ANNEX C: Global Business Companies (GBCs)

Global business companies, commonly referred to as “offshore” companies, are a key feature of the Mauritius economy. A GBC is a company that holds a global business license (either 1 or 2) and carries out any business or activity specified in the Second Schedule of the Financial Services and Development Act 2001 (FSDA). The FSDA builds on the Mauritius Offshore Business Activities Act of 1992, which first permitted the growth of the Global Business Sector. The Mauritius authorities believe that the Global Business Sector comprises approximately 4 percent of GDP, though independent assessments of the size of this sector are not available. GBCs account for 90% of India’s FDI.

Under the FSDA a broad range of activities are permitted, including financial services, leasing, consultancy services, employment services, and international headquarters operations. The FSDA conforms to the overall approach of placing the regulation of the entire Mauritius financial regulatory structure under the jurisdiction of the FSC, and, with respect to the Mauritius Global Business Sector, is particularly noteworthy in that it provides for FSC regulation of financial entities such as fund managers, financial intermediaries and pension plans, that were previously subject to less comprehensive regulation. As a general matter, the Mauritius regulatory scheme appears to be somewhat more rigorous than in some of the offshore jurisdictions in the Caribbean, but less strict than in the UK dependencies of Jersey, Guernsey and the Isle of Man, where requirements such as disclosure of ultimate ownership information are strictly enforced.

The FSDA also created the Financial Services Promotion Agency in order to promote the development of the offshore industry in Mauritius as an international financial center. In developing its offshore industry, Mauritius appears to be modeling its operations on that of Singapore in the hope of becoming an international financing and business headquarters location. Mauritius authorities believe that its location between the African continent and Asia provides it with a desirable location for investments both in Asia as well as southern Africa. In addition, officials believe that its time zone is an additional comparative advantage since it overlaps business hours in Europe, Africa and Asia.

As a further step to promote the Global Business Sector, Mauritius has established tax treaties with nearly 30 countries in Europe, Asia and Africa, including major G7 jurisdictions such as France and Germany, as well as China, India and South Africa. The treaties are designed to prevent the double taxation of earnings, and Mauritius residents are permitted to take a tax credit based on the amount of tax levied in a treaty country.

To further promote its offshore industry, Mauritius adopted the Trusts Act 2001, which is especially significant since it introduces this Anglo-Saxon concept into Mauritius’ legal system.

Mauritius authorities appear very sensitive to the potential for abuse, including money laundering and tax evasion, that could be conducted through its offshore industry. In 1998, the OECD considered Mauritius for inclusion on its list of countries that the industrial countries viewed as engaging in harmful tax competition. Mauritius was not included on the list following the agreement by the Mauritius government to an effective program for the exchange of information on tax matters, transparency, and the elimination of any aspects of its regulatory structure designed to attract business with no substantial domestic activities. The timetable for completion of this program is 2005, and includes the implementation of higher tax rates as discussed below.

It is noteworthy, however, that Mauritius is not one of the 19 countries designated by the Financial Action Task Force as a “non-cooperative country or territory” with respect to money laundering activities. In 2000, Mauritius passed legislation in order to enhance its regime against money laundering, and recently passed special legislation designed to prevent offshore firms from being used as a source of terrorist financing (Prevention of Terrorism Act).

Mauritius is a member of the Offshore Group of Banking Supervisors and has also adopted relevant international principles, including the IOSCO Principles for Securities Regulation, the Basel Principles for Bank Supervision, and the IAIS Principles for insurance regulation. Mauritius is committed via special legal instruments (Letters of Requests and Rogatory Commissions) to assist foreign bodies who may require assistance with criminal cases.

Mauritius divides its offshore firms into two regulatory categories – Global Business License (GBL) 1 and GBL 2. There are approximately 6,000 GBL1 registered in Mauritius. Such firms are subject to a greater degree of regulation, including the requirement to file audited accounts, but are permitted to engage in a greater range of businesses, including financial services. GBL1 companies may qualify as tax residents and thus benefit from established Mauritius tax treaties; they are therefore often used as investment vehicles into countries such as India. Such companies have no minimum capital requirements, except for specific activities such as insurance, banking and investment management. Activities must be conducted in a currency other than the Mauritius rupee. Because of the tax treaty network, such corporations, which would normally be taxed at the Mauritius rate of 15 percent, are granted a foreign tax credit equal to the amount of foreign tax paid, up to the amount due in Mauritius. In the absence of proof, the effective tax rate will be reduced to a maximum of 1.5 percent, though this 90 percent will be reduced to an 80 percent reduction (for an effective tax rate of 3 percent), pursuant to its agreement with the OECD as of July 1, 2003. A GBL1 must have at least two directors and at least two shareholders.

There are approximately 12,000 GBL2 registered in Mauritius. A GBL2 may not conduct financial services activities such as banking, insurance, and fund management, and cannot raise capital by means of a public offer of its securities. Its activities must be restricted to non-residents. There is no minimum capital requirement, and no reporting requirements, except with respect to any reporting requirements that could be imposed pursuant to the 2000 agreement with the OECD. A GBL2 may have a single shareholder and a single director who may be natural persons or body corporate and need not be resident in Mauritius. GBL2 firms are not subject to any tax, but cannot use the tax treaties and must pay a processing fee of Mau Rs 1,963 (USD 65) to the Registrar of companies and a license fee of Mau Rs 4,077 (USD 135) to the FSC.

Due to the confidentiality inherent in the Mauritius Global Business Sector’s operation, it is difficult to verify the degree of compliance with corporate governance principles, particularly with respect to GBL2 corporations, where regulation is particularly light. However, customary due diligence procedures do apply. For example, professionals and financial institutions have to report suspicious transactions and suspected money laundering cases to the regulator. In view of the resources available to the FSC, it is clear that the FSC needs to strengthen its enforcement capabilities to verify the information provided to them. The FSC is currently implementing a project with the World Bank for this purpose. The FSC approves all directors appointed to the board of financial institutions such as funds, insurance companies and fund managers while the BoM approves the appointment of all the CEO of offshore banks.

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