The Foreign Account Tax Compliance Act (FATCA) - Free Essay Example

2.3.4 Regulatory development in 2013(FSC annual report 2013) The Foreign Account Tax Compliance Act (‘FATCA’) FATCA is a US law aimed at financial intermediaries and Foreign Financial institutions to stop tax evasion by US citizens and the inhabitants throughout the use of offshore accounts. FATCA will have an effect on foreign companies as well as US-based companies with US assets or clients. Mauritius demonstrated its commitment to automatic exchange of information by signing an Intergovernmental Agreement and a Tax Information Exchange Agreement with the US. These agreements seek to promote transparency between the two nations regarding tax matters and form part of the global effort to reduce tax evasion. The evolving regulatory timelines are influencing financial institutions to prioritize market developments and rulemaking against the global regulatory change process and related jurisdictional challenges. 2.4 Legislative Framework Mauritius has earned a rapid reputation as an expected pioneer in the offshore financial centre. The island benefits from a refined telecommunications system, plenty of professional service providers, in addition to economic and political stability. Mauritius’s legal system is a mixture of English common law and French Civil law. However Mauritius has adhered to the new international requirements, aiming to track money laundering and combating terrorism financing and for that purpose the country has enacted appropriate legislation. Mauritius has become one of the most attractive and best regul ated financial centers in the world and generally, one of the best places to do business. Some legislation has been established to expand the offshore activities. In November 1992, the Financial Services Regulatory Authority was organized and played an essential role to establish and develop the offshore sector. The Authority has chosen to take up a proficient and business friendly regulatory approach to improve constantly on its services and indicating operators so as to increase the competitiveness of the Mauritian jurisdiction. 2.4.1 MOBAA The MOBAA came into force in 1992 and had for key objective to provide for the formation of the Mauritius Offshore Business Activities Authority, to set offshore business activities from within Mauritius and issuing of offshore certificates and providing for other subsidiary matters. However there have been various changes in the laws governing the non-banking financial services sector in Mauritius. New legislation was introduced on 1st December 2001 overhauling the Mauritius Companies Act 1984 and replacing the Mauritius Offshore Business Activities Authority (â€Å"MOBAA†) with a Financial Services Commission (â€Å"FSC†). 2.4.2 Financial Services Development Act (2001) The MOBAA was replaced by the FSDA in 2001. The FSDA replaced the Mauritius Offshore Business Activities Authority by the Financial Services Commission (FSC) which has more powers to act now. 2.4.3 Financial Services Act (2007) In 2007, the FSDA was replaced by the FSA 2007. This is the current legislation governing the non-banking financial services in Mauritius, together with the Insurance Act and the Securities Act. It clarifies the regulatory regime and builds up the legislative framework of the GBC. With the new law, the FSC adopt the regulatory responsibilities and they are as follows: Insurance previously executed by the Controller of Insurance. Capital Markets previously done by the Stock Exchange Commission Global Business also called as the offshore sector. In the last few years there have been a growth in the financial services sector and there was an increase in the contribution of the economic development so as to make the financial services sector the 4th pillar of the Mauritian economy. 2.4.5 Legal Provisions Trusts and Foundations The Mauritius International Financial Centre now put forward a new product to the existing limited partnership, limited life company, private and public company and trust. The new offering is the Foundation, a legal entity with hybrid benefits of a company with those of a trust. The Foundations Act 2012 is effective since 1 July 2012 and is a very modern legislation. It is mostly used in estate planning, wealth management and asset holding but is perfect as a special purpose vehicle to legally protect one’s assets against high taxes or forced heir ship rules and personal liability. This new legislation allows for the migration and incorporation of Foundations to and from Mauritius. Moreover the Foundation may be structured to be exempt from the tax of Mauritius. The most important uses of foundations and trusts are: estate planning and Succession safeguarding of wealth global tax planning The purposes of Charity Security of Asset Limited Partnership Finally the Limited Partnerships Act 2011(LLP) has been authorized in Mauritius. It is a very flexible vehicle and acts as the latest offering of Mauritius contributes to enhance its status as a Mauritian investment platform of substance. The LLP is a vehicle of choice for private equity/venture capital funds and other kind of funds principally due to the possibility managed by the LLP to put together the benefits of a company with those of the partnership for example, limited liability protection to investors and the option of election to have separate legal identity while keeping up the fiscal transparency feature of partnerships. An LLP whose partners gain only foreign source income and are not tax inhabitant in Mauritius will have no Mauritius tax liability, hence making the LLP a tax exempt vehicle. Main features of the Mauritius Limited Partnership (MLP) are as follows: It is a Great flexible vehicle in structuring the MLP through its Partnership Agreement The MLP vehicle can be registered with or without a legal personality with the Registrar of Limited Partnerships The MLP shall consist of at least one limited partner ,one general partner and a general partner may also be a limited partner at the same time and in the same Limited partnership Every limited partner or general partner of a limited partnership structure can hold a GBC 1 license The Mauritius Limited Partnership shall have a registered office in Mauritius It is not necessary to have a Mauritian as general partner, but a Limited partnership without a Mauritian general partner shall have a registered agent in Mauritius Moreover there are many other legal provisions governing the setting-up and operation of a global business company in Mauritius and they are: Companies Act 2001 – Company law which applies for all companies in Mauritius, including those operating with a global business license. The Companies Act 2001 provides a modern and efficient framework for companies to carry out their business activities at the onset of the new millennium and aims to facilitate enterprise, promote transparency and enhance competitiveness. The sections that concerns the Global Business are the Section 363 (4) (5)(6), Fourteenth Schedule – Provisions applicable to a company applying for or holding a Category 1/ Category 2 Global business license. The new Companies Act 2001 replaced most of the Companies Act of 1984, other than actions dealing with insolvency and public companies. The Financial Intelligence and Anti Money Laundering Act (FIAMLA) make provision for the establishment and manage ment of a Financial Intelligence Unit (FIU) as the central agency responsible for requesting, receiving and analyzing and disseminating to the investigatory and supervisory authorities. The disclosure of financial information relating to the allege proceeds of crime and suspected money laundering offences. Both the FIAMLA and the FIU work in close collaboration. In fact they should ensure that money is being used correctly such that money laundering or terrorism finance can be prevented. To report any of the above issues the Suspicious Trading Report has to be filled and the form has to be in accordance by that set by the FIU. Any action that results to be a fraud, whereby money is being used in a wrong way shall be summoned under the FIAMLA act 2002 and will be held liable for the wrongdoings caused. Trust Act 2001 Framework regulating and allowing for the creation of different types of trusts, which may be set up by residents and non-residents. The Trust Act 2001 replaces t he Trusts Act 1989, the offshore Trust Act 1992 and the Trust Companies Act 1989 and incorporates some of the latest developments in the area of trusts at the international level. Moreover trusts are extremely useful as a legal vehicle in the investment industry. Securities Act 2005 Framework regulating the securities market so as to keep abreast of international best practice and standards. Other Legal Provisions are: The Insurance Act 2005, The Protected Cell Companies Act 1999, The Financial Intelligence and Anti-Money Laundering Act 2002, The Prevention of Terrorism Act 2002, The Prevention of Corruption Act 2002, Insolvency Act 2009, Non-Citizens (Property restriction) Act 1975 and The Limited Partnership Act 2011. In addition some amendments made to certain Acts is found in Appendix 1