In the past two decades, Mauritius has gained wide recognition as a leading jurisdiction for setting up and administering global investment funds by both fund managers and investors. In its annual report 2020-2021, the Financial Services Commission (FSC) recorded approximately 1,049 investment funds (including both open-ended and closed-ended funds at the end of June 2021). According to the monthly global business data sheet published by the FSC, there were 946 active global funds as of January 2022.

Mauritius has proved itself as a jurisdiction of substance for sizeable inward and outward investments from Asia to Africa and adopts international norms and best practices and promotes a business-friendly environment. The island boasts a modern and innovative legal system and regulatory framework, state-of-the-art infrastructure and a wide range of international banks and professional firms. Further, Mauritius is a politically stable jurisdiction with a legal system inspired by English common law and French civil law, with a final right of judicial recourse to the Judicial Committee of the Privy Council of the United Kingdom.

By virtue of its geographical and cultural proximity to countries in Africa and Asia, Mauritius has positioned itself as a favourable platform for setting up holding entities in African and Asian emerging markets. Mauritius is also a member of the Southern African Development Community (SADC), the Common Market for Eastern and Southern Africa (COMESA), and the Indian Ocean Rim Association (IORA).

Mauritius has been at the forefront for offering innovative products to investors and fund managers. It has recently modernised its existing Special Purpose Fund regime to provide flexibility and easy access to new markets by repealing its 2013 Rules on Special Purpose Funds and replacing them with the Financial Services (Special Purpose Fund) Rules 2021. The purpose of these Rules is to provide greater flexibility by not setting specific criteria for schemes to be categorised as Special Purpose Funds, but rather giving the FSC discretion to approve them. It is anticipated that the regulator will exercise its discretion liberally so that the vehicle becomes as commonplace as the versatile exempt fund vehicles in other popular fund domiciles.

The FSC has also created the regulatory framework for the development of Real Estate Investment Trusts in Mauritius. These are funds that invest primarily in real estate with the intention of providing returns to holders derived from the rental income of the real estate. The Securities (Real Estate Investment Trusts) Rules 2021 came into force on 4 September 2021.

The two common types of alternative investment funds (AIFs) formed in Mauritius are collective investment schemes and closed-end funds.

Collective Investment Schemes (CIS)

A CIS is an open-ended fund which has, as its principal feature, an obligation to redeem the investors’ shares at their request (at a price corresponding to the net asset value of that participant’s investments). Investors in a CIS generally do not have day-to-day control over the fund’s management.

A CIS is set up mainly to invest in portfolios of securities, or other financial assets, real property or non-financial assets, subject to the approval of the FSC. CISs are typically structured as companies, trusts or protected cell companies.

CISs can be further categorised into professional collective investment schemes (PCIS) or expert funds.

PCIS

A PCIS is a CIS whose shares or interests are offered by way of private placement or only to sophisticated investors, ie, investors which include, inter alia, the government of Mauritius or of a foreign country, a statutory authority established by an enactment, a bank, fund manager or insurer, a CIS, a closed-end fund or an investor that warrants, at the time of entering into a securities transaction, that (i) its ordinary business or professional activity includes the entering into securities transactions, whether as principal or agent, (ii) in the case that they are a natural person, their individual net worth or joint net worth with their spouse exceeds USD1 million, or its equivalent in another currency, or (iii) it is an institution with a minimum amount of assets under discretionary management of USD5 million, or its equivalent in another currency.

Expert fund

A fund whose shares or interests are only offered to expert investors, ie, investors who make an initial investment, for their own account, of no less than USD100,000, or sophisticated investors (as previously described), or any similarly defined investor in any other securities legislation.

Specialised fund

A fund which invests in high-risk or illiquid assets such as commodities, derivatives and real estate, subject to the approval of the FSC.

Closed-End Funds (CEFs)

A CEF is an arrangement or a scheme which, as opposed to a CIS, has no obligation to redeem an investor’s shares at their request, ie, investors do not have control over exiting the fund.

Like CISs, CEFs are formed to invest funds in a portfolio of securities or in other financial or non-financial assets, or real property, subject to the approval of the FSC. CEFs are typically structured as companies or limited partnerships.

CEFs are known to be the preferred structures for private equity funds and are subject to lighter regulations compared to CISs.

