The introduction of the Mauritius Limited Partnership Act in late 2011 marked a further development in that country’s strong investment framework offering. It has taken time for the partnership structure to take off, but recently there has been a move towards using the limited partnership as a vehicle for alternative investment funds looking to invest into Africa.
The Mauritius limited partnership structure certainly has something to offer both investors and investment fund managers. There are, however, certain quirks that come with using a Mauritius limited partnership which means that investors, and fund managers, may prefer to continue using the Global Business Licence company to structure alternative investment funds.
Tax transparency and double tax agreements
Mauritius benefits from a number of double tax agreements (DTAs) with various African states, and the DTAs with Kenya and Rwanda have recently been ratified. As a default position, limited partnerships are tax transparent vehicles meaning that taxable income is not taxed in the partnership, but rather in the hands of the partners.
In order for a limited partnership to benefit from any DTAs, the partnership will need to hold a GBL1 licence and elect to be tax resident in Mauritius. This would mean that taxable income would be taxed in the partnership before being distributed to the partners, causing a tax leakage within the partnership. This negates the benefit of using a tax transparent vehicle since any taxable income accruing to the limited partnership will be taxed at the same rate applicable to Global Business Licence companies.
General partner vehicle
In addition to limited partners, a limited partnership is required to have at least one general partner. An individual, body corporate or unincorporated body formed or registered with or without liability in Mauritius or elsewhere may be a general partner. This provision should be broad enough to allow investment fund managers to structure the general partner in the most tax efficient manner for receiving payment of management fees, and possibly also a share of profits in the form of carried interest.
There is, however, an anomaly in the local Securities (Collective Investment Scheme and Closed End Fund) Regulations, 2008 which provides that a collective investment scheme (CIS) manager holding a licence issued by the Financial Services Commission (FSC) “shall be a company which shall be incorporated and have its place of business in Mauritius”. The FSC has taken a conservative approach in this regard so that a general partner that applies for a CIS manager licence will have to be a company. This limits the options available to investment fund managers in using their preferred general partner vehicle.
The Mauritius limited partnership structure certainly has something to offer both investors and investment fund managers. There are, however, certain quirks that come with using a Mauritius limited partnership.
The strong preference of many foreign investors investing into Mauritius-based investment funds is for the fund documents to be governed by English law. English law provides a level of certainty, and there is jurisprudence available for complex commercial transactions under English law. For these reasons, many foreign investors are more comfortable with English governing law. However, unlike a shareholders agreement for a fund structured as a company, limited partnership agreements are required to be governed by Mauritius law.
In addition, where investors are entering into side letters, these are typically governed by the same governing law as the fund documents. By their nature, side letters are bilateral, standalone agreements that amend the terms of the fund documents between the fund and a particular investor. As with the fund documents, most foreign investors prefer English, or US law to apply to their side letters. In the case of an investment through a limited partnership, side letters may have to be governed by Mauritius law in order to avoid the difficulties involved in having the partnership agreement governed by Mauritius law, but a side letter which has the effect of amending the partnership agreement being subject to a different governing law.