The long-awaited Mauritius Foundations Act 2012 ("the Act") came into force on 1 July 2012. International investors are able to take advantage of this new vehicle to benefit from the large scale of double taxation treaties to which Mauritius is a party. Foundations are able to apply for Category 1 Global Business Licence. The existence of a new wealth management product along with the many structuring opportunities that accompany it will be of interest to a wide variety of clients. Key aspects of the Act are considered below.

Purpose and Objects

A foundation may be formed in Mauritius or elsewhere, for such purposes and objects as may be provided in its charter. In line with the Act, a foundation may be established by means of a will, and property and rights may be transferred to or endowed upon a foundation. The objects of a foundation may be:

  1. charitable or non-charitable, or both;
  2. for the benefit of a person or a class of persons, or carry out a specified purpose, or both.

Founder & Endowment of Property by a Noncitizen

It is important to note that a founder may be a beneficiary of a foundation of which he is the founder. A beneficiary means a person who is entitled to benefit under a foundation or in whose favour a power to distribute any foundation property may be exercised.

A founder who is a non-citizen and endows property to a foundation shall be considered to have had the capacity to endow property to the foundation where, at the time of the transfer, he was of full age and sound mind under either the laws of Mauritius; or the laws of his domicile or nationality; or the proper law of the transfer. Where a non-citizen endows property to a foundation, the transfer shall not be set aside, avoided or otherwise declared invalid or ineffective by virtue of any rule or law:

  1. of his domicile or nationality relating to inheritance or succession or any rule or law of a similar nature;
  2. restricting the right of a person to dispose of his property during his lifetime so as to preserve the property for distribution at his death, or any rule or law having similar effect.

From the time of establishment, the foundation shall hold all property effectively transferred to it for the purposes and objects, and that property shall constitute the initial assets of the foundation. Upon transfer the property shall cease to be the property of the founder and the foundation shall hold good title in such property. Any property transferred to the foundation shall become the property of the beneficiary only after any distribution has been made.

Unless otherwise provided in the charter or articles, a person who endows assets to a foundation after its registration shall not acquire the powers of a founder. The foundation may enforce an undertaking against a founder where the latter has given an undertaking to endow assets to a foundation. This power may be exercised by the foundation if at the expiry of a period of 12 months from the date of registration or from such date as may be specified in the charter as the date on which endowment shall take place, those assets have not been transferred to the foundation. It must be noted that this power may be exercised where nothing to the contrary has been provided by the charter or articles.

The Charter of a Foundation & Registration

A founder or executor (in the case of a foundation established by will) may apply for registration of a foundation. A foundation must submit a written and dated charter to the authority together with a prescribed fee, and the authority will in turn issue a certificate of registration in relation to the new foundation. The written charter must specify the name, duration, purposes and objects of the foundation, particulars of its registered office in Mauritius, particulars of the founder in Mauritius for the purpose of service of documents, particulars of the secretary and of the members of the council. The charter must equally include the details of the beneficiary of the foundation, how they may be appointed and removed. The foundation shall have a legal personality upon registration and the issuance of a certificate of registration.

The charter of a foundation must be signed by the founder where the latter is a natural person, or be signed by an authorised person on behalf of the founder where the latter is a body corporate. The charter may be amended in line with the charter or articles (if any) and the Registrar shall be notified of any amendment that the foundation proposes to make to its charter or articles (if any).

There is no obligation on a foundation to have articles. However, where the charter provides that articles shall or may be made by the council, the articles may include the following provisions:

  1. relating to the distribution of assets to be made by the council;
  2. for the identification of any initial or additional beneficiary of the foundation;
  3. for the identification of the remaining beneficiary on a winding-up of the foundation and the distribution of assets to the remaining beneficiary;
  4. for the regulation of the affairs of the council.

Where articles have been made, same must be signed by each member of the council.

Redomiciliation

A foundation established under the law of another State may make an application to redomicile in Mauritius as a foundation established and registered under the Act. The application shall be made to the Registrar and shall be signed by the members of the governing body of the foundation and accompanied by the following:

  1. a statement containing the particulars of the foundation, extracted from its written charter;
  2. satisfactory evidence that the foundation is in current standing; and
  3. the required fee.

On satisfaction that all requirements have been fulfilled, the Registrar may issue a certificate of registration.

It is important to note that the redomiciliation and registration of a foundation under this Act shall not affect any of the following:

  1. assets vested in the foundation;
  2. right, privilege, obligation or liability acquired, accrued or incurred by the foundation;
  3. penalty, forfeiture or conviction incurred by the foundation or any member of its governing body; or
  4. proceedings, whether civil or criminal, which may be pending by or against the foundation or against any member of the governing body, and such proceedings may be enforced, prosecuted, settled or compromised by or against the foundation or against that member.

