Mauritius is establishing a growing reputation in the global financial services industry, and it is increasingly seen as a jurisdiction of choice for structuring, including Trusts. The Mauritius Trust is an effective tool for wealth structuring explains Nico Van Zyl, TEP, M. MIoD – Managing Director at Sovereign Trust (Mauritius) Limited.
Mauritius Trusts are governed by the Trust Act 2001 which lays out the regulations relating to the creation and administration of Trusts on the island. The Act is further supported by the extensive common law precedent relating to trusts.
At its simplest, a trust is an arrangement whereby property owned by one party (the Settlor) is given to another party (the Trustee) to hold the property for the benefit of a third party (beneficiary(ies) or a class of beneficiary). A trust can only be created by an instrument in writing (the trust deed or declaration of trust) which acts as evidence of the creation of the trust. It sets out the terms and conditions upon which the trustees hold the trust assets and outlines the rights of the beneficiaries. A trust can be formed by a resident or non-resident of Mauritius.
A trust is a very useful and practical tool used by high net worth individuals and family offices due to its inherent features. One of the main practical advantages of a trust is gained from the distinction that is drawn between the formal or legal owner of property, the trustee and those people that have the use or benefit of the property, the beneficiaries.
Features and benefits of a Mauritius trust
Below we consider the main features and benefits of using the Mauritius trust.
Succession and Estate Planning – Mauritius trusts provide efficient vehicles for the transfer of beneficial ownership interests. As such, they are very effective in safeguarding the assets of the Settlor and ensuring that they are utilised for the benefit of the Beneficiaries at the right time. The trusts can also be used to preserve the continuity of assets within the family.
An efficient structure – With the right set up, a Mauritius Trust may produce substantial savings in income tax, capital gains tax and inheritance tax/estate duty. Trusts with a foreign settlor and beneficiaries may not be liable to pay taxes in Mauritius except in very limited circumstances. Also, a tax resident Trust can benefit from the Mauritius’ tax treaty network.
Flexibility – Under the provisions of a discretionary trust, the trustees are given powers to determine the beneficiaries of both the capital and income of the trust, and the amounts that they are to receive. The letter of wishes containing guidance on the administration of the trust can be varied over time. A discretionary trust can therefore provide a structure that is capable of rapid change as circumstances demand. To further support this, the Trust Act 2001 allows for the proper law of the trust itself to be moved to another jurisdiction if Mauritius is no longer the ideal environment for the trust to operate.
Professional Trustees – The Trust Act requires that each Mauritius Trust has a qualified trustee. A qualified trustee is a corporation (or in limited cases an individual) which has been approved by the Financial Services Commission to act as a trustee. This can provide comfort for those establishing trusts in Mauritius in the knowledge that they will receive professional service and they can have recourse to a regulatory body in the event of a dispute.
Protector – The Trust Act permits the appointment of a Protector who owes a fiduciary duty to the beneficial owners. The Protector acts as a check on the powers of the Trustee, with the Trustee requiring the Protector’s consent before they perform certain actions and the Protector can remove the Trustee and appoint a new one. The role of the Protector can therefore serve to provide an additional level of comfort to the settlor.
Changes to the residence of Mauritian Trusts
The Finance (Miscellaneous Provisions) Act 2021 has introduced a significant change in the residency of Mauritian Trusts.
Mauritian Trusts established after 30 June 2021 will no longer be able to apply for a Declaration of Non-Residence which previously granted them an exemption from paying tax in Mauritius.
The Mauritius Revenue Authority (MRA) published the Statement of Practice Note (SOP) around the removal of the Declaration of Non-Residence. This SOP confirms the position that trusts will be treated as companies for tax purposes. Thus, where the trust holds its central management and control in Mauritius, the worldwide income would be taxed at 15% in Mauritius.
Paragraph 6.2 of the SOP sets out what the MRA considers ‘Central Management and Control’ in respect of a trust. This states that a trust will have its ‘Central Management and Control’ in Mauritius when:
- The trust is administered in Mauritius and a majority of the trustees are resident in Mauritius;
- The settlor of the trust was resident in Mauritius at the time the instrument creating the trust was executed or at such time as the settlor adds new property to the trust; and
- A majority of the beneficiaries of the trust appointed under the terms of the trust are resident in Mauritius.
The SOP indicates that a trust will only have its ‘Central Management and Control’ and therefore be subject to tax in Mauritius if all three requirements are met – so it is unlikely that any trust settled by non-Mauritians will be subject to tax in Mauritius.
Due to the features of Mauritius Trust stated above, Mauritius’ political stability; reputation for its ease of doing business and affordability makes it an ideal jurisdiction for the establishment of offshore Trusts.