CEFs can be further categorised into professional collective investment schemes (PCIS), as previously described.

The most common structures used to set up alternative funds are companies, limited partnerships, protected cell companies and trusts, features of which are set out as follows. As of this year, it is possible to establish a fund under the variable capital company (VCC) regime.

Companies

Companies are incorporated under the Companies Act 2001 and may be formed as private and public companies. Participants are issued with "shares" in the company.

Companies have the following features:

• legal personality;
• investors are liable only up to the extent of their investment;
• board of directors is responsible to investors for their actions under the doctrine of fiduciary responsibility;
• statutory rules of filing and reporting ensure transparency and accountability; and
• income is distributed as long as the company remains solvent.

Protected Cell Companies (PCC)

A PCC is a single legal entity consisting of segregated cells that have separate assets and liabilities. The PCC is governed by the Protected Cell Companies Act 1999 and the Companies Act 2001. For compliance purposes, each cell will usually require the approval of the FSC in order to be created. As previously described, PCCs have the same features as companies.

Limited Partnerships

Limited partnerships are governed by the Limited Partnership Act 2011. Participants are issued with “partnership interests”. A partnership must have at least one general partner, who is responsible for the management of the limited partnership, and one or more limited partners.

Limited partnerships have the following features:

• they can elect to have legal personality;
• general partner has unlimited liability for the debts and obligations of the partnership;
• limited partner has limited liability, provided that the limited partner takes no part in the management of the partnership, in which event that limited partner will be treated as a general partner and be liable for the debts of the partnership to the extent of its involvement in the management; and
• limited partnerships are tax transparent.

Limited partnerships are commonly the preferred structures for private equity funds, given the relative flexibility of the vehicle, its tax transparency, no fiduciary risks, and the ability to account for profits and losses at limited partner level.

Trusts

Trusts are set up in Mauritius under the Trusts Act 2001 and participants are issued with units in the trust. A trust can have up to four trustees, of which at least one should be a qualified trustee, ie, a person who is authorised by the FSC.

Trusts have the following features:

• no legal personality;
• they are not required to be incorporated or registered;
• they may be structured as a non-resident trust resulting in no tax liability in Mauritius;
• trustees are subject to fiduciary duties; and
• no corporate filings are required.

Variable Capital Companies (VCCs)

VCCs have recently been introduced by the Variable Capital Companies Act, which was passed in April 2022, and which came in force on 16 May 2022.

VCCs permit the setting up of sub-funds and special purpose vehicles (together the Sub Entities) within the same entity, facilitating the segregation and ring-fencing of assets and liabilities of each of the Sub Entities. Further, a sub fund may be set up as a CIS or a CEF. As such, under one single entity, that of the VCC, fund managers are able to manage a CIS sub-fund and a closed-end sub-fund. The VCC structure may be used for all types of investment funds, including mutual funds, hedge funds, private funds, private equity and real estate funds.

VCCs have the following features:

• The VCC shall carry out its business though the Sub Entities.
• Each Sub Entity may elect to have a legal personality, which will be distinct from the VCC. The Sub Entity is not a subsidiary of the VCC merely by reason of being part of the VCC structure. However, each sub-fund is entitled to have an investment distinct from the VCC.
• Where winding up proceedings are being initiated, every asset attributable to a sub-fund can only be made available to the creditors of that sub-fund. As such, the assets of the other sub-funds are protected from the creditors of that sub-fund irrespective of whether the creditor is a statutory, regulatory or government body.

Regulatory Regime

The regulatory regime applicable to AIFs in Mauritius consists of the following:

• Financial Services Act 2007;
• Securities Act 2005;
• Securities (Collective Investment Schemes and Closed-end Funds) Regulations 2008;
• Financial Services (Consolidated Licensing and Fees) Rules 2008 (in respect of licence fees);
• Financial Intelligence and Anti-Money Laundering Act 2002 (in respect of anti-money laundering provisions);
• United Nations (Financial Prohibitions, Arms Embargo and Travel Ban) Sanctions Act 2019;
• Companies Act 2001 (for funds structured as companies);
• Trusts Act 2001 (for funds structured as trusts);
• Limited Partnerships Act 2011 (for funds structured as limited partnerships);
• Protected Cell Companies Act 1999 (for funds structured as protected cell companies);
• Variable Capital Companies Act 2022;
• Guidelines for Advertising and Marketing of Financial Products 2014;
• Code of Business Conduct 2015; and
• National Code of Corporate Governance for Mauritius 2016.