Redomiciliation Outside Mauritius

Subject to any limitations in its charter or articles, if any, a foundation registered under this Act may redomicile and register under the law of another State. Such a foundation shall not cease to be a foundation registered under the Act except where, on redomiciliation and registration under the law of another State, the foundation:

  1. submits to the Registrar a certified copy of the certificate of registration issued by the competent authority of that State; and
  2. the Registrar, on receipt of the certified copy of the certificate, strikes the name of the foundation off the register and certifies that the foundation has ceased to be a foundation registered under the Act.

The fact that a foundation has ceased to be a foundation registered under the Act, due to redomiciliation outside Mauritius, shall not affect any:

  1. right, privilege, obligation or liability acquired, accrued or incurred by the foundation;
  2. penalty, forfeiture or conviction incurred by the foundation or any member of the council; or
  3. proceedings, whether civil or criminal, which may be pending by or against the foundation or against any member of the council, and such proceedings may be enforced, prosecuted, settled or compromised by or against the foundation or against that member.

Council

Every foundation shall have a council which shall administer the property of the foundation and carry out the objects of the foundation. The council shall be set up in accordance with the charter or articles, if any, and in line with the Act. The council must have at least one member ordinarily resident in Mauritius. All the members must be appointed in line with the terms of the charter and the Act. If the members are being appointed before registration, then they may be appointed by the founder or by the administrator or executor (where the charter is a will). The founder may empower any other person to make the appointment.

The Act also provides some restrictions as to who may be appointed or may remain as a member of a council. In the case of a natural person, a minor, a bankrupt, a person with any mental impairment or a person who has been convicted of an offence involving fraud or dishonesty by a Court of law in Mauritius or elsewhere cannot serve as a member of the council. In the case of a body corporate, if it is subject to any proceedings in Mauritius or elsewhere, which may result in it being wound up or otherwise dissolved, it would not be able to serve as member of the council. The appointment of a person as member of a council shall only be valid where prior to his appointment, he has signed and delivered to the person making the appointment his written consent to be a member. Where a member of a council ceases to satisfy any requirement stated above, he is required to give notice in writing of that event to the council within seven days from the occurrence of that event.

A member of a Council who intends to cease acting as a member shall give notice in writing of his intention to the Council not less than seven days before the day on which he intends to cease to act as such. A person shall cease to be a member of a Council on:

  1. his discharge as a member of the council, in accordance with the charter or the articles, if any;
  2. the foundation ceasing to be registered under the Act;
  3. the liquidation or winding-up, as the case may be, of the foundation; or
  4. the occurrence of any other event which disqualifies him from being a member of the council.

A council shall, in writing, within seven days from the date of any change in its membership, notify the Registrar of the change. However, any liability incurred by the person who has ceased to be a member of a council in his capacity as such, shall continue to be a liability enforceable against him by the foundation.

The responsibilities and powers of a council shall be to conduct the affairs of the foundation in accordance with its charter and articles (if any) and the Act; to supervise the management and conduct of the foundation; to act honestly and in good faith with a view to promoting the best interests of the foundation; and to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. A council may appoint such officers as may be necessary for the effective discharge of its duties and obligations. Any officer appointed shall be under the supervision of the council and shall act in accordance with the instructions of the council.

A charter, or articles, if any, may specify the duties and powers of a council and provide for other duties and powers. Every officer of a foundation and member of a council shall be liable for any liability arising from fraud, willful misconduct or gross negligence committed by such person. It should be noted that nothing in the charter, articles (if any) or in a contract between a foundation and a person to whom this section applies shall relieve, release or excuse that person from any such liability.

Taxation

The Act brought several changes to the Income Tax Act and as such every foundation shall be liable to income tax on its chargeable income. A foundation of which the founder is a non-resident or holds a Category 1 Global Business Licence and all the beneficiaries are non-resident or hold a Category 1 Global Business Licence shall be exempt from income tax in respect of that year.

However, any foundation shall deposit a declaration of non-residence for any income year with the Director – General within three months from the expiry of the income year. Moreover, any distribution to a beneficiary of a foundation shall be considered to be a dividend to the beneficiary.

Conclusion

Mauritius foundation is a lightly regulated vehicle that is likely to appeal to prospective founders who wish to retain a high degree of autonomous control over their foundations and/or who are looking for strong asset protection features. The ability of foundation entities to avail itself of global business license 1 further enhances the appeal of such entities to those investors who want to avail itself of the low tax rate prevalent in Mauritius and benefits under the comprehensive network of double taxation treaties.

Mauritius' regulatory and legal systems (British Common Law and Civil Code governing side by side) have evolved "over the years", not only facilitating business, but also allowing it to flourish and has earned a reputation as a world-class centre of commerce, featuring a business-friendly environment, a stable government, growing economy, and an unmatched collection of affordable talent and intellectual capital in the financial services sector. Mauritius is a truly leading offshore financial center in Africa, with a sterling reputation and legislatively independent and neutral, making it an ideal hub for international business.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.