Mauritius – the gate for Chinese Investment into Africa

by Dentons
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The data published by the Mauritius central bank and central statistics bureau in April shows that in 2016 China is the second largest foreign investor in (US$70 million, following US$128 million from France) and the largest exporter to (17.7%) Mauritius.

In the same period, China’s investment into the African continent reaches US$3.3 billion spread amongst the sectors of mining, manufacturing, wholesale and retail, construction, lease and business services. The trade volume between China and Africa is approx. US$149.12 billion; US$92.22 billion is the export from China to Africa, and US$56.8 billion is the import from Africa to China.

It is hard to track how much of the investment and trade between China and Africa went through Mauritius; however, entrepreneurs in Mauritius, other states of Africa and China need to give much more consideration about how to utilize Mauritius as a hub for such huge investment and trade.

Although Mauritius has been selected by many foreign investors as the tax haven to invest in China, we have not seen the equivalent trend in Chinese investment into Africa. Some Chinese companies have established their operation headquarters for Africa in Mauritius–such as CAD Fund, Huawei and Shanxi Tianli Enterprise Group, which is expected to set a model for the other Chinese investors to follow.

When considering investment in and trade with Africa, Chinese investors need to structure the project and transaction from tax, legal and commercial perspectives. Mauritius is one of the most favorable destinations as the regional center for Chinese investment to Africa.

Favorable tax regime

Tax planning should be one of the significant elements when Chinese investors are considering an ODI decision.

Mauritius has concluded 50 Double Taxation Agreements (DTAs) with other countries, 43 of which are in force, and seven are waiting for ratification. There are another five DTAs waiting for execution, and 18 DTAs are under negotiation1. 29 African countries are the parties to these DTAs. Utilizing the DTAs in force are states like Egypt, Zambia, the Republic of Congo, Botswana, Madagascar, Uganda and Zimbabwe; Chinese investors may have tax savings of 10.5 percent for dividends from Congo and of 30 percent for capital gains from Uganda.

If such amount of tax saving is taken into account when the Chinese investors carry out the feasibility study report, many of the so-called commercially infeasible projects will become viable.

Stable legal framework

Domestically, Mauritius has a unique hybrid of French and English legal systems providing a stable legal and regulatory framework for foreign investors. There is no foreign exchange control, and funds can be remitted in and out of Mauritius without any hindrances from the government and the financial institutions. Free movement of money may not be realized in most African countries, which continuously worries foreign investors.

Moreover, Mauritius has concluded 45 Investment Promotion and Protection Agreements (IPPAs) with other countries, 23 of which are with African countries. For those African countries which have not concluded Bilateral Investment Treaties (BIT) with China, such as Burundi, Zambia and Senegal, Mauritius is highly recommended in the shortlist of holding companies’ destination for African investment.

More sensible commercial connection

In the globalization of Chinese companies, the investment in and trade with African countries not only means that the business solely occurs between China and Africa but also can expand to anywhere else in the world.

Under the African Growth and Opportunity Act (AGOA), Mauritius is one of the eligible countries to enjoy duty-free for approx. 6500 kinds of products to enter the United States, if such product is eligible under the Generalized System of Preferences (GSP) or Normal Trade Relations (NTR), known formerly as Most Favored Nations (MFN). This will give option to Chinese manufacturers on those antidumping and countervailing duty investigations frequently brought by the US Department of Commerce.

Mauritius signed the Economic Partnership Agreement (EPA) with the European Union in 2009. The EPA includes the elimination of duties and quotas for imports from these countries to the EU, and rules of origin, fisheries, trade defense, development cooperation provisions and mechanisms for settling disputes.

Therefore, through Mauritius, Chinese investors will have more opportunities to extend their business to the US and EU with well-designed structure.

Mauritius, as an island in the Indian Ocean, can not only be the gate for investment and trade between China and African countries, but also the hub for Chinese investors to step up at the international platform.


1. Double Taxation Agreements

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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