Your company entity can be the most valuable player on your team. It is necessary to focus on the right components to build your company.
Before determining which entity is suitable for your business activity, you should consider these factors:
- Your profit margin;
- Shareholder visibility;
- Sole proprietorship;
- Local domestic companies;
- Business objectives; and
At Centurion, we provide our clients with a complete due diligence report, allowing them to analyse the pros and cons of each structure for their best business practice. We shall succinctly go through these components:
- Profit margin
If your profit margin is low, or you anticipate a net loss for the first year, you should not consider a structure that is taxable at 3 percent (GBC1) or 0 percent (GBC2). Despite the favourable tax rate, these structures are high maintenance.
In contrast, a local domestic company, which is taxable at 15 percent per annum, has a relatively low maintenance cost in comparisons to a GBC1 or a GBC2, and may be exactly what you need. It is worth doing a cost-benefit analysis to ensure it makes financial sense to set up an entity.
- Shareholder visibility
Some companies prefer to keep the shareholding structure anonymous, sometimes due to security threats or with companies that engage in controversial activities, for example. In some countries, people who can demonstrate a potential security threat could be exempted from having to make their ownership of a company public.
However, shareholders’ visibility remains a great matter of public interest to many citizens and government officials, who believe that such entities hinder transparency and tend to be wrongly utilized. Mauritius, among other countries, tends to be as transparent as possible by taking both the interest of their investors and the government into consideration.
For instance, in the case of money laundering or illegal transacting, management companies (which handle the incorporations of GBC1, GBC2 and trust) are required by law to declare such activities if they encounter such practices.
- Sole proprietorship
If your goal is to be self-employed, there is no requirement to set up a company. You can simply register as a self-employed individual, and live and work in Mauritius if you are a foreigner, thereby avoiding regulatory and taxation hurdles.
To obtain an occupation permit for a maximum period of three years, which is renewable, you must invest USD $35,000 and ensure that on an annual basis you are making a minimum of 600,000 MUR turnover (approximately USD $17,600).
This is very advantageous, as it reduces the costs associated with filing, company maintenance fees, and others.
However, a disadvantage of a sole proprietorship is the owner’s personal responsibility for the liabilities of the business. If you have exposure to risks, you may want to consider setting up an entity even if it's unnecessary for tax purposes or any other reason.
- Local domestic company
Establishing a local domestic company is a fantastic option in Mauritius, if you know the myriad advantages and schemes provided for such an entity.
Very often, options presented to investors will range from Trust, GBC1 and GBC2, opting out on local domestic company. Obviously, the main reason is that establishing a local domestic company has low maintenance fees and is not attractive to those companies selling their services to establish the like.
Advantages of LDCs include:
- 15 percent corporate tax;
- Registering as a Small-Medium Enterprise and benefiting from no-filling requirement for eight years. On specific requirements, you may even be exempted from taxes for five to eight years;
- Employing locals under YEP Scheme, which allows a company to hire nationals and obtain a 50 percent refund depending on the salary scale (terms and conditions apply).
- Business objectives
Tax is not the only business objective of investors seeking to open a company in Mauritius. Mauritius offers a bilingual workforce with a high level of expertise. It is very rare to find countries where the workforce can be as equally good in French as in English. This may be a motivating factor for investors requiring manpower, including call centers, translation companies, etc.
As an investor, if you are planning on making Mauritius your main market, you should rule out opening a GBC1 or GBC2. A GBC1 allows you to have a Mauritian client base of solely 30 percent, pending approval from the Financial Service Commission. If you are targeting the international market, however, a GBC1 and/or a GBC2 is ideal.
Another interesting aspect of having a company in Mauritius is that not all business activities are required to be VAT registered and this directly affects your international clients.
There are a plethora of different vehicles and conditions appropriate for opening a new business. Each business has unique needs and requirements to be successful, and establishing the right entity is the way to success. The right entity is a key pillar of a successful business.