Regulatory Bodies

The following regulatory bodies are involved in regulating open-ended and closed-ended funds:

• FSC, which is the regulator for all non-bank financial services activities. It regulates both domestic and global funds;
• Registrar of Companies, which is the regulator in respect of all corporate matters; and
• Registrar of Limited Partnerships, which is the regulator for limited partnerships.

The regulator maintains an "authorisation" regime, which means that all funds are required to be authorised by the FSC, irrespective of whether they are "retail" funds, or funds offered exclusively to "expert" or "sophisticated" investors. The latter can avail for certain exemptions, which mean they are subject to more flexible regulation than that for "retail" funds. For instance, they are exempt from minimum funding requirements, the requirement to prepare and file management reports and annual reports, and the requirement to conduct daily valuations.

Mauritius funds may originate loans for subscription financing and/or leverage. There are currently no special rules or regulations governing borrowing for funds categorised as expert funds or professional collective investment schemes. Any borrowing restrictions will usually be included in the fund documentation.

Funds are expected to invest in a portfolio of "securities", which includes shares and stocks in share capital, debentures, debenture stocks, loan stocks, binds, green bonds, convertible bonds or other similar instruments, as well as rights, warrants, options, or interests in connection with the aforesaid securities, securities of a CIS, options, futures, forwards and other derivatives, whether on securities or commodities.

In August 2022, The FSC has updated its guidance note regarding the recognition of virtual assets as an asset-class for investment by sophisticated and expert investors. The FSC recognised virtual assets as an asset class suitable for investment by sophisticated and expert investors, expert funds, specialised CISs and PCISs. A virtual asset is defined as a digital representation of value that may be digitally traded or transferred and may be used for payment or investment purposes. However, it does not include a digital representations of fiat currencies, securities, and other financial assets covered by the purview of the Securities Act 2005.

A fund cannot be a "money lender", which means that it should not operate the business of making loans. However, a fund is able to make "debt investments". There is sometimes a fine line between making loans by way of business and debt investments. To qualify, it is important that the overall purpose of the debt retains the character of an "investment".

Other asset classes may be allowed for funds to invest in if authorised by the FSC. There is a "specialised" funds regime which allows funds to apply for approval of special asset classes such a debt, digital assets or real estate. Currently, cannabis (even medical cannabis) is not legal in Mauritius, so funds are unable to invest in cannabis/cannabis-related investments.

Obtaining the fund authorisation usually takes between four and eight weeks from the time the application is submitted to the authorities.

Typically, a fund is required to be managed by an investment manager licensed as a collective investment scheme manager by the FSC, or a fund that is constituted as a company may be self-managed, that is, it is managed by its board of directors, with the approval of the FSC.

Nevertheless, a fund may also be managed by a foreign investment manager, provided that it holds a global business licence and has received prior approval of the FSC to appoint that foreign manager.

There are no local substance requirements applicable for setting up a fund in Mauritius. Funds licensed by the FSC and that which are tax-resident in Mauritius may benefit from an exemption of 80% on the applicable tax rate of 15%. To qualify for this exemption, they must meet certain substance requirements, which can be found in 2.11 Tax Regime.

Funds are required to appoint a money-laundering reporting officer, a deputy money-laundering reporting officer and a compliance officer, who are conversant with the anti-money laundering laws of Mauritius.

Administrator

There is no requirement under Mauritius law to have a local administrator and a CIS manager is generally able to perform the necessary administrative services. These services include accounting, valuation and reporting as well as provision of a registered office, all of which are related to the fund's operations and administration.

However, where the fund or the CIS manager wishes to appoint a third party to provide administrative services, that third party must be licensed as a CIS administrator by the FSC.

Typically, given that all entities holding a global business licence are required under Mauritius law to appoint a "management company" in Mauritius, administrative services are then usually provided by that management company.

