Trusts in Mauritius
In terms the Trusts Act 2001 (“the Act”) in Mauritius; a trust exists where a person (the trustee) holds or his vested in them property of which they are not the owner in their own, with a fiduciary obligation to hold, use, deal or dispose of it for the benefit of any person or/and any purpose. This codifies the common law definition of a trust and allows for trusts to be developed with a range of applications.
This is the most flexible type of trust available; it gives wide powers to the trustees with respect to investment and distribution. Beneficiaries may be added or removed by the trustees however being a beneficiary does not create a right or entitlement to benefit from the trust. Trustees take direction and guidance from a Letter of Wishes provided by the settlor, if available. Settlor’s/Beneficiaries looking for an extra level of comfort may appoint a protector to the trust in terms of section 24 of the Act. The protector is able to remove the trustee and appoint new ones in addition to this the trustees will require the protector’s approval to perform certain actions, as detailed in the deed/declaration.
In terms of the Act a trust in Mauritius is valid for 99 years and requires a minimum of two beneficiaries in the event that one of the beneficiaries is the settlor.
Derived from a discretionary trust is an Excluded Property Trust. An excluded property trust is a recognised structure in UK inheritance tax planning it is a standard discretionary trust where assets are settled while the settlor is a non-UK-domicile.
Once the settlor becomes a UK-domicile they are unable to benefit from the trust property without it falling into the UK Inheritance Tax net and thereby avoiding exit charges, Inheritance tax, anniversary charges and similar provided the property in the trust continues to meet the definition of excluded property.
An Employee Benefit Trust is a trust created by a company to provide incentive for their employees. The company will place shares or other assets into the trust. Select employees will be the beneficiaries. When certain criteria are met, usually performance or long service, the employees will receive a benefit for the trust; either in the form of cash or shares.
There are three types of trust specifically codified into the Act
A protective trust, in terms of section 18, is a trust whereby the beneficiary is granted an absolute right to the income of the trust until the right is terminated by pre-defined event.
This is often used in Maintenance Trusts where a child is entitled to have certain expenses met by the trust until they reach a specified age or marriage. Or Life Interest Trusts where an individual is entitled to receive a fix annual benefit until their death.
It is also possible to have a hybrid arrangement whereby an individual will be entitle to income for the trust until they reach or certain age or satisfy a pre-defined criteria after which point they will receive the capital amount of the trust fund.
In a purpose trust the terms of the income the beneficiary will receive are defined and the Trustees do not have discretion to distribute assets or income outside of that.
A Purpose Trust is a trust created, in terms of section 19 of the Act, with a specific goal or objective. Upon the fulfilment of that purpose the trust is terminated. The purpose of trust must be reasonable, specific and capable of fulfilment and not immoral, unlawful or contrary to public policy.
An enforcer is required in a purpose trust to ensure that the trustees are working to achieve the purpose of the trust.
Charitable Trusts – Section 20 of the Act provides for the creation of charitable trusts, where the trust fund is to be used for a purpose that is charitable. The document establishing the trust must state the purpose or purposes for which the trust has been created, charitable trusts created in Mauritius must have one of the following purposes;
- The relief of poverty;
- The advancement of education;
- The advancement of religion;
- The protection of the environment;
- The advancement of human rights and fundamental freedoms; or
- Any other purpose beneficial to the public in general.
The beneficiaries of which can be a person or a class of persons inside or outside of Mauritius
The Mauritius Trust Frequently Asked Questions
While setting up structures for clients making use of Mauritian trusts and companies, we frequently come across similar questions. We thought it would be helpful to prepare some pieces answering these questions.
The removal or additional of a beneficiary will only happen in very limited circumstances. The trustee’s primary duty is to administer the trust in the best interests of the beneficiaries, in terms of Section 34 of Mauritius Trusts Act, if it fails to perform this duty it will be in breach of its licence. The Act also prevents the trustee and related parties from benefiting from the trust property other than fees for trusteeship services.
