Mauritius leapfrogs Cayman

Until now, structuring funds through partnerships in Mauritius has not been a viable option due to the historic partnership structures provided for under Mauritian law. This has meant that while Mauritius has been able to offer a number of incentives to foreign fund managers in the form of Global Business Licence companies, it has not been able to compete with traditional offshore jurisdictions such as the Cayman Islands. This is about to change. The adoption of the Limited Partnerships Act (the Act) which introduces some useful, modern and distinct advantages for fund managers seeking to set up funds in Mauritius and which is expected to come into force shortly will be a welcome addition to the range of offshore products currently on offer in Mauritius

Background

Partnerships and limited partnerships have existed in Mauritius in the form of société for more than two centuries. However, due to their lack of flexibility, these structures are not appropriate for collective investment schemes. A more modern, commercial structure has long been debated which has now resulted in the new limited partnership structure. The Act is benchmarked on international best practice and legislation on the subject and provides a regulatory framework that will be both recognisable to and accepted by foreign investors.

Nature of structure

The limited partnership structure being introduced in Mauritius is similar to the en commandite partnership structure currently used by many funds established in South Africa, and other limited partnership structures used in more traditional offshore jurisdictions. There will be one or more general partners who have unlimited liability to third parties and limited partners whose liability is limited to the amount of their contribution to the partnership. Similarly to the Cayman Exempted Limited Partnership Law, the Act clarifies which activities limited partners may take part in without being deemed to have participated in the management of the limited partnership. These safe harbours provide investors with certainty about the partnership activities they may be involved in without running the risk of losing their limited liability status.

Advantages

Some of the advantages of the new limited partnership structure are that it may now be possible for managers to more easily mirror fund terms when setting up parallel structures. Complex master-feeder structures may no longer be necessary because global funds can be structured directly in Mauritius as limited partnerships. The ability to offer foreign investors a familiar structure which confers the benefits of similar limited partnership structures in other offshore jurisdictions will be created.

Tax advantages

The Act also provides a number of default positions that will be applicable to limited partnerships, but many of these can be overridden by a partnership agreement. While, as a default, a limited partnership will be a tax transparent vehicle, an attractive and unique feature of this particular limited partnership structure is that those partnerships that hold a category 1 Global Business Licence will be entitled to opt to be treated as a company for tax purposes and would therefore be liable for tax at the level of the partnership. In this way, the partnership will benefit not only from the beneficial corporate tax rate applicable to Mauritian global business licence companies, but the partnership would also be able to take advantage of the numerous tax treaties Mauritius currently has in place. This would also be beneficial for limited partners resident in jurisdictions which have higher personal income tax rates who would ordinarily be liable for any income earned from the partnership in their own hands.

Partnership as entity

Another interesting feature of the new Mauritian limited partnership structure is that the partners will have the ability to elect whether to treat the partnership as a separate legal entity from its partners, similar to a Delaware limited partnership. Where so elected, the limited partnership can sue and be sued in the name of the partnership rather than in the name of the general partner, providing an additional layer of protection for the partners.

Registration of foreign partnerships

In addition, a foreign limited partnership may apply to the Registrar of Limited Partnerships to be registered as, and continue as, a limited partnership in Mauritius. This will be particularly attractive to existing funds which may wish to migrate to Mauritius without having to transfer their underlying portfolio. The partnership agreement is not required to be filed with the Registrar of Limited Partnerships thus ensuring confidentiality.

Mauritius is making great strides in competing with other, better established offshore jurisdictions. Fund managers in particular should welcome the possibility of being able to offer foreign investors a familiar fund structure with some additional and attractive benefits.