Mauritius: Forty Years Proving Meade Wrong

By By Ludovic C Verbist, LLM, PhD, TEP, Group Managing Director, and Rama Appadoo, Manager – Legal & Compliance, AAMIL (Mauritius) Ltd (01/01/2013)

The Economy

In the 1960s economist and Nobel Prize winner, Professor James Meade, famously prophesied that Mauritius's development prospects were poor. However, the last 40 years has proved Professor Mead wrong, as Joseph Stiglitz, the Nobel Laureate in Economics, rightly said: “Mauritius, a small island nation off the east coast of Africa, is neither particularly rich nor on its way to budgetary ruin. Nonetheless, it has spent the last decade successfully building a diverse economy, a democratic political system, and a strong social safety net. Many countries, not least the US, could learn from its experience.”

Amidst the worldwide economic crisis, Mauritius can toot its horn in the manner it has handled itself through the financial storm. While it has a panoply of investors from Europe, most affected by the economic turmoil, Mauritius has nonetheless experienced a surge in foreign direct investments over the last four years and 2012 was no better an example. In 2012, the financial services sector of Mauritius remained one of the vital economic pillars of its economy with a sustained GDP contribution of over 10 per cent. To add to its repertoire, various new legislations have been introduced, namely foundations, limited partnerships, private pension funds, which further strengthen the products already offered, thus boosting Mauritius as a financial centre of choice in the region.

New Legislation and Foreign Direct Investments

Following the most recent budget speech, the Economic and Financial Measures (Miscellaneous Provisions) Act, has brought about, inter alia, numerous amendments to key sections of the law, such as the Companies Act, Financial Services Act, Limited Partnerships Act and Trusts Act. These changes have ultimately come at a crucial time as Mauritius positions itself as a strategic location for doing business in the region. The Mauritian Board of Investment (BOI) has indicated that Foreign Direct Investment (FDI) inflows into Mauritius from January to June 2012 reached US$133 million, representing an increase of 20 per cent compared to the figure in the first semester of 2011.


Mauritian foundations are governed by the Mauritian Foundations Act 2012, which was enacted in June 2012. Foundations can be set up for charitable purposes or for non-charitable purposes or for both charitable and non-charitable purposes simultaneously. Foundations can be used for the benefit of a person or a class of persons or even to carry out a specified purpose and must be registered with the Registrar of Foundations. In addition, foundations may also be established by means of a will. The foundation’s charter will set out the purposes, objects, particulars and governing rules. Foundations are also set up for wealth management purposes.

A foundation must have a founder, a beneficiary, a secretary and a registered office at all times. The foundation may have a protector though it is not mandatory. The foundation is also required to have a council which carries out its objects, supervises the management and conduct of the foundation in accordance with the charter. The council must have at least one member who shall be ordinarily resident in Mauritius.


Through its robust political, legal and economic structures, together with its rich multicultural attributes, Mauritius has harnessed fruitful and cordial relations with a number of countries in the last 10 years. Mauritius has become known as a reputable international financial centre thanks to a large extent to its numerous existing Double Taxation Avoidance Agreements (DTAAs) and has recently added several to its list, including with countries such as Zambia, Nigeria and Kenya, while it has revamped others such as the DTAA with Germany in 2012. To this date, Mauritius has ratified 37 DTAAs.

Mauritius is positioning itself as a safe, trusted and well-established international financial centre and the natural choice as a business and investment gateway into Africa. It ranked first in Africa for the World Bank Ease of Doing Business Survey 2012 (23rd in the World) and ranked first in the Mo Ibrahim Survey on corporate governance.

In order to protect and promote foreign investments through legally binding rights and obligations, Mauritius has reinforced its Investment Protection and Promotion Agreements (IPPAs) with 34 countries.

An IPPA offers the following guarantees to investors from the contracting States:

  •   Free repatriation of investment capital and returns.
  •   A guarantee against expropriation.
  •  The most favoured nation rule with respect to the treatment of investment, compensation for losses in case of war or armed conflict or riot.
  •   Arrangement for settlement of disputes between investors and the contracting states.


With the advent of the General Anti-Avoidance Rule (GAAR) provisions in April 2016, the label of ‘tax haven’ could well be eradicated. The GAAR objective is to insist upon the principle of ‘substance over form’, meaning that the real intention of the parties involved and the purpose of establishing an arrangement are taken into account for determining the tax consequences, irrespective of the legal structure of the transaction or arrangement. This immediately impacts upon Mauritius, which has been the single largest investor into India for much of the last 15 years.

This is as a result of the Mauritius-India tax treaty, which allows for tax exemption in capital gains. A Global Business License Category One company is the structure used by investors for investment in India given its access to treaty benefits. The GAAR rules, however, are being interpreted as suggesting that investors into India using the Mauritius route will now be subject to capital gains taxation, unless they can demonstrate a “substantial commercial presence” in Mauritius.

Addressing India’s concerns, in a recent conference, the Mauritian Minister of Foreign Affairs Boollel welcomed the clarity provided by the Indian Finance Minister Chidambaram on GAAR and highlighted Mauritius’ determination to ‘walk the extra mile’ regarding GAAR.  In an effort to provide a climate of certainty, visibility, reliability and predictability for global investors, treaty renegotiations between Mauritius and India are taking place, next round in New Delhi.

The African Seat of Arbitration for the 21st Century

With the enactment of the International Arbitration Act 2008, Mauritius’s efforts to promote itself as an arbitral venue will inevitably have an impact on the Mauritian economy, including its financial services sector.

With the aim of shifting focus from London to Africa, Mauritius will serve as a linchpin and gateway into Africa. Africa as an investment and business destination is no news to the world and while there will always be a risk and opportunity matrix, investors planning to head to Africa are reminded that the potential for growth remains positive. The rising number of global investment companies coupled with funds using Mauritius as a platform for investing in the region, especially Africa, bolsters the confidence of the Mauritian Government to extending itself as a seat of arbitration in Africa. Mauritius is thus shaping its way to becoming a lucrative and cost effective centre for the years to come.

Thus poised to make a head start into Africa and to continue to serve the region as a key gateway for investments, Mauritius is a success story that Professor James Meade could not have ever imagined. As a well respected international financial centre, Mauritius is forging ahead in its role as the ‘Star and Key of the Indian Ocean’.