This power is required because there are situations where being a beneficiary of a trust creates significant tax obligations on the beneficiary (if the beneficiary were to move to the UK or some countries in continental Europe). The trustee therefore needs the ability to remove a beneficiary when requested by that beneficiary in order to avoid these tax obligations.
In a similar respect, beneficiaries often request that they are replaced by their children as beneficiaries of the trust. The trustee needs a mechanism to do this. If the beneficiaries had the direct power to add and remove themselves and others this would mean that the trustee would not be exercising discretion and the trust would be a sham.
The reasoning behind this power is the trust need to be adaptable and the ability to amend the deed provides this adaptability.
This clause is most commonly used to change the proper law of the trust. It is possible that the tax landscape changes in Mauritius to the extent that the trust is no longer viable under Mauritian law and the proper law must be changed. Another common use is settlor and/or beneficiaries sometimes request that a protector be appointed to the trust in terms of section 24 of the Trusts Act and this requires an amendment to the deed.
The use of this provision is governed by Section 34 so the Trustee cannot amend the trust deed unless it is in the best interests of the beneficiaries.
No, the trustees will consider requests made by the beneficiaries and settlor however they are not obligated to comply them. The key concept in the creation of a trust is that control of the trust assets is given up by the settlor and handed over to the trustee. If the trustee is obligated to comply with any request submitted by the settlor or a beneficiary that control would not have passed, and the trust will be viewed as a sham.
The Act does allow for a non-licenced individual to act alongside the licenced trustee so theoretically you can be a trustee of your own trust. Practically however this raises control issues on two levels.
- As above it becomes a blurry line as to whether control has passed if the settlor of the trust is also a trustee as they are essentially giving themselves control of the trust property in a different capacity.
- If key decisions relating to trust property are being made outside of Mauritius the control of that trust may be deemed to be outside of Mauritius. If that is the case the trust will become a taxable entity in that jurisdiction.
For these reasons Sovereign Mauritius does not offer co-trusteeships.
Yes, the beneficiaries are able to enjoy trust property. This is most commonly seen where a trust owns a residential property and the beneficiaries live in that property however it can be extended to keeping and enjoying art, classic cars etc.
The trustees do have a duty to “look-after” the trust property, however, so the trustees will normally require the property is insured and that they receive annual reports as to the condition or inspect the property through a representative.
A trust can theoretically invest into anything legal. As above, however, the trustee’s primary duty is to act in the best interests of the beneficiaries so the trustee will not invest significantly in things that are inherently high risk (crypto currencies, collectibles, high risk funds etc.).
It also must be considered that the trustees are not experts in all types of investments so if the settlor or beneficiaries are requesting the trustee to consider investing the trust fund, they would likely require the investment to be made through an investment professional.
The trustee is licenced corporate entity; Sovereign Trustee Services (Mauritius) Limited, like all companies it is represented by its directors who have the power to sign on behalf of the trustee. Anything signed on behalf of a trust has to be signed by two directors of the corporate entity.
This clause in place for situations where the trustee does not have the required expertise to make an informed decision (investment decisions, legal actions against the Trust etc.) The decision to appoint an advisor/manager is still required to be made considering the best interests of the beneficiaries.
This power is used to:
- Provide the beneficiaries with funds in situations where receiving a distribution would create tax obligations in the country, they are receiving the distribution in.
- Provide companies owned by the trust with funding as they are unable to receive distributions as they are not beneficiaries.
Any loan made would have to be in the best interests of the beneficiaries so it is highly unlikely that a loan to a third party could be given.
This is the converse of the above and is used exclusively in the following situations:
- The settlor wishes to fund the trust however funding the trust through donation would lead to adverse tax consequences, so a loan is used.
- The trust requires funds (for distributions, expenses, new investments etc.) but the underlying company is not in a position to distribute a dividend due to a split shareholding solvency issues or similar, so a loan is used.
If you are unhappy with the service, you can replace the trustee through a request. If you believe the trustee has breached the Act or the Trust Deed you can take the matter to court and receive damages and the trustee will likely face fines and/or have their licence revoked depending on the severity of the breach.
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