Mauritius tightens over offshore funds

Subject: Economy

Sec :External Sector

Increased Scrutiny:

Mauritius imposes stricter scrutiny on offshore fund structures, leading to longer timelines and higher compliance burdens for India-focused funds.
Recent amendments to the India-Mauritius tax treaty and tax notices from Indian authorities to Mauritius-based funds contribute to the tighter regulatory environment.
Emerging alternatives like GIFT City may deter funds from choosing Mauritius as their jurisdiction.

Image Makeover:

Mauritius, having exited the FATF grey list in October 2021, seeks to distance itself from its reputation as a quasi-tax haven.
Enhanced KYC measures and routine audits by the Financial Services Commission aim to align with international tax norms.

Intensified Scrutiny Process:

The time required for fund setup has increased to 6-9 months due to intensified scrutiny.
Greater emphasis on beneficial owner experience, fund sources, commercial substance, and compliance measures.
Background checks on fund sponsors and managers conducted by the FSC to verify antecedents.

Challenges and Impact:

Compliance requirements lead to changes in management company pricing, driven by rising costs and scarcity of skilled talent.
Reluctance among institutional investors to provide personal information required for compliance.
Mauritius emphasizes its commitment to eliminating the tax haven image but faces challenges in dispelling this perception.

Exploring Alternatives:

Larger funds consider alternative jurisdictions like GIFT City, Singapore, and Cayman Islands due to difficulties in setting up funds in Mauritius.

GIFT City (Gujarat International Finance Tec-City):

Location:
GIFT City is situated in Gandhinagar, Gujarat, India.
It is strategically positioned to leverage the state’s infrastructure and connectivity advantages.
Components:
GIFT City comprises a multi-service Special Economic Zone (SEZ) with two main components:

Vision:
GIFT City is envisioned as an integrated hub for financial and technology services, not only catering to India but also serving global markets.
It aims to provide a conducive environment for businesses to thrive and innovate in the fields of finance and technology.
Regulatory Framework:
The International Financial Services Centre Authority (IFSCA) serves as the unified regulator responsible for the development and regulation of financial products, services, and institutions within IFSCs in India.
It ensures a robust regulatory environment conducive to the growth of financial services in GIFT City.