Global Tax Alert | 31 October 2013
Mauritian Financial Services Commission introduces additional conditions to enhance economic substance of GBL1 companies
On 4 September 2013, the Mauritian Financial Services Commission (FSC) issued a communiqué on amendments made to the Guide to Global Business (the Guide). The amendments are aimed at enhancing the economic and physical substance of companies holding a Category 1 Global Business (GBL1) in Mauritius.
The amendments confirm the Mauritian Government's commitment to the financial services sector as one of the emerging pillars: at the same time the amendments should mitigate challenges from treaty partner countries. Accordingly, GBL1 companies are required to comply with any one of the following as from 1 January 2015 (the effective date):
- • Office premises should be available in Mauritius.
- • Mauritian resident employees of an administrative or technical level should be employed on a full time basis.
- • The constitution should contain a clause whereby all disputes arising out of the constitution shall be resolved by way of arbitration in Mauritius.
- • The company should have Mauritian based assets of at least US$ 100,000.
- • The shares of the company are listed on a securities exchange licensed by the FSC.
- • The yearly expenditure of the company in Mauritius should be of the same level as a similar corporation which is controlled and managed from Mauritius.
The current rules on the central management and control of a GBL1 are provided in Appendix I.
As from the effective date, the FSC shall also consider the following in determining whether the central management and control of a company are in Mauritius:
- • The corporation has or shall have office premises in Mauritius.
- • The corporation employs or shall employ on a full time basis at administrative/technical level, at least one person who shall be resident in Mauritius.
- • The corporation's constitution contains a clause whereby all disputes arising out of the constitution shall be resolved by way of arbitration in Mauritius.
- • The corporation holds or is expected to hold within the next 12 months, assets (excluding cash held in bank account or shares/interests in another GBL1 corporation or a company that holds a Category 2 Global Business License) which are worth at least US$ 100,000 in Mauritius.
- • The corporation's shares are listed on a securities exchange licensed by the FSC.
- • The corporation has or is expected to have a yearly expenditure in Mauritius which can be reasonably expected from any similar corporation which is controlled and managed from Mauritius. In that respect, the onus is on the entity to satisfy the FSC that its level of expenditure in Mauritius is reasonable. Reasonableness of expenditure would be judged in the light of circumstances of each case. Factors to be considered to decide whether the level of expenditure is reasonable include the type of activity of the corporation, its average turnover, the country (countries) in which it is conducting business, the value of its net assets and the industry average.
The Guide provides that only one of the above should be satisfied.
Chapter 4 of the Guide also provides that each resident director should comply with the circular letter issued by the FSC on 28 March 2013. The said letter provides that the FSC may consider whether the current or proposed directors have the capacity to perform their duties in accordance with the law. In that respect, the FSC shall consider the factors listed in the attached Appendix II. The circular letter expressly provides that the FSC shall consider matters raised by directors on a case by case basis.
The amendments represent a step forward for GBL1 companies to reinforce the level of their economic and physical substance in Mauritius. Some GBL1 companies already have office space and senior employees in Mauritius and thus would not be affected by these new requirements. The office premises should be available at any time during the year so that the business affairs of the company are not interrupted. Regarding the full time employee, he/she should work under the supervision of the Board of directors and typically he/she should be reporting to the Mauritian resident directors. Determining a reasonable amount of yearly expenditure may be challenging in practice. Investment holding companies typically do not have any full time employees and the employee remuneration generally consists of directors' fees only. It is expected that in the context of the presence of nonresident directors, the relative fee and all expenses, like accommodation and air ticket costs, should be reflected in the income statement of the company.
Appendix I - The current rules
Under the Mauritian tax laws, a company is a resident of Mauritius if it is either incorporated in Mauritius or if it has its central management and control in Mauritius. Financial services, other than banking, are regulated by the Financial Services Act 2007 (FSA 2007). Under the FSA 2007, a resident corporation may apply for a GBL1 and in considering an application or renewal for a GBL1, the FSC takes into account whether the business of the corporation is being managed and controlled in Mauritius. In that respect, the FSC considers a number of matters and without limitation, the following factors are considered:
(i) The company shall have or has at least two directors, resident in Mauritius, of sufficient calibre to exercise independence of mind and judgment;
(ii) The company shall maintain or maintains at all times its principal bank account in Mauritius ;
(iii) The company shall keep and maintain or keeps and maintains, at all times, its accounting records at its registered office in Mauritius;
(iv) The company shall prepare or proposes to prepare its statutory financial statements and causes or proposes to have such financial statements to be audited in Mauritius; and
(v) The company provides for meetings of directors to include at least two directors from Mauritius.
Appendix II - Relevant factors pursuant to the circular letter dated 28 March 2013
Qualification and experience
A director shall have the relevant qualification and experience to exercise sufficient care, diligence and skills for the good conduct of the business of a licensee/ reporting issuer.
Independence of mind
A director shall act with integrity and freedom of mind, without any influence, interest or relationship that might impair his professional judgment or objectivity.
In the performance of his duties, a director shall provide impartial and good judgment.
When a director serves on multiple boards, he/she shall ensure that sufficient time and attention is given to the affairs of each board he/she serves on. The director shall be adequately involved in the control and management of the licensee and perform his/her functions properly and efficiently.
It is expected that a director shall be able to demonstrate that he/she will be able to devote sufficient time to:
- • Adequately prepare for each board meeting;
- • Attend each board meeting including the annual general meeting;
- • Address the complexities and risks involved in each licensee;
- • Actively participate in deliberations of the board meetings;
- • Adequately prepare for any board committees he/she is a member of and actively participate in the deliberation of the committees;
- • Be acquainted with the affairs and business of each licensee;
- • Fulfill all his/her obligations and responsibilities in accordance with the requirements set out in the Companies Act 2001.
In assessing his/her time commitment, the director may consider the following factors:
- • Number of available working days in a year;
- • Other commitments of the director-whether self-employed, retired or full time employment;
- • Number of years of experience as Director;
- • Number of hours per day available for preparing and attending board meetings and any committees he/she is a member of;
- • Availability of support staff with relevant qualifications and expertise to assist director in performing his/her duties.
- • Frequency of meetings-board and committee meetings;
- • Number of committee meetings per year;
- • Size, nature and complexity of business of the company, such as whether the company is an investment holding company or is an active trading company or a service related company or an active fund;
- • Other factors such as the company being part of a group structure.
For additional information with respect to this Alert, please contact the following:
Ernst & Young (Mauritius), Ebene, Mauritius
- • Assad Khoosee
+230 403 4738
- • Ryaad Owodally
+230 403 4717
Ernst & Young (China) Advisory Services Limited, Pan African Tax Desk, Beijing
- • Rendani Neluvhalani
+86 10 5815 2831
Ernst & Young LLP, Pan African Tax Desk, New York
- • Dele Olaogun
+1 212 773 2546
Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London
- • Leon Steenkamp
+44 20 7951 1976
EYG no. CM3926