GLOBAL FUNDS IN MAURITIUS

Transcription

1 GLOBAL FUNDS IN MAURITIUS COMPETITIVE. INNOVATIVE. GLOBAL. COMPREHENSIVE SERVICES. SOLUTIONS DRIVEN Every Global Fund domiciled in Mauritius is licensed by the Mauritius Financial Services Commission ( FSC ). The salient features of Mauritius domiciled Global Funds are set out below. For more information, please do not hesitate to contact LC ABELHEIM LTD. GENERAL OVERVIEW TYPE OF ENTITY Type of Global Business Licence Categories of Fund Definition - CIS Definition Closed-end Fund Main differences between CIS and Closed-end fund Sub-categories of CIS Definition Professional CIS Definition Specialised CIS Definition Expert Fund Definition Sophisticated Investors Currency Time to establish Global Fund Category One Global Business Licence (GBL1) Two categories: 1. Collective Investment Scheme (CIS) is what is commonly referred to as open ended funds, in many jurisdictions. 2. Closed-end funds In its legal form, a CIS may be constituted as a company limited by shares, a trust or in any legal form as approved by the FSC. A collective investment scheme (a) means a scheme constituted as a company, a trust, or any other legal entity prescribed or approved by the FSC :- (i) 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; (ii) whose operation is based on the principle of diversification of risk; (iii) 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 (iv) 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; and (b) includes closed-end funds whose shares or units are listed on a securities exchange; but (c) does not include such schemes as are specified in Part II of the Schedule of the Securities Act 2005 A Closed-end fund is an arrangement or a scheme, whose object is to invest funds, collected from subscribers during an offering made to investors or from sophisticated investors, in a portfolio of securities, or in other financial or non-financial assets, or real property. Unlike a CIS, a Closed-end fund may not allow redemption at option of investors, need not operate on risk diversification principle and may allow investors to exercise control on day to day management. 1. Professional CIS 2. Specialised CIS 3. Expert Fund 4. CIS other than sub-categories (1), (2), (3) above, and which is fully regulated and meant mainly to be offered to the public. May be referred to as Public CIS Professional CIS offer their shares solely to sophisticated investors or as private placements. Specialised CIS is one that invests in real estate, derivatives, commodities or any other product authorized by the FSC. An Expert Fund is a CIS that has applied to the Financial Services Commission to be licensed as an Expert Fund. Expert Fund is only available to expert investors. A Sophisticated Investor means:- (a) the Government of Mauritius; (b) a statutory authority or an agency established by an enactment for a public purpose; (c) a company, all the shares in which are owned by the Government of Mauritius or a body specified in paragraph (b); (d) the government of a foreign country, or an agency of such government; (e) a bank; (f) a CIS manager; (g) an insurer; (h) an investment adviser; (i) an investment dealer; or (j) a person declared by the Financial Services Commission to be a sophisticated Investor High net worth individuals, US accredited investors are generally treated as sophisticated investors by the FSC. Any, but normally not Mauritius Rupee. 20 to 30 business days, once offering document and/or shareholders agreement is in a near final form.