Custodian

Except in respect of a global scheme where a foreign custodian may be appointed with the approval of the FSC, CISs are required to appoint a local custodian, which must be a bank or a trust company that is a subsidiary of a bank, and independent from the CIS manager.

In order to conduct such business in Mauritius, non-local service-providers, such as administrators, custodians, director services-providers, are required to set up either a branch or a subsidiary in Mauritius and obtain a relevant licence from the FSC.

However, where there is no business establishment in Mauritius and the service-provider does not solicit Mauritius residents in respect of services related to the marketing of securities, there will be no prohibition on the service-provider dealing with funds in Mauritius and no licensing requirement will normally be triggered for any such non-local service-provider. However, depending on the services being provided, the fund may require the approval of the FSC prior to the appointment of the non-local service-provider.

The tax regime applicable to alternative funds established in Mauritius depends on the structure of the alternative investment fund. If the fund is structured as a company and is authorised by the FSC to operate as a CIS or CEF, it will be taxed on its income at a rate of 15%, although it will benefit from an 80% exemption on all its income derived in the course of its business activities, provided the fund meets the following conditions:

• it carries out its core income-generating activities in Mauritius;
• it employs, directly or indirectly, an adequate number of suitably qualified persons to conduct its core income-generating activities; and
• it incurs a minimum expenditure proportionate to its level of activities.

Alternatively, the fund may claim the foreign tax paid on its foreign source income as credits against the income tax payable in Mauritius (up to a maximum of 15%) in respect of that income where this can be evidenced (foreign tax credits).

If the fund is structured as a limited partnership, the structure will be tax transparent. A partnership that holds a global business licence may opt to be tax-opaque, in which case it will be treated in the same way as a company for tax purposes.       

A fund which is tax-resident in Mauritius is entitled to benefit from double-tax treaties to which Mauritius is a party. This includes companies incorporated in Mauritius, and limited partnerships which hold global business licences and have elected to be treated as company for tax purposes.

So far, Mauritius has concluded 44 tax treaties and is party to a series of treaties under negotiation.

It is common for funds structured as partnerships to use holding companies for investment purposes. Given that partnerships are tax-transparent, they are not eligible to take advantage of preferential tax rates available under the tax treaties. As such, the partnership may establish one or more underlying special-purpose vehicles in the form of tax-resident companies that hold a global business licence, which will act as a holding company for investments. The added advantage of using such a holding company is the possibility of an exit at the holding company level, which can be both expedient and tax-efficient.

Mauritius has a global approach and welcomes sponsors and promoter globally. However, the country attracts mainly African and European fund sponsors.

Investors in alternative funds range from development finance institutions to institutional investors, family offices, financial institutions and high net worth individuals, which are most commonly based in the EEA and the USA, as well as mainland Africa.

It is likely that an increase in foreign funds offerings will be seen, thus opening the market for foreign AIFs in the local market. The Mauritius Securities Act 2005 has recently been amended and a definition of "retail" investor has been introduced, which is a category of investors other than sophisticated investors. Marketing to retail investors requires prior FSC approval and can only be done by licensed functionaries. It is to be noted that the FSC is expected to publish further rules to define the class of "retail" investors.

While the rules around solicitation of retail investors have been tightened, it is now easier for a foreign AIF to market to sophisticated investors, as there will be no need for that foreign fund to seek and obtain the FSC’s approval where it intends to approach only sophisticated investors. It is also expected that these changes will lead to an increase in cross-border investments and fund-offering activities, since the country will become more accessible to foreign funds.

In the case of AIFs, there are no specific disclosure required to be included in fund documentation, but there are best accepted practices in the industry that have become accepted by the regulator. These would usually be set out in the fund documentation. As a minimum, the regulator requires the private placement memorandum to specify that:

• investors in the fund are not protected by any statutory schemes in Mauritius; and
• the FSC makes no representation as to the financial soundness of the fund or the suitability of investments in it when it provides its authorisation.

The Securities Act 2005 has been amended to introduce the concept of "retail investor", which is simplistically defined as a category of investors other than sophisticated investors. The definition allows for such category to be further specified in the FSC Rules. It is expected that the FSC will issue rules to specify categories of investors which will fall under the definition of "retail investor".

