Understanding Mauritius Collective Investment Schemes and Close-Ended Funds
Mauritius has established itself as a leading jurisdiction for setting up and administering funds investing in Asia and Africa.
This deep dive into the Mauritius investment funds landscape is produced by Vistra. As a global corporate service provider and fund administrator with more than 9,000 professionals in over 45 jurisdictions, Vistra empowers legal entities globally to work smarter, grow faster, act responsibly, protect capital and scale across borders. www.vistra.com
Introduction
Mauritius has emerged as a prominent player in the global investment funds landscape, attracting investors with its strategic location, stable political environment, and favourable regulatory framework. It has fast become the leading jurisdiction for setting up and administering funds investing in Asia and Africa. Funds which hold global business licence are liable to tax in Mauritius at a rate of 15% but will qualify for an exemption of 80% of the foreign-source income derived by the funds. The partial exemption granted in respect of interest earned by funds is 95%. Certain type of funds such as special purpose funds are exempted from tax in Mauritius. The funds have access to an extensive network of double tax treaties and investment protection and promotion agreements with various countries. There is no capital gains tax in Mauritius and no withholding tax on dividends in Mauritius. There are also no exchange controls in force which allows free repatriation of funds. The friendly regulatory environment, robust AML compliance framework, convenient time zone and pool of qualified and skilled staff have contributed to the success of the island as a fund jurisdiction.
In Mauritius, funds are typically structured as investment companies, limited partnerships, unit trust, protected cell companies or variable capital companies. Global Business Funds registered with the Mauritius Financial Services Commission (‘FSC’) are licensed as entities holding a Global Business Licence under the Financial Services Act 2007 and regulated under the Securities Act 2005 (SA) and the Securities (Collective investment Schemes and Closed End Funds) Regulations 2008 (CIS Regulations).
The Global Business Funds operate as either open-ended or closed-end funds and are licensed according to their investment objectives and target investor profile.
Category of Investment Funds
Within the Mauritian investment funds market, two main categories stand out: Collective Investment Schemes (CIS) and Close-Ended Funds.
Collective Investment Schemes, commonly known as mutual funds, form the cornerstone of Mauritius’ investment funds industry. These funds pool money from multiple investors and invest in a diversified portfolio of securities, providing investors with exposure to a range of assets such as equities, bonds, and money market instruments. CIS are basically open-ended funds.
1. Collective Investment Scheme (CIS)
Open-ended funds are characterised by their flexibility, allowing investors to enter or exit the fund at any time.
The number of units in the fund is not fixed and can fluctuate based on investor activity.
The Net Asset Value (NAV) of open-ended funds is calculated on a frequent basis, could be daily, weekly, or monthly, reflecting the market value of the fund’s assets.
A CIS is defined under the Mauritius laws as a scheme constituted as a company, a trust or any other legal entity approved by the Financial Services Commission “FSC” – whose sole purpose is the collective investment of funds in a portfolio of securities or other financial assets, real property or non-financial assets as may be approved by the FSC whose operation is based on the principle of diversification of risk that has the obligation, on request of the holder of the securities, to redeem them at their net assets value, less commission or fees and where the participants do not have day to day control over the management of the property, whether or not they have the right to be consulted or to give directions in respect of such management.
Type of Collective Investments Schemes
Fully Regulated Global CIS (meant for Public /Retail Funds) – a fully regulated scheme that is essentially meant for the public. A Global CIS is not entitled to any of the exemptions generally provided to the other type of funds.
Professional CIS – CIS which offer their shares solely to sophisticated investors or as private placements. Sophisticated investors include governments or public bodies, banks, CIS, CEF, pension funds, CIS Manager, insurer, investment adviser, natural person with net worth over USD1m, institution with assets under management of over USD5m among others. The Professional CIS are exempted from most on-going obligations and regulations generally imposed on public/Global CIS provided that its interests are not resold to the public and are not listed on a securities exchange whether in Mauritius or elsewhere.
Specialised CIS – CIS which invests in specific assets classes such as real estate, derivatives, commodities, or any other product authorised by the FSC. A CIS that wishes to be designated as a specialised CIS must apply to the FSC to be authorised as such. As part of this process, the FSC will decide which of the Regulations will apply to that specialised CIS and whether any further terms and conditions should be applied.
Expert Fund – is only available to expert investors. An expert investor is an investor who makes an initial investment of no less than USD100,000 for his own account, or a sophisticated investor. Most of the obligations and restrictions governing Global funds do not apply to Expert funds.
Fully Regulated CIS are required to have a prospectus in the prescribed format that must set out details in respect of the minimum amount of subscription and at least 5% of the total amount must be raised within six months or risk being returned to the investors. Professional CIS, Specialised CIS and Expert Funds are only required to issue an offering document in order to be licensed by the FSC.
