Aasha Juddoo of Citi Law, walks us through the key benefits, family office solutions, and tax incentives Mauritius offers affluent families with business interests in Africa, Asia and beyond.
Mauritius a country en route to becoming a wealth hub
Mauritius has strengthened the effectiveness of its AML regime and made tremendous progress with respect to putting itself at par with best practice norms internationally. It also boasts a myriad of attractive tax incentives and poises itself to be the next family jurisdiction of choice in the region.
In 1992, the ruling government of Mauritius had the vision to add the service sector to the three central pillars of its economy, which at the time were:
- the sugar industry
- the manufacturing industry
- and tourism.
In line with the government’s strategy, amendments were made to the Financial Services Act 2007 (“FSA”) which governs the Mauritius International Financial Centre (“MIFC”) and global businesses operating there. These amendments included the creation of two new licenses for family offices namely; the Overseas Family Office License (Single) (“SFO”) and the Overseas Family Office License (Multiple) (“MFO”).
In the 2016-2017 budget speech entitled “A new era of development”, the Mauritius Minister of Finance stated that Mauritius was at the crossroads of its destiny and announced certain measures to promote more economic activity and the creation of a high-end value services sector.
The government and regulatory authorities played an important role in boosting the financial services sector in Mauritius. With their continued support Mauritius an present itself as an investor friendly jurisdiction, with straight forward regulations, tax incentives including a five-year tax holidays for eligible investors and residence permits. It can also attract foreign funds into high end luxury real estate projects and investment schemes tailored specifically for foreign investors.
Why is Mauritius drawing the attention of HNWIs?
The unprecedented wave of wealth creation in recent decades is evidenced by the growing number of family offices being set up globally, a phenomenon which is said to be changing the landscape of the wealth management industry.
Mauritius therefore ambitions to capture a significant share of the private wealth market and in particular of the closed world of family offices.
Mauritius is and has been a preferred jurisdiction for many HNWIs since the creation of its financial centre in the 1990s due to its stable political as well as economic landscape, the historical ties of its people with emerging giants such as India, China and the African continent, and also with Europe, having been a French and an English colony before obtaining independence in 1968 and sovereignty in 1992.
The wide network of favourable double taxation anti-avoidance treaties and the low tax incentives render Mauritius extremely attractive for investors wanting to gain a foothold in Africa. Mauritius offers entrepreneurs from Africa, India and even the Middle East a platform to structure their investments and projects.
Though Singapore and Hong Kong serve as hubs for HNWIs from Asia, Mauritius has a wider global reach and is well poised to establish itself in this niche market, offering specialised financial services to Family Offices.
Mauritius in the Race to be a top Family offices Jurisdiction
The introduction of Family Office licences in 2007 was in line with the government’s intention to shift from a tax-based to a substance-based jurisdiction –focusing on higher end value services.
As Mauritius persists in positioning itself in this specific segment of private wealth management, it is in our view, apposite to compare its competitiveness against other well-established family office jurisdictions such as Singapore, Hong Kong, or Luxembourg.
The “Factor” condition
Mauritius strengths lie in the favourable business environment it aggressively promotes, its connectivity to global travel hubs, its tax regime, and its compliance with international taxation standards in accordance with OECD guidance.
It has built a reputation as a trusted regional financial centre for many decades now as is already home to over 1,100 international funds. Mauritius also ensures the utmost confidentiality for HNWIs who prefer discretion, in fact one reason many Family Offices are situated in London is because they are not required to register with the UK’s Financial Conduct Authority (FCA).
An Established Financial Services Environment
A dozen local and international banks, including HSBC, Standard Chartered Bank and Rothschild private bank are licensed to operate in Mauritius; most offer a wide range of services from traditional retail banking to more specialised private banking, treasury, international portfolio management, structured trade finance, Islamic banking, investment banking and custody services.
There also exists harmonized coordination between inter – disciplinary service providers such as tax and legal advisors, as well as with regulators, all working together to improve the competitiveness of the financial services sector.
The “Demand” condition
Mauritius is targeting the African market based on the trust and confidence that it has already built in the region. According to the Afrasia Africa Wealth Report 2019 “total wealth held in Africa rose by 14% over those 10 years” (2008 to 2018) and “Mauritius was the top-performing individual market and also the 2nd fastest-growing wealth market worldwide, after China, during this period”.
The demand for Family Office services amongst the HNWIs of India and Africa is expected to increase significantly as this trend continues, with an extra push from the more globally minded younger generation of HNWIs.
The Context for strategy, structure, and rivalry
Mauritius can be very attractive due to its favourable tax legislation, but only those service providers who are proactive and innovative will take the lead in the market. Perseverance and assiduity will be required on the part of service providers competing for the business of HNWIs and existing Family Offices.
Many of the 181 management companies already licensed to act as administrators to the 21,000+ global business companies owned by HNWIs (possibly having Family offices already embedded within their existing structures) will either promote their Family Office services or associate themselves with an existing commercial Multi Family Office (“MFO”). The winning strategy though is about engaging new clients and not luring them from rivals or from the big MFOs who already have an existing client base.
Read more:‘Transparency’ is Trending in Tax and Private Wealth spheres
What are Global Investors looking for in a Family Office jurisdiction?
