the same as the UK) has a separate legal personality and it is subject to rules on filing and reporting.
Limited Partnership – Is governed by the Limited Partnership Act 2011. This legal vehicle provides flexibility when structuring a Collective Investment Scheme. It has a separate legal personality like a company and can provide partners (limited partners) the ability to provide funding and participate without being engaged in the day-to-day management of the company and with limited personal risk, unlike the general partner that shoulder the debt liability of the partnership. It will have at least one general partner and one (or more) limited partners. The general partner (GP) is responsible for the management of the limited partnership and has unlimited liability for the debts and obligations. The limited partner (LP) is limited to the maximum amount of its contribution on the proviso it does not get involved in the management of the partnership, in which case they are treated as a de facto GP.
A private equity fund that is structured as a partnership may offer participants with certain benefits including less fiduciary risks, ability to account for losses and profits at limited partner level.
Limited Liability Partnership – Came into effect in 2016 and has features of a company and partnership structure. Under this structure the Partner is liable to the extent of contributions. The LLP is required to have at least two partners and one manager and is governed by the partnership agreement.
Protected Cell Company – This acts like a master fund with segregated accounts/cells under an umbrella. Each of these are a separate legal entity with their own protected assets and liabilities, meaning there is no mixing of liability or benefit. The PCC is subject to the Protected Cell Companies Act 1999 and the Companies Act 2001. Participants receive shares in the cell in which they invest, known as “cell shares”. PCCs have similar advantages to companies, for example limited liability of shareholders, a board with fiduciary duties, separate legal personality (for each cell and the main PCC vehicle) and statutory rules for filing and reporting meaning it is transparent.
Trust structure – Trusts are established under the Trusts Act 2001 and is a legal agreement between the settlor and trustees. The structure operates so that the trustees hold the property, value and assets in the fund for the benefit of other certain (identified) parties. This structure creates a binding obligation n the trustees to act in accordance with the terms and obligations of the trust and as fulfil certain fiduciary duties to act in the best interests of the beneficiaries. The tax implications for trusts include income tax which is calculated based on the net income from the trust and the aggregate income distributed to the beneficiaries of the trust. Trusts do not have a legal personality. The creation of a trust does not require registration or incorporation, but it must be authorised by the FSC. No corporate filings are required, and a trust can be structured as a non-resident trust which is not liable to tax in Mauritius.
Global funds – Global funds are required to be managed by an investment manager licensed in Mauritius by the FSA. A foreign regulated investment manager may also be appointed subject to approval from the FSA. The global fund has a framework and operational capacity that synchronises with international principles and practises and is administered by the International Organisation of Securities Commissions (IOSCO). There are multiple reporting requirements including regular reporting to the FSA, audited financial statements and accounts (annually) and interim financial statements (quarterly) in accordance with the FSA 2007.
Important additional requirements
- If a CIS or CEF wishes to conduct investments in countries that Mauritius do not have a DTAA, the FSA will require the CIS/CEF to operate as a Special Purpose Fund (SPF) which will render any returns/profits made to the securities tax exempt. This is subject to both the CIS laws and regulations and the Financial Services (SPF) Rules 2013.
- Collective Investment or closed-end funds: must apply to the Commission for authorisation in accordance with the Securities Regulations 2008 and obtain a GBL. The structure can be a public or private company, unit trust or protected cell company (PCC).
- Closed-end: typically structured as private companies limited by shares or as a limited partnership (LP).
- Fund structure and objectives
- Promotors track record and professional education and credentials
- Investors and market targets
- The investment manager, custodian and administrator’s track record
- Compliance with regulations in third countries (if applicable)
Fees (subject to change from time to time)
CIS (open-end funds)
CIS (single fund) – registration USD 1000, annual fee USD 3000
CIS (having more than 1 fund – USD1000 for the first fund and USD 300 for each additional fund, annual fee USD 3000 for the first fund and $600 for each additional
CIS (Protected Cell Company) – USD 1000 for the first cell and USD 300 for each additional cell, annual fee USD 3000 for the first cell and $600 for each additional cell
Closed-end fund (single fund) – registration USD 1000, annual fee USD 3000
Closed-end fund (having more than 1 fund) – registration USD 1000 for the first fund and USD 300 for each additional fund, annual fee USD 3000 for first fund and $600 for each additional
Closed-end funds (Protected Cell Company) – USD 1000 for the first cell and USD 300 for each additional cell, annual fee USD 3000 for first cell and $600 for each additional cell
Single Fund – registration fee $1000
Global Business Licence
Category 1 GBC – processing fee $500, annual fee $1950
Authorised Company – processing fee $150, annual fee $350
More information on fees, licensing criteria and application forms can be found here
Article written by:
Nicholas Blomfield is a Partner at Spencer West. He specialises in finance - regulation, acquisitions, project, Islamic finance; asset management - public & private funds and trusts; Investments – venture capital, private equity, start-ups, seed funding; Fintech - cryptocurrency, blockchain
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