Additional Substance Requirements for GBC1 companies as from 1st January 2015

The Financial Services Commission (“FSC”) had in September 2013 issued a communiqué bringing some amendments to the Guide to Global Business (the “Guide”), in line with the government policy of enhancing commercial substance requirements in Mauritius for Global Business Companies holding a Category 1 Global Business Licence (“GBC1”) to be eligible for a tax residency certificate. The amendments to the Guide require GBC1s to have presence, which can be reasonably expected from a corporation managed and controlled in Mauritius. In addition to existing requirements, other conditions will be considered by the FSC in determining whether a GBC1 is “managed and controlled” in Mauritius.

In determining whether the conduct of business will be or is being managed and controlled from Mauritius, the FSC already takes into consideration whether a GBC1:

(a)   shall have or has at least 2 directors resident in Mauritius, who are appropriately qualified and are of sufficient calibre to exercise independence of mind and judgement, in line with the requirements of the Circular Letter bearing reference CL280313, issued by the FSC. This Circular Letter summarises the duties and obligations of directors, namely those set out in section 143(1) of the Companies Act 2001 and clause 2.7.8 of the Code of Corporate Governance. For the approval of directors, the FSC will consider whether the directors have the capacity and are able to perform their duties in accordance with the law and the regulatory framework. The FSC will further consider the following factors: qualification and experience, independence of mind, impartial and good judgment, and time commitment to be adequately involved in the control and management of the company;

(b)   shall maintain or is maintaining at all times its principal bank account in Mauritius;

(c)   shall keep and maintain or is keeping and maintaining, at all times, its accounting records at its registered office in Mauritius;

(d)   shall prepare, or proposes to prepare or prepares its statutory financial statements and causes or proposes to have such financial statements to be audited in Mauritius; and

(e)   shall provide or provides for meetings of directors to include at least 2 directors from Mauritius. In fact, the FSC encourages GBC1s to hold physical meetings in Mauritius.

As from the 1^st of January 2015, when determining whether a GBC1 is managed and controlled from Mauritius, the FSC shall also consider (in addition to existing substance requirements) whether the GBC1 meets at least one of the following criteria (“additional criteria”):

(a)   it has or shall have office premises in Mauritius; or

(b)   it employs or shall employ on a full time basis at administrative/technical level, at least one person who shall be resident in Mauritius ; or

(c)   its constitution contains a clause whereby all disputes arising out of the constitution shall be resolved by way of arbitration in Mauritius; or

(d)   it holds or is expected to hold within the next 12 months, assets (excluding cash held in bank account or shares/interests in another corporation holding a Global Business Licence) which are worth at least USD 100,000 in Mauritius; or

(e)   its shares are listed on a securities exchange licensed by the FSC; or

(f)   it has or is expected to have a yearly expenditure in Mauritius which can be reasonably expected from any similar corporation which is controlled and managed from Mauritius. The onus is on the GBC1 to satisfy the FSC that its level of expenditure in Mauritius is reasonable. Reasonableness of expenditure would be judged in the light of circumstances of each case and the factors to be considered to decide whether the level of expenditure of a GBC1 is reasonable include the type of activity, its average turnover, the country (ies) in which it is conducting business, and the value of its net assets and the industry average, to name but a few.

A GBC1 shall be deemed to have satisfied the additional criteria if a related corporation holding a Category 1 Global Business licence, i.e. a subsidiary, a fellow subsidiary, a parent corporation or any other corporation within the same group structure satisfies one of the additional criteria.

Given the relative simplicity and cost effectiveness of adding the arbitration clause in a company’s constitution, this method is undoubtedly one of the preferred ones which many GBC1s are having recourse to, in order to comply with the additional criteria by the set deadline. It is worth noting that the requirement requires the seat of the arbitration to be in Mauritius and that entities are free to choose the applicable arbitration rules, such as the rules of the London Court of International Arbitration or the International Chamber of Commerce’s arbitration rules. While the requirement only refers to the company’s constitution and not any other agreement (such as a shareholders agreement) it is often appropriate to insert a similar clause in other agreement relevant to the conduct of the affairs of the company to avoid conflicts and for consistency.

Other GBC1s may well choose to satisfy more than one of the requirements set above, to further bolster their substance in Mauritius.

These additional criteria are in line with international best practices which require a level of substance from a resident company which is beyond being just incorporated in a particular jurisdiction.