Factors that determine the competitiveness of Mauritius in the family office sphere and which can influence global investors’ choice of FO jurisdiction include inter alia:
- risks, reputation, and volatility — economic and political climates
- the legal structures available
- tax implications
- the ability to invest and manage assets of a global family
- regulatory and information filing requirements
- immigration and visa requirements for family members
- the ability to coordinate efficiently with advisors in other jurisdictions
- the quality of communication and relationships with local tax and regulatory authorities
- flexibility to restructure in the future — including migration
- opportunities for succession planning
According to the latest Global Family Office Market report released in March 2020, global major institutional players such as HSBC Private Bank, Citi Private Bank and BNY Mellon Wealth Management expect the FO market to see major growth by 2026.
Clients now have the power to dictate terms, they do not have any “loyalty” towards a specific jurisdiction and as a result are moving away from jurisdictions with tight regulations and reporting requirements that increase the complexity of their wealth management operations.
A large number of HNWIs from Europe and Southern Africa, have moved to Mauritius over the past decade and Mauritius is now home to around 4,400 HNWIs, compared to 1,800 HNWIs only ten years ago. Apart from its established travel routes (pre pandemic), it boasts a cosmopolitan population of multilingual residents speaking English, French and Hindi amongst others.
HNWIs look for jurisdictions that offer political and economic stability together with the rule of law, access to courts, regulatory transparency and fairness of treatment by the courts – over and above service quality or confidentiality. The key reason? They do not want their wealth to be at risk.
As such, Mauritius presents itself as an ideal FO jurisdiction as it combines both the macro stability and delivers a high level of personalized service – even if it cannot yet offer the economies of scale of large commercial MFOs in Singapore or London.
A Connected World – Cross Border Family Offices
“Family Offices are becoming more international as families are becoming more complex – the trend toward having multiple jurisdictions will likely continue” like Reed, Managing Director, multi-family offices at RBC Wealth Management as quoted in the Bloomberg Report.
A number of cross-border family offices, are leveraging their expertise in multiple jurisdictions according to the Bloomberg Report. Mauritian service providers can develop mutually beneficial relationships with other service providers abroad to satisfy HNWIs demand for cross-border FO solutions.
The Bloomberg Report on the Future of Family Offices 2017 quoted Jurgen Vanhoenacker and Ann Marie Reyher, Director, at Lombard International saying “A high percentage of wealth is managed in financial hubs, and we are seeing a natural development of family offices in these regions and of wealth structuring in the financial hubs of the world”
Since the industry is expected to grow every year for the foreseeable future, financial service providers do not necessarily need to compete to capture each other’s market share but rather focus on fostering new local and cross-border partnerships and attracting more potential clients.
Striking a Balance – Compliance and Discretion
Certain historically popular tax jurisdictions are now under siege for condoning tax evasion schemes and unorthodox practices. The liberalization of markets, boom in cross-border capital movements and open policy of many jurisdictions has made it relatively easy for HNWIs to hold investments and assets outside their home jurisdiction – this has resulted in the need for stricter anti-money laundering and anti-tax evasion laws.
These include the Foreign Account Tax Compliance Act (FATCA) for the US and the Common Reporting Standard (CRS) and Base Erosion Profit Shifting (BEPS) standards made globally applicable by OECD. Their main purpose is to counter the misuse of corporate vehicles for illicit activities.
An emerging trend is being noted in clients seeking jurisdictions that are fully compliant with all benchmark standards, whilst at the same time ensuring a high degree of confidentiality to safeguard their wealth and family interests.
We speak of protection through legislation where countries such as Mauritius have well established, fully compliant enhanced Know Your Customer (KYC) procedures and due diligence frameworks.
Mauritius is an OECD participating jurisdiction as regards CRS and is now recognized by the OECDas a compliant jurisdiction in terms of its tax legislation. Mauritius exchanges information with participating jurisdictions that have put in place a proper framework to ensure the confidentiality of exchanged information. Laws and regulations are also in place to ensure that Mauritius is not misused as a gateway for illicit / unlawful dealings or money
laundering.
Mauritius has made high-level political commitments to work with the Financial Action Task Force (“FATF”) and Eastern and Southern Africa Anti-Money Laundering Group (“ESAAMLG”) to strengthen the effectiveness of its AML/CFT regime and to implement an action plan by demonstrating that supervisors of the financial sector and Designated Non-Financial Businesses and Professions (DNFBPs) adopt a risk-based supervision and facilitate access to accurate beneficial ownership information by competent authorities in a timely manner.
Mauritius was commended by the FATF in October 2020 for the tremendous progress made with respect to putting its jurisdiction at par with best practice norms in the fight against money laundering, terrorist financing and proliferation
financing.
Mauritius is already targeting affluent families and HNWIs on the lower spectrum of the wealth pyramid as it bolsters its expertise and service offering and enhances its position as a favourable family office jurisdiction.
Professional wealth management advisers and service providers are already pursuing this avenue, fortifying the reputation of Mauritius, and making strategic connections in what seems at times to be the impervious world of family offices.
For more information on the above insightful analysis on Mauritius as a budding jurisdiction for HNWIs and Family Office please email ajuddoo@citilaw.mu or connect on Y.D Aasha Juddoo | LinkedIn.
