Private equity investment into Africa: The Cayman and Mauritius route

The invitation in December 2010 by China
to South Africa to join the BRIC group of major emerging economies, to create
the ‘BRICS’ acronym, has heralded a new dawn, not only for the nation of South
Africa, but arguably for the continent of Africa as a whole. Large parts of the
African Continent are now beginning to see real economic growth and development
and in 2010, notwithstanding the sluggish economic recovery in much of the
West, the average growth rate across Africa was a very respectable 5.1 per

AfricaSnap.jpgMany African countries have taken bold
steps to break the cycle of corruption and poverty by moving towards political
stability and economic openness. This in turn has brought economic and social
advancement as well as an unprecedented receptiveness to foreign direct
investment and coupled with the need for vast amounts of infrastructure
investment into Africa (the World Bank in the past estimating an annual spend
of US$93 billion for the next 10 years being necessary to achieve national
development targets on the continent) economic growth is very much on the
agenda. In addition to this, with increasing global demand for raw materials
and commodities, many African countries are seeing renewed attention from the
main industrial nations, in a modern day ‘scramble for Africa’. In particular,
India and China have been active in Africa as they seek access to the resources
essential for their own economic growth and take advantage of the continent’s
under- penetrated markets and business opportunities. 

As well as growth in the mineral and
energy sectors, economic expansion in the continent, particularly in
Sub-Saharan Africa, is being supported by a broad base of other sectors
including agriculture, technology, telecommunications, media and financial
services. These industries are attracting massive FDI, a large chunk of which
is coming through private equity investments. Flows of FDI to Africa have been
increasing significantly during the last decade and the Cayman Islands and
Mauritius both have an important role to play in the investment process.

Access Africa

As investors look to invest into Africa
in a secure and tax efficient manner, they are likely to seek out and rely on
investment routes structured through reputable and internationally recognised
jurisdictions, such as the Cayman Islands and Mauritius. The typical fund
structure consists of a Cayman Islands investment vehicle in either a corporate
or limited partnership format into which investors would invest. Such a fund
may then invest directly into the relevant African country or, as discussed
below, it may for tax efficiency reasons invest through a Mauritius holding
company, which would act as the SPV investing directly into Africa. See Figure


The Cayman Islands has long been, and
continues to remain, the jurisdiction of choice for domiciling investment
funds. Whether an exempted company, partnership or unit trust is being used as
the vehicle for a private equity fund, the jurisdiction with its flexible user
friendly regulation, political stability and regulatory environment that is
conducive to the needs of investment managers and sophisticated investors
alike, makes using the Cayman Islands an efficient and cost effective choice. 

One of the most significant benefits of
Cayman Islands funds is that they are tax neutral in that there are no income,
dividend or capital gains taxes levied in the Cayman Islands. However, in such
an investment model, to the extent there may be taxes levied on the returns
generated in the African country where the underlying investment is made, it
may be tax efficient to introduce a Mauritius entity to the structure. 

Mauritius combines the traditional
advantages of an offshore financial centre (no capital gains tax, no
withholding tax, no capital duty on issued capital, confidentiality of company
information, exchange liberalisation and free repatriation of profits and
capital etc) with the distinct advantages of it being a treaty-based
jurisdiction, with a substantial network of treaties and double taxation
avoidance agreements in place.

In order to use Mauritius as an
investment platform and take advantage of the benefits of the various tax
treaties, investors need to establish a Category 1 Global Business Company in
Mauritius (a GBC1). In addition, in order to establish tax residency in
Mauritius, a GBC1 must have at least two directors resident in Mauritius,
maintain its principal bank account in Mauritius, keep and maintain its
accounting records at its registered office in Mauritius, and prepare its
financial statements and have them audited in Mauritius. Moreover, meetings of
the directors of a GBC1 should include participation by at least two directors
from Mauritius. 