A CIS is required to be managed by an investment manager licensed in Mauritius. A foreign regulated investment manager may alternatively be appointed subject to the prior approval of the FSC. The legal duties and obligations imposed upon the CIS manager are among others, to (i) have appropriate qualified staff (ii) establish internal control rules (iii) maintain a minimum stated unimpaired capital of at least MUR 1 m (or an equivalent amount in a different currency) (iv) ensure that the assets of the fund are clearly identified and held separately from the assets of that CIS manager and the assets of any other scheme managed by that CIS manager and (v) adopt relevant and reasonable written policies to minimise the risk of assets being used for money laundering purposes and to cater for situations of conflict of interest.
Advantages of Collective Investment Schemes in Mauritius:
a. Diversification: CIS offer investors a diversified portfolio, spreading risk across various asset classes and securities.
b. Professional Management: Fund managers, experts in financial markets, make investment decisions on behalf of investors, leveraging their knowledge and experience.
c. Liquidity: Open-ended funds provide investors with liquidity, as they can buy or sell units on any business day at the prevailing NAV.
2. Closed-end fund
Closed-ended funds, on the other hand, have a fixed number of shares or units issued during the fund’s initial offering.
Investors cannot redeem or purchase additional units directly from the fund; instead, they must buy or sell existing units on the secondary market.
The market price of closed-ended funds may differ from their Net Asset Value due to supply and demand dynamics.
Closed-end funds are defined under Mauritius laws as arrangements or schemes, other than a collective investment scheme, constituted in such legal form as may be approved by the Commission and whose object is to invest funds, collected from subscribers during an offering made under Part V of the Securities Act or from sophisticated investors, in a portfolio of securities, or in other financial or non-financial assets, or real property, as may be approved by the Commission.
Private equity funds (PEF) are normally set up as closed-end funds under S97 of SA and are authorised as a PCIS under Regulation 75(a) of the CIS Regulations. PEFs will be exempt from most part of the CIS Regulations provided that the share acquired by the investors are not resold to the public and the participants are informed of the same at the moment of subscription.
A closed end fund shall appoint and have at all times a CIS manager licensed in Mauritius, however where the closed end fund is self-managed, the board of directors of the fund shall be subject to all provisions relating to the CIS manager. The CIS manager shall be subject to similar legal duties and obligations as those required for a CIS manager of a CIS.
On 6 March 2021, the FSC released the Financial Services (Special Purpose Fund) Rules 2021 which revoked the Financial Services (Special Purpose Fund) Rules 2013 and set out new criteria for the Special Purpose Fund regime. Special Purpose Fund can be a CIS or a CEF. It is a tax-exempt entity with a maximum of 50 investors with a minimum subscription of USD100,000 and shall offer its shares by way of private placement only to investors having significant experience and knowledge.
Advantages of Close-Ended Funds in Mauritius:
a. Stability: The fixed capital structure of close-ended funds provides stability, as the fund manager is not pressured to meet redemption requests during market downturns.
b. Active Management: Fund managers of close-ended funds have the flexibility to take a long-term investment approach, as they are not constrained by daily inflows or outflows of capital.
c. Potential for Discounts or Premiums: Investors in close-ended funds may benefit from buying shares at a discount to the Net Asset Value, offering potential capital appreciation.
Type of Structures
Historically, funds have predominantly been incorporated as corporate structures. Some companies may have more than one class of shares with each class having a different investment strategy. These are known as umbrella funds. Companies may also be structured with different share classes in order to cater for various fee structures. There may also exist multiple series within each class of shares.
1. Protected Cell Company (PCC)
A Protected Cell Company (PCC) is a special type of corporate vehicle with a core and several non-core cells, and the assets and liabilities of each non-core cell is legally protected from the failure of another non-core cell. PCCs in Mauritius are governed by the Protected Cell Companies Act 1999 and are widely used by investment funds.
2. Variable Capital Company (VCC)
A VCC is a company incorporated under the Companies Act which carries its activities through its sub-funds and special purpose vehicles (SPV). The sub-funds can be collective investment schemes and closed ended funds. The VCC provides for Segregation of assets and liabilities of the sub-funds and SPVS. The possibility of incorporated sub-funds and SPVs provides further protection from creditors of other sub-funds/SPVs.
3. Limited Partnerships (LP)
With the enactment of the Limited Partnerships Act 2011, private equity funds have also been set up as limited partnerships. A limited partnership must be set up with at least one general partner and one limited partner. The Mauritian LP combines features of both company and a partnership. It can opt for separate legal personality just like a company, while at the same time enabling some partners, known as limited partners, to contribute and participate in the returns of the LP without being engaged in its day-to-day management. The general partner is responsible for managing the business and affairs of the LP and is personally liable for the debts of the LP. LPs can elect to be either transparent or tax opaque. If LPS are tax transparent, they will not be liable to tax but each of the partners of the LP will be liable to pay tax to the extent of his/her share of the income of the partnership in their respective jurisdictions. If the LP opts to be tax opaque, it will be subject to tax in Mauritius on its chargeable income at a rate of 15% subject to the partial tax exemption regime.