Under the laws of Mauritius, any body corporate may apply for a CIS manager from the FSC, provided that they comply with the requirements set out in 3.7 Local Substance Requirements. Fund managers are typically structured as private companies in Mauritius under the Companies Act 2001.

A fund manager is required to be licensed by the FSC.

A fund may elect not to appoint a fund manager and be self-managed, which implies that its board of directors is responsible for the day-to-day operations of the fund's investment activities. As such, all the duties and functions assigned to a fund manager by the securities regulations are to be performed by the board of directors. The prior authorisation of the FSC should be sought for a fund to be self-managed or for appointing a foreign manager.

See also 3.4 Rules Concerning “Permanent Establishments” for funds appointing a foreign manager.

Where a fund manager is structured as a company, it is liable to pay tax on its chargeable income at the rate of 15%. However, a licensed fund manager may be entitled to benefit from a partial exemption of 80% on all its income if it satisfies the following conditions relating to the substance of its activities, such as:

• it carries out its core income-generating activities in Mauritius, which include management of a collective investment scheme, taking decisions on the holding and selling of investments, calculating risks and reserves, taking decisions on currency or interest fluctuations and hedging positions and preparing relevant regulatory or other reports for government authorities and investors;
• it employs, directly or indirectly, an adequate number of suitably qualified individuals to conduct its core income-generating activities; and
• it incurs a minimum expenditure proportionate to its level of activities.

Although no express rule exists on this, as per established tax practice, the mere fact that a foreign manager has managed a Mauritius fund does not in itself create a permanent establishment for the fund manager in Mauritius where the FSC has approved the appointment of a fund manager in another jurisdiction.

A carried interest will be deemed to be an income to the beneficiary of that interest and will be taxed as follows:

• if the beneficiary is not tax-resident in Mauritius (as understood under the Income Act 1995), the carried interest is not subject to tax in Mauritius;
• if the beneficiary is not tax-resident in Mauritius, but derives the carried interest from any service performed from Mauritius, the carried interest is subject to income tax at the rate of 15%; and
• if the beneficiary is tax-resident in Mauritius, the carried interest is subject to income tax at the rate of 15%.

As previously explained, if carried interest is paid to a licensed manager, the 15% headline rate is liable to be reduced through partial exemptions, provided substance conditions are met.

Fund managers can outsource some of their business operations; however, the core investment activities must remain vested in the fund manager.

A fund manager typically appoints investment advisers to provide advisory services in the jurisdiction of the investee companies and fund administrators to provide back-office accounting, NAV computation and registry services. These advisory agreements will need be submitted to the FSC for vetting and approval.

As a general rule, a fund manager must have appropriate qualified staff and directors who are fit and proper persons. In terms of local substance, a fund manager seeking to benefit from the partial-exemption regime must employ, either directly or indirectly, an adequate number of appropriately qualified persons to conduct its core income-generating activities. The number of these local employees must be commensurate with the nature and level of activities of the fund manager.

Foreign managers must be approved by the FSC prior to its appointment. The following documents must be sent to the FSC in support of the application for prior approval:

• a draft of an investment management agreement between the fund and foreign fund manager;
• evidence of the licensed status of the manager; and
• details of the investment management team.

There is a wide range of investors in Mauritius, including institutional investors, development finance institutions (DFIs), family offices and financial institutions. DFIs tend to use Mauritius mostly for investments on the African continent.

AIFs that have been authorised as PCISs or expert funds can offer their securities to specific types of investors.

The following restrictions on offering apply:

• an expert fund is only available to either an investor making an initial investment on its own account of no less than USD100,000 or a sophisticated investor or any similarly defined investor in the securities legislation of another country; and
• a PCIS is only available to a sophisticated investor, or on a private placement basis in the case of an open-ended fund where the minimum subscription amount is at least USD200,000 and for a closed-ended fund where the subscription amount is generally more than USD200,000.

The Securities Act 2005 and the Rules and Regulations thereunder, as well as the Guidelines for Advertising and Marketing of Financial Products 2014 issued by the FSC (Guidelines), regulate the content and distribution of marketing materials. The Guidelines set out the requirements for the content of advertisements and marketing materials, including specific disclosures and disclaimers on the product and the persons promoting it, and require that all marketing materials be submitted to the FSC prior to dissemination.

Securities of expert funds and PCIS may only be marketed to investors as specified in the regulations relating to these funds.