By fulfilling these requirements, a GBC1
is eligible for a Tax Residence Certificate, which will allow it to benefit
from the provisions of the various DTAs. A GBC1 is generally subject to tax on
income at the flat rate of 15 per cent. However, under Mauritius law, a GBC1
may claim a credit for foreign tax on income not derived from Mauritius against
the Mauritius tax payable. If no written evidence is provided to the Mauritius
Revenue Authority showing the amount of foreign tax charged, the amount of
foreign tax paid is deemed to be equal to 80 per cent of the Mauritius tax
chargeable with respect to that income. Consequently, the effective tax rate
payable by the GBC1 will be between three per cent and nil, depending on the

Mauritius currently has tax treaties
with 13 African countries (Botswana, Lesotho, Madagascar, Mozambique, Namibia,
Rwanda, Senegal, Seychelles, South Africa, Swaziland, Tunisia, Uganda and
Zimbabwe). Six tax treaties have been signed with the countries of Malawi,
Nigeria, Zambia, Egypt, Kenya and Congo and are awaiting ratification.
Additional treaties are currently being negotiated with Burkina Faso, Algeria
and Ghana2. Hence, where the Cayman fund is investing into any of these
jurisdictions a detailed tax analysis should be done in order to determine
whether it should do so directly, or whether it would be beneficial for it to
do so via a Mauritius GBC1. 

An example of why it might be beneficial
to use a GBC1 may occur in relation to capital gains taxes. Capital gains tax,
where imposed in Africa, is generally levied at a rate in the range of 30-35
per cent. However, all Mauritius tax treaties restrict taxing rights of capital
gains to the country of residence of the seller of the assets. With Mauritius
not taxing capital gains, there are significant potential tax savings available
by using a Mauritius GBC1 to structure an investment into Africa.

A further example is that almost all
African nations impose withholding tax on dividends paid to non-residents, the
rate of such imposition ranging generally between 10-20 per cent. All Mauritius
tax treaties limit the withholding tax on dividends. The treaty rates are
generally zero per cent, five per cent or 10 per cent, thereby creating
potential tax savings of five per cent-20 per cent depending on the African
country in question. 

The treaties guarantee a maximum
effective withholding tax rate in the face of potential changes in fiscal policy
in the investee countries. 

Security and certainty

Another significant potential advantage
of investing via a Mauritius GBC1, which is not tax related is that being an
African nation, Mauritius has signed Investment Promotion and Protection
Agreements (IPPAs) with 15 African countries, three of which, with South
Africa, Madagascar and Mozambique, are in force3. These IPPAs, inter alia,
provide for free repatriation of investment capital and returns, guarantee
against expropriation, provide for a most favoured nation rule with respect to
treatment of investors, and compensation for losses in case of war, armed
conflict or riot and further provide arrangements for the settlement of
disputes between investors and the contracting states. 

Mauritius has deep African roots with
around one third of its population being of African origin. It is also
worthwhile noting that Mauritius is a member of the major African regional
organisations, which provide preferential access to markets in the Africa
region such as the African Union, Southern African Development Community
(SADC), the Common Market for Eastern and Southern Africa (COMESA) and the
Indian Ocean Rim – Association for Regional Cooperation (IOR-ARC).

Its membership in these regional
organisations, and being a signatory to all the major African conventions, can
make the choice of a Mauritius SPV investing into Africa, especially having
regard to treatment of the investments, a sensible one. 

Combining the qualities of the Cayman
Islands and Mauritius, allows investors to take advantage of the relative
benefits both jurisdictions have to offer. By using a Cayman Islands investment
fund, in conjunction with a Mauritius GBC1 where appropriate, a whole range of
tax efficiencies can be utilised.

In a world of economic uncertainty, the
jurisdictions of Cayman and Mauritius, each in their own right, provide
investors and investment managers with much needed comfort and certainty. When
investing into Africa in combination with each other, the jurisdictions provide
a stable, well regulated and tax efficient platform which can be relied upon 


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Kieran Loughran

Kieran’s practice covers all areas of corporate and commercial law including international cross-border transactions, structured finance and investment funds. Kieran’s clients include investment banks, investment managers, private equity houses and family offices.

Kieran Loughran
Conyers Dill & Pearman
10 Dominion Street
London EC2M 2EE
United Kingdom

T: +44 (0)20 7562 0343
E: [email protected]

Sonia Xavier

Sonia’s practice covers all areas of Mauritius commercial and corporate law. She has advised several global business companies, offshore and international banks conducting business in Mauritius as well as local groups of companies. 



Sonia Xavier
Conyers Dill & Pearman
2nd Floor, Ebene Mews
57, Ebene Cybercity,

T: +230 464 9090
E: [email protected]