Regulatory Framework
The Financial Services Commission (FSC) of Mauritius is the regulatory authority overseeing the licensing and supervision of investment funds. Both Collective Investment Schemes and Close-Ended Funds are subject to rigorous regulatory scrutiny, ensuring investor protection and maintaining the integrity of the financial system.
Application for authorisation for CIS/CEF
Any application for an authorisation for a CIS or CEF must be submitted to FSC and should include the following documents:
the relevant Application Form,
the Constitutive Documents,
the Offer Document,
Structure chart.
Details relating to the fund AML compliance officers; and
customer due diligence documentation (including Personal Questionnaire Form)
The FSC may request additional information. It takes 6 to 12 weeks for the fund to be licensed by the FSC.
Regulatory obligations and restrictions on the funds
The assets of a CIS shall only be held for safekeeping by a custodian. There is no requirement for a custodian to be appointed in the case of a CEF.
All funds are subject to ongoing reporting obligations as imposed by the FSC under the SA and FSA. Reporting obligations include filing audited financial statements on a yearly basis as per section 30 of the FSA, filing of regulatory surveys on a quarterly basis and payment of the requisite annual licence fees.
Funds are also required to submit annual corporate tax returns (including TDS returns) to the Mauritius Revenue Authority.
Depending on the investments being undertaken and the jurisdictions into which the investments are made, funds may apply to the Mauritius Revenue Authority for Tax Residence Certificates which validate their tax residency in Mauritius.
Funds are required to have a bank account with a financial institution in Mauritius through which all monetary transactions are to be carried out.
A copy of material amendments to its current offer document must be filed with the FSC.
The funds must at all times keep and maintain internal records, whether in electronic form or otherwise, of the identity of customers, including the identity of controllers and beneficial owners and business activities for the period of at least 7 years.
No shares or any legal or beneficial interest in the fund, which carries or confer voting rights, or which results in a change of control, shall be issued or transferred except with the approval of the FSC. The funds shall provide such particulars of any proposed controllers and beneficial owners as may be required by the FSC.
No person shall be appointed as an officer without the prior approval of the FSC. A request for approval must be accompanied by full particulars of the person to be appointed and such other information as may be required by the FSC.
Economic substance requirement: the funds being tax resident entities are taxed at a corporate rate of 15% on its income subject to an 80% exemption provided that it satisfies the prescribed economic substance requirements as follows:
(i) Carrying out its core income generating activities in Mauritius. These activities include the following:
For CIS – investment of funds in portfolio of securities, or other financial assets, real property, or non-financial assets; diversification of risks; redemption on the request of the holder
For CEF – investment of funds collected from sophisticated investors in portfolios of securities or in other financial or non-financial assets or real estate property.
(ii) Employing directly or indirectly an adequate number of suitably qualified persons to conduct its core income-generating activities; and
(iii) Incurring a minimum expenditure proportionate to its level of activities.
Every fund will be a reporting financial institution for the purpose of FATCA/CRS. The funds will have to obtain a GIIN and annually report to the Mauritius Revenue Authority.
All funds will fall within the scope of the Mauritius AML regime as they are considered as financial institutions. They will have to undergo an independent audit to test its AML/CFT program, to implement an adequate business risk assessment and to have AML compliance officers appointed. The funds may be subject to onsite or offsite inspections by the FSC and be requested to furnish information with regards to transactions, AML/CFT controls and governance.
Data protection laws in Mauritius are governed by the Data Protection Act 2017. The objective of the Act was guided by the founding principle enshrined in the European General Data Protection Regulations, namely the protection and safeguarding of privacy rights of individuals in relation to requirement for collection, processing, storage, transfer and handling of personal information/sensitive personal information. As a data controller, the funds need to comply with the Act.
Mauritius' investment funds landscape offers a diverse array of opportunities for investors, with Collective Investment Schemes and Close-Ended Funds catering to different preferences and risk appetites. Whether investors seek the liquidity and diversification provided by open-ended funds or the stability and potential discounts of close-ended funds, the Mauritian regulatory framework ensures a secure and transparent investment environment. As the global financial landscape continues to evolve, Mauritius remains a compelling destination for those looking to participate in the dynamic world of investment funds.
Get in touch
Vistra Mauritius
Patricia Sin
Executive Director, Head of Funds
Mauritius
+230 5258968
Vistra South Africa
Manusha Parshotum
Director, Business Development
South Africa
+[27] 84 701 1646