2 Formation Dealing with people is probably the biggest problem you face, especially if you are in business., and that is also true if you are a housewife, architect or engineer. Dale Carnegie KYC/CDD required Documents to be provided to the FSC for licensing purposes Documents to be provided to the FSC within 30 days of set up of the Fund Nominee shareholder and professional directors can be used to expedite formation Tax, Access to tax treaty, tax residency conditions Permitted capital Type/class of shares Distributions subject to solvency test Residency of investors Meetings Personal Questionnaire required Financial Statements Directors Share Capital / Shareholders Deadline for filing of audited financial statements Filing of interim financial statements NAV calculation of CIS Confidentiality disclosure to Authorities Notify Authorities for each share allotment Beneficial ownership disclosed to Authorities Functionaries to the Fund: Delegated mandate or self management Licence to be sought in Mauritius, on the promoter/sponsor of the Fund, registered owners and beneficial owners of the investment management company (if not regulated) and proposed directors of the Fund and investment management company. Offering document in near final form Composition of investment management team Principal terms of contracts with main functionaries, if not included in the offering document KYC/CDD as described above Copy of execution version of all material contracts. Taxed as a GBL1 Any amount Mauritius company law allows the Fund to structure its share capital in the most flexible and investor friendly manner possible. Most funds are multi-class and rights of the different classes may differ. It is typical for investment managers to hold voting shares that do not participate in economics of the Fund, while investors hold participatory shares. It is usual for investment manager to also co-invest with their investors by subscribing to another class of participatory shares. Also, lead/core investors are often offered shares with voting rights. ; simplified solvency test applies generally to Global Funds. Simplified solvency test is satisfied when: (a) value of Assets exceeds value of Liabilities; and (b) when the fund is able to pay its debts as they fall due in the ordinary course of business. Generally from any country, including Mauritius. Anywhere At least 2 directors, resident in Mauritius, of sufficient calibre to exercise independence of mind and judgement. Different classes of shares can be issued and rights of the different classes may differ. Shares can be of par value or no par value. Shares may be redeemable, non-voting or confer preferential, special or limited rights to income, capital or voting as specified in the constitution (by-laws). Within 3 months of financial year end date. Public CIS:, Quarterly unaudited financials. Professional CIS and Expert Fund: No, unless it has not less than 100 shareholders. Closed-end fund: No, unless it has not less than 100 shareholders. Specialised CIS: Depends on licensing conditions imposed by the FSC on a case to case basis, but, if it has not less than 100 shareholders. Generally, must be signed off in Mauritius prior to circulation to investors., to the Financial Services Commission. Funds: Only identity of fund manager/promoter is disclosed to the FSC. However, the FSC may request for information on investors, if necessary Information confidentially kept Collective Investment Schemes (Open ended funds): No Closed-end funds:, but nominee shareholder can be used Only identity of fund manager/promoter disclosed to the FSC. However, the FSC may request for information on investors, if necessary. Information is confidentially kept. The Manager CIS and Closed-end funds: Normally expected to appoint a manager to manage the portfolio of investment, BUT alternatively are allowed to be self managed by their Board of Directors. To manage CIS: CIS Manager licence To manage Closed-end fund: Investment Adviser- Unrestricted licence

3 A culture of discipline is not a principle of business; it is a principle of greatness. Jim Collins Minimum capitalisation Professional Indemnity Insurance required Functionaries to the Fund : Categories of Investment Adviser licensed in Mauritius Does a party providing only investment advice need to be licensed Minimum capitalisation Professional Indemnity Insurance required Functionaries to the Fund Does a Fund needs to appoint a Custodian Does the Custodian to the Fund need to be licensed in Mauritius Functionaries to the Fund Is an Administrator mandatorily required Main activities of the Administrator Functionaries to the Fund What is the Management Company What is the role of the Management Company under the law Who is responsible for maintenance of registers of investors CIS Manager: Approx. US$34,000 Investment Adviser Unrestricted: Approx. US$20,000 CIS Manager: Mandatory,. Investment Adviser: There is no legal requirement, but is expected in practice for commercial reason. The Investment Adviser Investment Adviser Restricted: Allowed only to give advice on securities transaction. Investment Adviser Unrestricted: Allowed to give advice and also to manage portfolio of investment under a discretionary or non discretionary mandate., if the adviser is Mauritius incorporated. Investment Adviser - Unrestricted: Approx. US$17,000 Investment Adviser Restricted: Approx. US$20,000 Investment Adviser Restricted and Unrestricted: There is no legal requirement, but is expected in practice for commercial reason The Custodian CIS:. Whilst the relevant FSC Rules allows the FSC to dispense Professional CIS and Expert Fund from this requirement; in practice, the FSC might not apply such dispensation. Closed-end fund: No. However, the FSC expects the closed-end fund to put in place proper custody arrangement. No, provided the Fund holds a GBL1 licence. The Administrator, if the Fund holds a GBL1 licence. Accounting and reporting services General fund administration services Provision of place of business The Management Company It is the management company (i.e. LC ABELHEIM Ltd) that is licensed under the Financial Services Act 2007 as a Management Company not to confuse with the CIS Manager or Investment Adviser. Submit all applications to the FSC for application of GBL1 licences. Responsible for the liaison with the FSC. Provide company secretarial services. The Secretary / Management Company lc abelheim limited (Co. No ) FSC Approved (Licence No. MC ) 2nd floor, Block B, Ruisseau Creole Offices, La Mivoie, Riviere Noire, Mauritius Tel info@lcabelheim.com

