Economic Substance Requirements for Mauritius GBC Companies

The economic substance requirements in Mauritius are principally set out in the Income Tax (Amendment) Regulations 2019 (as amended) under the Income Tax Act. These regulations apply to companies holding a GBC licence under the Financial Services Act 2007. The regulations were introduced following the EU's listing of Mauritius as a non-cooperative jurisdiction in 2018, which triggered significant reforms to Mauritius's tax and regulatory framework. The Finance (Miscellaneous Provisions) Act 2019 also contained important amendments relating to the partial exemption regime and substance requirements. The substance requirements apply to GBCs engaging in 'relevant activities' as defined in the regulations. These relevant activities are broadly aligned with the OECD BEPS Action 5 framework and include: banking, insurance, fund management, financing and leasing, headquarters, shipping, distribution and service centres, intellectual property, and holding company activities. Different categories of relevant activities have different levels of substance requirements, with IP holding being the most stringent and pure holding company activities being relatively lighter. The FSC Mauritius has issued detailed guidance on economic substance requirements in its Economic Substance Guidance Notes, which are the primary reference point for compliance assessment. CTM maintains current knowledge of these guidance notes and their practical application and advises clients on how to structure their substance arrangements to meet the regulatory standard.

The concept of 'core income-generating activities' (CIGA) is central to the economic substance framework. CIGA refers to the activities that are of central importance to the generation of the entity's income, as opposed to ancillary, administrative, or support activities. The substance regulations require that CIGA be conducted in Mauritius by the GBC itself or through outsourced arrangements with Mauritius-based service providers (such as CTM). The specific CIGA for each relevant activity category are defined in the regulations. For a holding company (pure equity holding), the CIGA include compliance with filing and other requirements, maintaining adequate human resources and premises, and managing equity participations. For a headquarters company, CIGA include providing senior management and decision-making for the group, taking on the group's operating risk, and providing substantial functions to relevant entities in the group. For an IP holding company, CIGA include research and development, innovation, and exploitation of intellectual property assets — this is the most demanding substance requirement and in practice requires genuine R&D or product development activity in Mauritius. For fund management and investment management activities, CIGA include taking decisions on risk and reserve, taking and applying hedging positions, taking decisions on assets and liabilities, preparing relevant regulatory or other reports for investors and directors, and conducting client due diligence. CTM provides substance support services enabling GBCs to demonstrate these activities are conducted in Mauritius through board meetings, decision documentation, and management activity in Mauritius.

The substance test has three principal components: adequate and qualified employees, adequate physical presence, and an adequate level of operating expenditure in Mauritius. These requirements are proportionate to the level and complexity of the entity's activities — a pure holding company with no active business operations will have lighter substance requirements than an active fund manager or IP holding company. For adequate employees, the requirement is for the GBC to have employees who possess the skills, qualifications, and experience to conduct the CIGA. In practice, this can be satisfied through a combination of resident employees employed directly by the GBC and outsourced professional services provided by CTM or other licensed service providers in Mauritius. Where CTM's professionals perform management and administrative functions for the GBC, this may count towards the substance requirement, subject to proper contractualisation and evidence of actual activity. Adequate physical presence means that the GBC has a physical address in Mauritius (provided by CTM as the registered office) and, where the nature of the activities requires it, additional office space. CTM can arrange dedicated or shared office space for GBC clients that require physical premises beyond the registered office. Adequate operating expenditure means that the GBC's Mauritius-based expenditure — on staff, office, professional services, and other operating costs — is reasonable relative to the income and activities of the entity. All substance arrangements should be properly documented and the GBC's Mauritius expenditure should be clearly evidenced in its accounts.

GBCs that conduct relevant activities are required to submit an annual Economic Substance Declaration (ESD) to the FSC Mauritius. The ESD is submitted through the FSC's online reporting portal and must be filed within six months of the end of the GBC's financial year. The ESD requires the GBC to confirm whether it conducted any relevant activities during the year, describe the nature and extent of those activities, and provide information on the number of employees, operating expenditure in Mauritius, office premises, and CIGA conducted in Mauritius. The FSC Mauritius uses the ESD as the primary mechanism for assessing substance compliance. If the FSC determines that a GBC has not satisfied the substance requirements, it may issue a notice of non-compliance, which can result in the exchange of information with the tax authorities of the jurisdiction of the GBC's beneficial owners, and ultimately in the suspension or revocation of the GBC licence. CTM manages the ESD preparation and submission process for all GBC clients as part of its annual compliance service. In addition to the ESD, the GBC must maintain contemporaneous records evidencing its substance arrangements — board minutes, management resolutions, expense records, employment contracts, service agreements, and correspondence demonstrating that decisions are made and activities are conducted in Mauritius. CTM maintains a comprehensive compliance file for each GBC client and provides the documentation required for substance evidence purposes.

CTM provides a full suite of substance support services designed to enable GBC clients to satisfy their economic substance obligations. These services include: provision of two or more qualified Mauritius-resident directors to serve on the GBC's board and ensure that board decisions are taken in Mauritius; organisation of regular in-person or video board meetings with board minutes and resolutions prepared and maintained by CTM; provision of registered office premises in Mauritius; provision of dedicated office space on a full-time or part-time basis where required; outsourced management, accounting, and compliance services supporting CIGA in Mauritius; and preparation of the annual Economic Substance Declaration. For GBCs with more active business operations — such as investment management, financial advisory, or headquarters functions — CTM can assist in identifying and recruiting Mauritius-resident employees with the appropriate skills and qualifications to conduct CIGA. CTM has an established network of financial services professionals in Mauritius and can introduce suitable candidates for employment by the GBC. Employment arrangements must be properly documented and the employees must genuinely perform the relevant CIGA functions under the direction of the GBC's board. The cost of substance arrangements is an important consideration in the overall cost-benefit analysis of a Mauritius GBC structure. CTM will prepare a substance cost estimate as part of the initial structure design consultation, enabling clients to assess whether the Mauritius structure is commercially justified on a fully substance-compliant basis. In most cases, the tax efficiency and treaty access benefits of the GBC significantly outweigh the substance compliance costs.