Mauritius rejigs special purpose fund regime to gain 'financial' edge

Will enable global investors to set up tax-exempt entities

Mauritius has revised its special purpose fund (SPF) regime, with a view to enabling international fund managers and investors to establish tax-exempt entities that have economic substance in the island nation.

Mauritius suffered a setback last year after the Paris-based Financial Action Task Force (FATF), an inter-governmental policymaking body that sets anti-money laundering standards, included it in the list of jurisdictions that required increased monitoring, often referred to as the “grey list”.

The new regime is, in a way, an attempt to make the country more competitive among international and regional financial centres, said experts.

While it’s early days yet, the new regime has seen preliminary enquiries from foreign investors, including those that wish to invest in India, said people in the know. “This will benefit managers and investors including those looking for investment in India,” said Ritesh Abbi, chief executive officer, Zinnia Investment Advisers, which administers and advises various investment funds from Mauritius.

Rubina Toorawa, head of Sanne Mauritius, said: “The SPF is intended to capture the ever-growing needs of sophisticated investors in the global fund space, regardless of location, asset class, investor base and investment strategy. This should provide certainty and credibility to the operations of the SPF vehicle through Mauritius and is a compelling alternative to global fund managers for structuring in the Mauritius International Financial Centre with proven track record and cost-efficient solutions.”

The SPF regime, introduced in 2013, had failed to gain traction in the mainstream fund market because of its limited applicability. These rules were replaced by new guidelines in March this year. 

Unlike the earlier rules, the new regime does not set specific criteria for a scheme to be categorised as an SPF. Rather, it gives the country’s financial regulator, Financial Services Commission (FSC), the powers to use its discretion to grant such authorisation and to impose conditions it may deem fit on an authorised SPF.

“It is a lenient fund regime in comparison to other fund structures in Mauritius, which has a mandatory list of activities a fund can and can’t do. However, in the case of an SPF, the regulations have not provided any such list and the FSC has the powers to grant authorisation and impose such conditions as deem fit to it,” said Neha Kulkarni, director, Wilson Financial Services.

The 2013 rules had mandated that funds conduct investments solely in countries that do not have tax arrangements with Mauritius, or whose purpose is to invest mainly in securities whose returns are tax-exempt, or where investors in schemes are pension schemes or other persons entitled to tax exemption.

“The 2021 rules provide more flexibility, will ease access to new markets, and help Mauritius become more competitive in the global IFC (International Financial Centre) market by expanding its portfolio even further,” said Abbi. SPF is a tax-free structure. Any interest, royalties, compensation and other amounts paid by an SPF to a non-resident will be exempt from tax.

Collective investment schemes (open-ended) or close-ended funds can apply for recognition as an SPF.

“The SPF regime is similar to private exempt-fund structures in Bermuda and the Cayman Islands. They are given faster regulatory approval and set up in 10-15 days. The FSC may be looking at a similar fast-tacking of regulatory approval under the new rules," said Kulkarni.