4 Protected Cell Company COMPETITIVE. INNOVATIVE. GLOBAL. COMPREHENSIVE SERVICES. SOLUTIONS DRIVEN A PCC is similar to a multi-class company/ fund. Whereby, there are various classes of shares which may either invest collectively in one or more portfolio(s), or separately in distinct portfolio(s). The distinguishing features of a PCC, compared to a normal multi-class company/fund are: Each share class is referred to as a cell; The PCC has a core cell and one or more non core cells; There is a legal segregation of net assets attributable to each non core cell of the company - hence the cellular assets attributed to a non core cell will only be affected by the liabilities of the company arising from transactions attributable to that cell; This legal segregation is often described as ring fencing and is the main attraction of PCCs; Given this ring fencing, a PCC structure is very useful for any investment entity with various investment portfolios, where each has its own investment strategy and risk profile, and is even more attractive where investors are not common for each portfolio. Applications of PCCs Below are a few examples of the main applications of PCCs: Side By Side Portfolios ABC Managers wishes to offer three distinct strategies (e.g. Fixed Income, Long Equity and Long Short Equity) to investors, each strategy entailing a different level of risk. The manager has three structuring possibilities: Option A - sets up three funds, one dedicated for each strategy; Option B - sets up a multi-class company whereby each class invests in one strategy; Option C - sets up a PCC in Mauritius ABC Fund PCC Ltd The share capital of ABC Fund PCC Ltd is made up of shares of the following cells: Cell Shares issued to: Investment portfolio Core cell Investment Manager Nil Fixed Income Risk-adverse investors Fixed income instruments Long Equity Cell Medium risk taking investors Listed Equities Long Short Cell Higher risk-taking investors Equities and derivatives The comparative advantages: Option A perfectly segregates risks from each strategy. For instance, there is no way for any adverse exposure on the writing of a put option to affect investors of the fixed income strategy. Option B is a very cost efficient solution compared to Option A, as it avoids the setting up and administration of three entities. However, the risk contagion across strategies/classes is very important and might not be acceptable to all investors. Option C the PCC seems to be the best solution. It is not more costly than Option B and offers the same level of risk segregation as Option A, due to the ring fencing feature explained above.

5 Cost Efficient Assets Holding XYZ Asset Manager advises a number of clients. Each of the clients needs, from time to time, an investment holding company to hold specific assets/investments. XYZ Asset Manager has two options: 1 - Set up one investment holding company for each client and/or for each investment/ asset; 2 - Set up a PCC, whereby XYZ Asset Manager holds the shares of the core cell and each client is offered a non core cell for holding its investment/asset. Some clients may wish to have more than one non core cells, to internally segregate the risk of each of their investments. Comparative advantage of this Asset Holding PCC is again the streamlining of the structure and elimination of excess cost and administrative burden. Apart from cost implication, each investment holding company under Option A might have its own regulatory burden (renewal of licenses, submission of returns to government). With the PCC, all regulatory burden is taken care of by XYZ Asset Manager at the PCC level. Ideal Location for a PCC Choosing the right jurisdiction where to establish a PCC is relatively more critical than when it comes to set up an investment holding company or a multi-class fund. Indeed, given a PCC tends to host relatively more strategies and groups of investors than other types of structures, a PCC is likely to conduct business with more jurisdictions than other types of entities. Hence it is important that the PCC is established in a financial center which can deal with various jurisdictions in a cost, time, regulatory and tax efficient manner. The key comparative advantages of Mauritius in this respect are: Mauritius has in place a network of non double taxation treaties with 35 countries. Under all the treaties, capital gains on portfolio investments are taxable only in the country of residence of the seller of the investments; Mauritius does not tax capital gains. Mauritius does not impose any withholding tax on distributions made to any country. Mauritius is located at GMT+4; the island is 8 to 9 hours ahead of New York and just 2 hours ahead of Geneva. It is normal for Mauritius service providers to participate in teleconferences early in the morning with the Far East, handle work flow from Europe late morning, and interact with the United States in the evening or early next morning Mauritius time. Of course, Mauritius also has ALL the benefits that are offered by traditional jurisdictions which may or may not offer protected cell companies. These include (a) flexible and appropriate legislation, (b) exchange liberalization, (c) free repatriation of profits and capital, (d) no withholding taxes, (e) no capital gains and inheritance taxes, (f) no capital duty on issued capital, (g) confidentiality and banking secrecy, and (h) well regulated businesses. Investment Management It is customary for the Investment Manager to hold the shares of the core cell of the PCC and for these shares to carry all the voting rights of the PCC such that the investors would leave the actual running of the fund to the Investment Manager and its nominated directors and administrator. Nevertheless, the law provides that the rights attached to shares of any non core cell cannot be altered without the requisite votes of the holders of such shares. Though the above is customary, the law also allows the shares of any non core cell to have all the voting rights with respect to that cell. This gives maximum protection to the investors of each cell with respect to corporate governance issues in each cell.

