Laying the foundation - The Mauritius Foundations Act
The long-awaited Foundations Act 2012 (the Act) was enacted by the Mauritius National Assembly in June 2012 and came into force on 1 July 2012. It creates a legal framework for the registration of foundations in Mauritius, adding to the existing global financial services laws, including trusts. It is expected to attract business from global investors, high-net-worth individuals and philanthropic organisations in civil-law (including Islamic law) countries where the common-law trust concept may not be familiar or palatable.
In essence, a foundation is a legal entity with hybrid features of a company and a trust.
A founder – or, for a foundation established by will, the executor – may apply to register a foundation. Legal personality is breathed into a foundation when the Registrar of Foundations issues a certificate of registration for it. Foundations established outside Mauritius may also apply to be redomiciled to Mauritius.
Similar to a company incorporated under the Companies Act 2001, a foundation has – both in and outside Mauritius – full capacity to carry on or undertake any business or activity, whether charitable or non-charitable.
The founder, the beneficiary and the protector
The ‘founder’ is defined as a person who endows a foundation (i.e. who passes the title in property absolutely to a foundation) with its initial assets. The endowment may be made by a covenant (or otherwise) with or without consideration.
A non-citizen founder who endows property to a foundation is considered to have had the capacity to endow property to the foundation where, at the time of the transfer, they were of full age and sound mind under (a) the laws of Mauritius, (b) the laws of their domicile or nationality, or (c) the proper law of the transfer.
Where a non-citizen endows property to a foundation, the transfer may not be set aside, avoided or otherwise declared invalid by any rule or law (a) of their domicile or nationality relating to inheritance or succession, or any similar rule or law, (b) restricting a person’s right to dispose of property during their life to preserve the property for distribution at death, or any similar rule or law.
‘Beneficiary’ is defined as a person who is entitled to benefit under a foundation, or in whose favour a power to distribute any foundation property may be exercised. However, a beneficiary does not have any beneficial interest in the foundation. An individual may be a beneficiary of a foundation of which they are the founder.
A foundation may have a protector or committee of protectors who are appointed in accordance with the charter and who have powers and duties as specified in that charter.
An application for registration of a foundation is made to the Registrar of Foundations and is accompanied, inter alia, by a declaration from a law practitioner confirming that the application is in accordance with all the relevant requirements of the Act. The name of a foundation ends with the word ‘foundation’ or a word in a foreign language that has the same meaning as ‘foundation’.
The council of a foundation administers the property and carries out the objects of the foundation. A council has at least one member ordinarily resident in Mauritius. To avert conflict, any officer or their spouse, or a person in a direct or collateral line of relationship with such a person, may not be a member of a council. The appointment of a person as a member of a council is not valid unless that person, before their appointment, has signed and delivered to their appointer their written consent to be a member.
The council must run the foundation in accordance with the Act, its charter and articles (if any), supervise the management and conduct of the foundation, act honestly and in good faith to promote the best interests of the foundation, and exercise the care, diligence and skill that a prudent person would exercise in comparable circumstances. The charter or articles, if any, may specify the duties and powers of a council and provide additional duties and powers.
A foundation’s charter must be in writing and will specify, inter alia, the name of the foundation; the details of the founder; the purposes and objects of the foundation; the endowment of the property that will be the initial asset of the foundation; the beneficiary of the foundation or the way they may be appointed and, if applicable, the way they may be removed; the period, if any, for which the foundation is established; the name and address of the secretary; and the address of the registered office of the foundation.
The charter may also provide for anything else concerning the foundation, including the reservation of rights or powers of the founder.
Where the charter provides that articles shall or may be made by the council, the articles may include provisions (a) relating to the distribution of assets to be made by the council, (b) for the identification of any initial or additional beneficiary, (c) for the identification of the remaining beneficiary on a winding-up of the foundation and the distribution of assets to the remaining beneficiary, and (d) for the regulation of the affairs of the council.
The article is signed by each member of the council.
Every foundation must have a registered office in Mauritius to which all communications and notices are addressed and which constitutes the address for service of legal proceedings on the foundation. Moreover, every foundation needs to have a secretary, which must either be a management company licensed by the Mauritius Financial Services Commission (the Commission) or a person resident in Mauritius and authorised by the Commission.
Uses of foundations
Foundations may be used in cross-border structures that fall into two main categories: charitable and non-charitable. Foundations may have a combination of charitable and non-charitable objects.
