Additional Economic Substance requirement in Mauritius

 

As part of its commitments to ensure that only companies that are properly controlled and managed in Mauritius are issued a Tax Residency Certificate (“TRC”) – which is now a legal pre-condition for a company to avail of the beneficial provisions of the Tax Treaty between India and Mauritius, the Financial Services Commission (“FSC”) in Mauritius has made amendments to specify economic substance requirements that Category 1 Global Business Companies (“GBC 1 Companies”) will have to comply with.

These amendments, which are in addition to the existing conditions, are:

· The directors, who were earlier required to be resident in Mauritius and of sufficient caliber to exercise independence of mind and judgement, are now also required to be ‘appropriately qualified’.

· The resident directors are also required to now comply with the additional conditions laid down in a separate circular issued by the FSC. The circular issued by the FSC, inter-alia, requires the director to have relevant qualification and experience to exercise sufficient care, diligence and skills for the good conduct of the business. Further, it also provides that sufficient time and attention is devoted to the affairs of each board by the director and he/she is adequately and actively involved in the control and management of the company.

· If the GBC 1 Company is authorized/ licensed as a collective investment scheme, closed end fund or external pension scheme it would have to be administered from Mauritius.

· Importantly, the GBC 1 Company is also required to satisfy at least one of the conditions provided below:

- Have office premises in Mauritius;

- Employ at least one person who is a resident in Mauritius, on a full time basis, at an administrative/ technical level;

- Its constitution should provide for all disputes arising out of the constitution to be resolved by way of arbitration in Mauritius;

- Hold or is expected to hold in the next 12 months, assets of atleast USD 100,000 in Mauritius. However, the same would exclude cash held in bank account or shares/ interests in another GBC1 Company;

- Its shares are listed on a securities exchange licensed by the FSC;

- Has or is expected to have a yearly expenditure in Mauritius, which can be reasonably expected from any similar company controlled and managed from Mauritius. However, the onus to satisfy the FSC that its level of expenditure in Mauritius is reasonable, would be on the GBC 1 Company. 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 of a corporation is reasonable include the type of activity of the corporation, its average turnover, the country(ies) in which it is conducting business, the value of its net assets and the industry average.

Where a group has more than one entity registered as GBC 1 Company in Mauritius, all such companies in Mauritius would be deemed to have satisfied one of the conditions listed above, if one company satisfies any of such conditions.

The additional requirements are to be complied by January 1, 2015. Companies making application for renewal of TRC after January 1, 2015 would need to ensure that the additional requirements are satisfied.