Lying approximately 2,000 kms off the coast of Africa, Mauritius’s stocks in the world of offshore finance are rapidly rising. Not only is it one of the most popular channels for Indian bound foreign direct investment (FDI), but its extensive network of double taxation avoidance agreements (DTAAS) and robust regulatory regimes means the tropical island is seizing an increasingly large slice of African bound investment as well.

Indian investment

While some may feel that longerestablished offshore financial centres – places like Bermuda, Cayman and the BVI – hold sway as the world’s preeminent offshore jurisdictions, Anthony Whaley, a partner with Conyers Dill & Pearman disagrees. He suggests that Mauritius is holding its own in the battle of the OFCs, thanks largely to the unprecedented access it offers investors looking to dip into BRIC countries. This is most notably India, with which Mauritius shares a rich history spanning as far back as the 19th century when Indian immigrants arrived at Aapravasi Ghat to work as indentured labourers under British rule.

“Today, Mauritius is the location from which most direct investments are made into India. This is principally due to the Mauritius-India Double Taxation Avoidance Agreement (MIDTAA) which dates back to 1983,” he says.

Under the MIDTAA and Mauritian domestic law, capital gains are exempt in both India and Mauritius, something which is critical according to Whaley, because of the investment profile of most investors into India. “It is probably the case now that most investments into India [made via Mauritius] are made more with a view to making capital gains than to securing regular dividend flow,” he says.

According to the Central Bank of India, between April 2000 and March 2010 more than half of all FDI into India was made through Mauritius. Industry experts put this figure even higher throughout the remainder of 2010 when projects in India’s Information, Communication & Technology (ICT), energy and infrastructure sectors took off.

With statistics like these, lawyers believe that Mauritius is likely to stay ahead in the OFC race for Indian investment, especially in light of recent moves designed to tighten its tax regime. “Mauritius has tightened its tax residency requirements: access to the MIDTAA depends on the tax resident status of the investing entity in Mauritius. An MoU by both countries provides for effective exchange of information in the detection of fraudulent market practices,” says one lawyer.

But India is not the only Asian player making waves in Mauritius. The island is already playing an important role in China’s desire to secure African natural resources to keep its economy firing. China already ranks as Africa’s secondhighest trading partner, behind the US and ahead of France and the UK. From 2002-03 trade between China and Africa doubled to US$18.5bn; by 2007 it had reached US$73bn. Much of the growth was due to increased Chinese imports of oil from Sudan and other African nations, but China also imports a significant amount of non-oil commodities such as timber, copper and diamonds.

“Chinese investment into Mauritius in the past 3 years has been substantial,” says Malcolm Moller, managing partner of Appleby’s Mauritius office. The country recently finalised the largest-ever FDI project into Mauritius with the US$730m Shanxi Tianli Enterprises Park. This is a special economic zone in the Indian Ocean to service Beijing’s expansion in Africa, which is currently in development near Port Louis.

“The African Financing Partnership (AFP) has reported that it is adopting a collaborative co-financing platform to facilitate cost-effective preparations of African projects for financing by the development finance institutions. The investors promoting the AFP have pledged a $15bn investment fund for supporting the growth of the private sector in Africa,” Moller says.

Africa

Investing into Africa through Mauritius is something that is not only popular with Chinese companies: Mollerhas witnessed an increase in African-bound investments coming from Abu Dhabi, Qatar and Oman.

The appeal of using Mauritius as a gateway for tapping into Africa is obvious. Not only is its geographical location an advantage, but it enjoys an extensive network of treaties, double tax agreements and regulations designed to safeguard against the vagaries of investing in often-volatile African countries.

“Mauritius can point to the various Investment Promotion and Protection Agreements (IPPA) which it has signed with African countries,” says Conyers’ Whaley.

“The IPPAs, among other things, provide for free repatriation of investment capital and returns, guarantee against expropriation, most-favoured-nation rule with respect to treatment of investors and compensation for losses in case of armed conflict.” In addition, Mauritius is a member of the major African regional organisations which provide preferential access to markets on the continent. These markets include the African Union; the Southern African Development Community (SADC), the Common Market for Eastern and Southern Africa (COMESA) and the Indian Ocean Rim-Association for Regional Cooperation (IOR-ARC).

New trends

When it comes to PE investments into Africa, a number of practitioners note that clients are looking to use a hybrid Mauritius/Cayman route. This leverages the former’s unrivalled access to African markets and the latter’s status as a jurisdiction of choice for domiciling investment funds.

Kieran Loughran, a director with Conyers Dill & Pearman in London, believes such structures will have a crucial role to play in the future. “As investors look to invest into Africa in a secure and tax-efficient manner, they are likely to seek out and rely on investment routes structured through reputable and internationallyrecognised jurisdictions, such as the Cayman Islands and Mauritius,” he says. “The typical fund structure consists of a Cayman Islands investment vehicle in either a corporate or limited partnership format into which investors would invest”.

Loughran said that the fund may then invest directly into the relevant African country, or it may – for tax efficiency reasons – invest through a Mauritius holding company, which would act as the SPV investing directly into Africa.

“Combining the qualities of the Cayman Islands and Mauritius allows investors to take advantage of the relative benefits both jurisdictions have to offer, he said. “By using a Cayman Islands investment fund, in conjunction with a Mauritius GBC1 where appropriate, a whole range of tax efficiencies can be utilised.”

To read the entire report, please click here. ALB

Follow us on Twitter: @ALB_Magazine