1. Introduction

    Most readers are familiar with the concept of a company limited by shares where the liability of its members is limited to the amount committed on the shares they have subscribed for. Beyond this amount, the members cannot be held personally liable for the debts and liabilities of the company.

    Less common, but interesting for international tax planning purposes, is the so-called 'hybrid' company in which the liability of its members is limited either by shares or by guarantee. The main attractiveness of such a structure is the flexibility it offers in the financing and distribution of profits within the company.

  2. Corporate Structure

    A guarantor member is elected into membership of the company by its directors on the condition that he/it undertakes to contribute to the debts of the company up to a certain specified amount - say US$ 10,000 - immediately upon its winding up (or within a certain period of time upon its winding up). The guarantor member is thus subject to a contingent liability and is under a contractual obligation to pay; this contrasts with the shareholder who, once he has paid for his shares in full, holds shares in the company.

    Typically, the hybrid company will be structured in such a way that its shares are issued on terms that each carries one vote, but the owner thereof will have no right to receive dividends or participate in the income or paid-in capital of the company in any way. On the other hand, the guarantor members so elected will have no right to vote, or effectively 'manage' the company, but are entitled to participate in the distribution of income and capital.

    In this way, the control and management of the company rest with the shareholders (who may be professional managers), but all the financial benefits flow to the guarantor member(s) - the client(s). If need be, a call option on the shares allotted may be granted to the client who may be concerned with loss of control over the structure

  3. Taxation

    The hybrid company in Mauritius set up by a non-resident can take the form of a Global Business Licence Company Category 1 (GBL1) or Category 2 (GBL2). A GBL1 is governed by the Income Tax Act 1995, under which corporate income is taxed at the flat rate of 15%, excluding capital gains.

    Mauritius laws allow an underlying foreign tax credit, equal to the amount of foreign taxes paid, up to the amount of tax due in Mauritius. In the absence of proof, the amount of foreign tax paid is presumed to be 80% of the Mauritius tax. The effective tax rate for a GBL1 can thereby be reduced to a maximum of 3%.

    A GBL2 is not subject to any tax. In addition, there is no capital gains tax, nor withholding tax on dividends and interests paid to non-residents

  4. Other Advantages Of Hybrid Companies In Mauritius
    1. Tailor-Made Structures

      A hybrid company can have multiple classes of members. The possible arrangements that can be made between these classes are many. Differing rights and obligations between the members can be arranged according to the specific circumstances of the client and thus offer tailor-made solutions.

    2. Confidentiality

      The rights and obligations of each class of members of the hybrid company can be laid down in its constitution or can be set out by its directors in board resolutions and thus remain confidential. Additionally, there are minimum disclosure requirements, where the company is structured as a GBL2.

    3. Transmission Of Assets Upon Death

      A guarantor member's interest is extinguished upon death and new guarantor members can be elected by the directors according to a memorandum of wishes, or other mechanism, executed by the deceased indicating whom he wishes to be elected as guarantor member upon his death. Hence, transmission of assets upon death may be achieved with minimum delay, cost and formality.

    4. No Ownership Or Control

      Properly structured, the hybrid company offers the possibility for its guarantor members - who can ascertain to local tax authorities that they have no control over or ownership of shares of the company - to avoid any anti-avoidance provisions which usually focus on shareholding and/or control. Thus, the client would be 'invisible' and yet able to receive assets or income from the company.

Head Office

European Office

Suites 340-345 Barkly Wharf
Le Caudan Waterfront
P.O. Box 1070, Port Louis
Republic of Mauritius

8, Place du Bourg de Four
P.O. Box 3627
CH-1211 Geneva 3
Switzerland

Tel. (230) 210 1000
Fax. (230) 210 2000

Tel.: (41) (22) 818 61 00
Fax: (41) (22) 818 61 01

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.