A charitable foundation has as its exclusive purpose or object (a) the relief of poverty, (b) the advancement of education, (c) the advancement of religion, (d) the protection of the environment, (e) the advancement of human rights and fundamental freedoms, or (f) any other purpose beneficial to the public in general.
A foundation may engage in any lawful business, including asset or investment holding and trading. Foundations are commonly used by onshore clients and intermediaries based in civil-law (including Islamic-law) jurisdictions in the following structures:
- Asset protection: an asset-protection foundation allows the founder to protect and preserve assets from future creditors by placing the property into a foundation so that the founder no longer has ownership of the endowed property and the property is therefore not available for creditors.
- Shariah compliance: since foundations (as compared to trusts) are better understood by investors from civil-law jurisdictions, foundations can be useful in Shariah-compliant structures. A Shariah-qualified investment advisor is appointed as a member of the council.
- Asset holding and succession planning: a foundation holds underlying companies, which in turn own diverse assets. Ownership of these assets is no longer with the founder and the foundation can last in perpetuity.
- Investment structure: ownership of the assets passes to the foundation but the founder, as a council member, retains some control. A committee that reviews the investment policy of the structure may be set up and is supervised by the council.
The Foundations Act 2012: Background and Features
High-net-worth individuals already use Mauritius trusts for estate, succession planning and family office services. The first Trust Act (an improved version of the English Trustee Act 1925) was enacted in 1989. In 1992, the Offshore Trusts Act arrived, and provided many of the desirable elements of other offshore jurisdictions. In 2001, a new, innovative, forward-looking Trust Act was enacted.
However, while the trust appeals to clients from common-law jurisdictions, it is less attractive to those from civil-law jurisdictions where the trust concept is largely unknown. Also, a trust lacks corporate personality, which means an underlying special purpose vehicle is often needed when the aim is to hold property in civil-law jurisdictions that do not recognise trusts.
In 2009, a joint working group (JWG) comprising key representatives of the public and private sector (including me, representing STEP Mauritius) was set up to propose ways to enhance the international competitiveness of the Mauritian global business sector, in particular by introducing new products. The JWG concluded that a law on private foundations would benefit the jurisdiction. The authorities embraced these recommendations and a draft Foundations Bill (the Bill) was prepared, circulated and commented upon. Under the Act, the salient features of a Mauritius foundation would be:
- it could be set up inter vivos (by charter) or by will
- it could be set up to benefit persons or a class of persons, or to carry out a purpose, which may be charitable, non-charitable or both
- it would have to be managed by a foundation council
- it would require a secretary in Mauritius, who must be licensed by the Financial Services Commission
- it would need to have a registered office in Mauritius
- when registered it would have separate legal personality
- it would need to keep proper books of accounts and keep its records in Mauritius at its registered office; and
- where the founder and all the beneficiaries are non-resident (or if set up for a purpose, that purpose is being carried out of Mauritius) it would be exempt from tax in Mauritius.
Assad Abdullatiff TEP is Managing Director of Axis Fiduciary Ltd and a member of the Branch Committee of STEP Mauritius and the STEP Council.
Any person who has acquired information in a capacity as an officer, protector or member of a council must treat the information as confidential, and not use or disclose the information except (a) for the purposes of the foundation, (b) as required by law, (c) where authorised by the charter or articles, if any, (d) with the express approval of the council and on terms and conditions determined by the council, or (e) where required to do so by the Supreme Court of Mauritius.
Fees and taxation
A fee of MUR9,000 (approximately USD300) is payable to the Registrar at the time of registration or redomiciliation of the foundation, and a similar amount is payable every subsequent year.
Mauritius runs a uniform income tax rate, so a foundation is liable to a 15 per cent tax on its chargeable income. A foundation:
- may hold a Category 1 Global Business Licence and so be subject to an effective income tax rate of 0–3 per cent
- whose founder is a non-resident or holds a Category 1 Global Business Licence, and if all the beneficiaries appointed under the charter or a will are, throughout an income year, non-resident or hold Category 1 Global Business Licences, is exempt from income tax for that year. This exemption is obtained by depositing a declaration of non-residence with the Director-General of the Mauritius Revenue Authority within three months of the expiry of the income year.
Any distribution to a beneficiary of a foundation is considered to be a dividend to the beneficiary.
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