Mauritius keen to set up shop in GIFT City

Mumbai: Seven years after losing the tax edge that had made it India's second-biggest source of capital, Mauritius is eyeing a comeback, this time through the GIFT City route.

The island nation's International Financial Centre (IFC) is considering opening an office in Gujarat International Finance Tec-City (GIFT City), a top Mauritius minister said.

A large Mauritius delegation currently visiting India will meet officials of the International Financial Services Centres Authority (IFSCA) to discuss areas of collaboration, including equivalence between the two. This would mean easier compliance and tax norms for GIFT City-based entities operating in Mauritius.

'Win-win situation'

“It will be a win-win situation. This is the type of relationship we want to establish with GIFT City," said Soomilduth Bholah, the African nation's minister for financial services and good governance, who is leading the delegation on his second India visit this year. A collaboration could help entities in the two jurisdictions to move capital between them easily.

A key objective of the GIFT City collaboration is to attract capital from India to Africa, Bholah said. The island nation also wants to attract services like financing of immovable assets in Africa, intellectual property management and reinsurance from India.

The new business avenues are intended to compensate for the loss of direct investment from Mauritius to India.

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In 2017, India and Mauritius dropped a tax provision that exempted Mauritius-based entities from capital gains taxes in India. Around the same time, New Delhi also introduced General Anti-Avoidance Rules that compelled investors to show why they situated themselves in beneficial tax jurisdictions like Mauritius besides the tax benefit.

The developments led to a plunge in foreign direct investment (FDI) from the island nation, which had become a hub for financial flows from what was once an agriculture-and-tourism focused economy. Financial services now make up more than an eighth of the Mauritian economy, as per data from the FSC. India-bound investments account for more than half of the global business capital flowing through Mauritius.

New Products

Mauritius now allows a variable capital company (VCC) structure for investment vehicles, a model already popular in Singapore. Under this structure, investors can set up multiple sub-funds under an umbrella entity. The sub-funds will have individual legal and tax identities and will not have any cross-liabilities. This reduces the compliance and cost burden on the investors, who need not seek fresh registrations for each new fund. Mauritius is now looking to extend the VCC structure to wealth management and family offices.

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The key beneficiaries will be those looking to invest in Africa. Mauritius is part of the African Union, and investors can benefit from the various bilateral pacts the island nation has with African countries.

The VCC structure will substantially enhance the attractiveness of Mauritius as an investment holding jurisdiction, said Punit Shah, partner, Dhruva Advisors, who advises domestic as well as multinational companies on international transactions and taxation matters.

"It will boost Mauritius' comparative position vis-a-vis Singapore for foreign direct investment (FDI) into India, especially considering its cost competitiveness and the fact that both jurisdictions are almost at par so far as tax treatment of Indian capital gains is concerned," he said. "Mauritius will also become attractive for floating regulated fund structures with differentiated returns, for outbound investments from India."

A firm hand

Mauritius is also working on its reputation, after being seen as a tax haven hosting opaque financial structures used to launder money.

The situation came to a head in 2020, when the Financial Action Task Force, an inter-government body meant to fight money laundering, put Mauritius on its grey list citing lack of fiscal controls and oversight. This triggered enhanced scrutiny on investments routed through Mauritius.

The country rushed to rework its regulations and compliances, exiting the grey list in 2021. Today, Bholah claims Mauritius has no shell companies. For every company registered in the country, the regulators know the ultimate beneficial owner.

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"Considering that Mauritius has traditionally been used, from a tax-efficiency perspective, for making investments into Africa, it could now be also used as a gateway for Indian investors and fund managers for making investments into Africa," Shah of Dhruva Advisors said.

“We know the pain that we have gone through a few years back," Bholah said, adding that the country is proactively implementing robust regulatory standards.