Bikoo, S.D., “Offshore business in Mauritius” in Industry Focus, Vol. 5, April, a publication of the Ministry of Industry and Industrial Technology, Port Louis, 1993.
Hampton, M. P., “Treasure islands or folls gold: can and should small island economies copy Jersey?” in World Development, Vol. 22, No. 2, pp. 237–250, 1994.
This chapter will concentrate on the offshore financial services. Freeport activities were legislated for in 1992, and only became operational last year (see the accompanying staff report SM/95/284).
It is unclear why the offshore banks have so far not taken advantage of the favorable tax and regulatory regime under which they operate to lend to other resident entities in foreign currencies. In particular, the fact that OFC banks can only lend in foreign currencies is not an impediment, because of the existence of a forward foreign exchange market.
As of June 1995, the 1995/96 Budget speech put the total assets of the banks at $790 million. The seven banks operating in Mauritius are: Barclays Bank Pic, Bank of Baroda, Banque Nationale de Paris “Intercontinental,” State Bank of International (a joint venture between the State Bank of India and the State Bank of Mauritius), Banque Privée Edmond de Rothschild (Océan Indien), Banque Internationale des Mascareignes (a joint venture of Credit Lyonnais, Banque de la Réunion, and the Mauritius Commercial Bank), and Hong Kong and Shanghai Bank Corporation.
The recent growth of the OFC has greatly been facilitated by the double taxation agreement (DTA) that Mauritius has with India, which enables companies incorporated in Mauritius to reduce greatly the tax burden they face when investing in India (see below).
By June 1995, the number of offshore companies had reached about 2,600 as stated in the 1995/96 Budget speech.
Of the 1,018 international status companies, 448 companies are what are known as exempt status companies. These companies are the equivalent of present day international status companies under the old Company Act, but can benefit from DTAs between Mauritius and other countries, including India. Another 34 companies in the category are actually offshore trusts, and have a different legislation, the Offshore Trusts Act of 1992, governing them. Presently, about half of all the companies registered in the offshore sector are thought to be active.
Johannesburg, South Africa’s financial capital, is more than 2,000 miles away from Mauritius, and Bombay, India’s financial capital, more than 3,500 miles away. Increasingly, however, technological developments may mitigate the handicap that Mauritius suffers from being very far away from even its closest trading partners.
The rapid growth of Singapore as an OFC in the late 1970s, for example, was helped significantly by its proximity to other rapidly growing economies in East Asia.
The problems faced by the Bahrain Offshore Banking Unit at the time of the 1990–91 Gulf War is illustrative of the first case: assets held by the offshore banks in Bahrain declined from US$72.6 billion in 1989, to around US$53 billion in the aftermath of the War, while there has been an increase in the level of assets since then, they have not reached their former levels. Developments in Panama in the late 1980s illustrate the second case: whereas offshore deposits had been around US$25 billion in 1982, these deposits slumped to US$8 billion at the height of the political instability in 1988, and, by 1993, had recovered to only US$16 billion.
Ordinary status offshore companies can elect to pay a profit tax rate between 0 and 35 percent (unlike the Indian DTA, some DTAs do not allow offshore companies to pay no profit taxes at all). In practice, virtually all of the companies choose to pay no taxes, as they still can benefit from the DTA with India.