As per recent amendments in 2021, foreign AIFs may be marketed in Mauritius without the need for any regulatory approval to "sophisticated investors".

Only locally licensed intermediaries (such as investment advisers, investment dealers or investment bankers duly licensed by the FSC) are authorised to solicit retail investors.

There are no restrictions on local investors to invest in AIFs established in Mauritius. However, the eligibility requirements of expert funds and professional collective investment schemes continue to apply to them.

All offering documents of funds must be submitted to the FSC as part of the application process for the fund authorisation. Furthermore, any update to these documents must also be filed to the FSC.

A fund which is categorised as a PCIS is required to file its offering document to the FSC at least 15 days before each offering in order to be able to benefit from the exemptions applicable to a PCIS.

The type of offering document to be used and the relevant disclosure in this document will vary depending on the category of the fund. Funds that are offered as a private placement to sophisticated and expert investors will have reduced disclosure requirements, whereas funds that are marketed to the general public must contain certain prescribed disclosures. The offer document must contain sufficient information to allow investors to make an informed decision on investment in the fund.

An investor who is not tax-resident in Mauritius and who does not otherwise derive any income from Mauritius does not have to pay any tax in Mauritius, whether in respect of income or gains (including distributions) received from a fund, its worldwide income or otherwise, and is not required to file any tax returns in Mauritius.

An investor who is tax-resident in Mauritius will be liable to income tax as follows:

• if the investor is a body corporate, at the rate of 15%; or
• if the investor is an individual, at the rate of 10% on their annual net income not exceeding MUR650,000 and at the rate of 15% for any annual net income exceeding MUR650,000. Furthermore, an individual whose leviable income exceeds MUR3 million in an income year must pay a solidarity levy in addition to income tax at the rate of 25% of the leviable income in excess of MUR3 million and not exceeding 10% of the sum of net income and dividends as further set out in section 16C of the Income Tax Act 1995.

A tax-resident investor that is a body corporate will be entitled to either:

• foreign tax credits; or
• an exemption of 80% on tax paid on the following types of income, which are typically received from AIFs:
1. a foreign-source dividend, provided that the dividend is not allowed as a tax-deductible item in the source country and the investor satisfies the conditions relating to the substance of its activities as prescribed;
2. interest income, provided that the investor satisfies the conditions relating to the substance of its activities as prescribed.

A tax-resident investor who is an individual will be entitled to the following:

• foreign tax credit;
• to deduct the appropriate amount of the income exemption threshold that is applicable to them from their net income in each income year; and
• to any other reliefs, allowances and deductions as applicable to them.

Any dividend income received or capital gains made by any Mauritian investor from a fund established as a company in Mauritius is exempt from income tax.

Mauritius has signed a Model 1(a) (non-reciprocal) inter-governmental agreement with the United States to give effect to the FATCA, which came into force in 2014 (the Mauritius IGA). Mauritius issued the Agreement for Exchange of Information in Relation to Taxes (United States of America – FATCA Implementation) Regulations in July 2014 to give effect to the IGA (the FATCA Regulations). The Mauritius IGA requires withholding tax of 30% be applied to payments of certain US-sourced income, such as interests, dividends and insurance to investors in certain circumstances (such as non-compliance by the reporting financial institution with its obligations under the Mauritius IGA, which includes failure to disclose substantial US owners or certify that no substantial US owners exist). Following the Mauritius IGA, Mauritius Financial Institutions will not be subject to the 30% withholding tax on US-sourced income if they comply with the requirements of the FATCA.

The Republic of Mauritius has also committed, along with around 100 other countries, to the implementation of the CRS. To enable the implementation of the CRS, the Income Tax Act 1995 of Mauritius has been amended accordingly. Mauritius financial institutions have to report annually to the Mauritius Revenue Authority on the financial accounts held by non-residents for eventual exchange with relevant treaty partners. There have been amendments made to Mauritius laws to introduce the obligations adopted by Mauritius pursuant to the Convention on Mutual Administrative Assistance in Tax Matters. There may be different and potentially obligatory disclosure requirements applicable to investors in the Fund and their beneficial owners as a result of the CRS, local legislation implementing the CRS and/or other legislation similar to the CRS.