6 GENERAL OVERVIEW A PCC is licensed by the Mauritius Financial Services Commission ( FSC ). A brief overview of the features of PCCs is set out alongside: TYPE OF ENTITY Type of Global Business Licence Type of company under company law PCCs Category One Global Business Licence (GBL 1) Protected Cell Companies Main governing laws Companies Act 2001 Protected Cell Companies Act 1999 Financial Services Act 2007 Dealing with a cell Name Can seek benefits of treaty Tax A person transacting with a PCC must be informed of the PCC nature and the cell with which the transactions is taking place must be identified. Name must end with the expression Protected Cell Company or PCC. Generally Corporate income tax Capital gains Headline tax rate is 15%; but maximum effective rate is 3%. 15% on chargeable income less foreign tax credit; if proof of foreign taxes cannot be provided, claim is allowed for a deemed tax credit of 80% of Mauritius tax payable. Consequently the maximum effective rate is 3%. Credit for foreign underlying taxes may be claimed with respect to dividend income received from holdings exceeding 5% and normally eliminates all residual taxes in Mauritius. Tax exempt income in Mauritius Withholding tax Stamp duty/capital duty Can seek benefits of treaty General minimum conditions for grant of Tax residence certificate Share Capital / Shareholders Permitted capital Nil Nil, unless company holds (with special permission) immovable property in Mauritius. Central management and control in Mauritius Bank account in Mauritius Accounting records kept in Mauritius No minimum capital requirement is imposed for the PCC and each cell except for insurance business. Composition of share capital Share capital consists of different cells of shares, of which one is a core cell. Unlimited number of cells may be provided, with each cell having its own name or designation. Legal segregation/ringfencing Residency of investors Distribution Meetings Directors Legal segregation and protection of assets and liabilities for each cell. The cellular assets attributed to a cell will only be affected by the liability of the company arising from transaction attributable to that cell. Creditors of any cell may have a claim on net assets of the core cell. Nevertheless, the PCC as a whole remains a single legal entity. Generally from any country except Mauritius. A PCC may effect distributions in respect of cell shares by reference only to the cellular assets and liabilities attributable to the cell in respect of which the cell shares were issued. At any place inside and outside Mauritius Local Director Minimum: 2 For tax residency purposes: 2 Board meetings Anywhere but for tax residency purposes: held and chaired in Mauritius Telephonic meetings allowed Financial Statements Preparation of accounts Accounting standards Audit statutorily required/ Local auditor statutorily required Filing of financial statements with Authorities, for each cell and for the overall company The norm is IAS/IFRS Also acceptable: US, UK and other GAAPs, within 3 months of year end. Public access to financial statements Proper segregation NAV calculation No The Directors of a PCC are bound by law to keep the assets and liabilities attributable to one cell separate and separately identifiable from assets and liabilities attributable to other cells. Generally, must be signed off in Mauritius prior to circulation to investors.

7 Confidentiality Notify Authorities for each share allotment Beneficial ownership disclosed to Authorities Exchange of information Open ended funds: No Others:, but nominee shareholder can be used Asset Holding activity: disclosure of beneficial ownership to FSC Funds: disclose only identity of fund manager/promoter However the FSC may request for information on investors and other parties, if necessary (in practice the FSC will do so only if there is reason to suspect the investor) Information confidentially kept Strict confidentiality is enshrined in the Law. No disclosures shall be made by the FSC to any court, tribunal, committee of enquiry or other authority in Mauritius or elsewhere except on a court order made only if the court is satisfied that the confidential information is bona fide required for the purpose of any enquiry or trial into, or relating to, the trafficking of narcotics, drugs, arms trafficking or money laundering. The powers of the FSC to transmit information have been extended to include disclosure to foreign supervisory agencies applies only with respect to financial services providers only. Mauritius has in place a network of Double Taxation Agreements and hence the Mauritius Revenue Authority is allowed to obtain and exchange information under the relevant provisions of these treaties. I like to tell people that all of our products and business will go through three phases. There s vision, patience, and execution. Steve Ballmer lc abelheim limited (Co. No ) FSC Approved (Licence No. MC ) 2nd floor, Block B, Ruisseau Creole Offices, La Mivoie, Riviere Noire, Mauritius Tel info@lcabelheim.com