The Current Status of Crypto Adoption in Mauritius
The stunningly beautiful island nation of Mauritius is positioning itself as a potential center for cryptocurrency and blockchain innovation, particularly through its International Financial Centre (IFC). Offering a pro-business environment, strategic location, and sound regulations, Mauritius is setting itself up as an attractive destination for digital asset initiatives.
This will help with the island’s ambition to be the “Singapore of Africa,” promoting cross-border finance, investment, and wealth management. Mauritius’ IFC stands at the heart of the economic landscape with its operational efficiency in introducing new financial products, including digital assets and cryptocurrencies.
The regulatory environment of the Mauritius IFC is shaped by the Financial Services Commission (FSC), which adheres to internationally recognized standards, given that Mauritius is itself a respected jurisdiction for financial services.
The Organization for Economic Cooperation and Development has “white-listed” Mauritius for its stringent AML measures, improving its international reputation in finance.
This notwithstanding, in 2020, the European Union gray-listed Mauritius over perceived deficiencies regarding AML requirements; however, the island nation has since made some marked progress toward closing regulatory chasms and meeting compliance thresholds.
Cryptocurrency has been adopted by the government of Mauritius as an investment class of digital assets. With some set of restrictions for retail investors, this regulatory position has created a very friendly atmosphere for digital asset firms looking to enter Africa.
“In Mauritius, the CBDC will be known as the Digital Rupee. The Digital Rupee will not be a crypto asset. In Mauritius, crypto assets do not have legal tender status, that is, there is no obligation to accept them as a means of payment. The value of crypto assets fluctuates over time, whereas the value of the Digital Rupee will always be the same as the physical notes and coins.”
The Bank of Mauritius is keen on exploiting this opportunity for a Central Bank Digital Currency (CBDC), meaning the country will be at the forefront of fintech innovation in Africa. The governor of the central bank, Harvesh Seegolam, announced a plan for the rollout of a CBDC as part of a wider strategy in Mauritius for driving financial inclusion and integrating digital finance.
The move has received support from international agencies such as the International Monetary Fund, IMF, as consultations with the body on matters related to CBDC design and functionality continue.
The proposed advantages of a Mauritian CBDC are improved security, better compliance, and deeper financial inclusion, especially among the unbanked. In any case, the CBDC of Mauritius will co-circulate with cash, affording the citizenry the choice to use digital fiat without its imposition.
The central bank also hopes to tap into the cross-border functionalities of the CBDC for international trade flows and remittances in a bid to advance Mauritius’s goal of becoming a bridge between Africa and the global market.
While Mauritius has done a commendable job in trying to regulate digital assets, challenges remain. For instance, the island still needs to work on refining its services related to the custody of digital assets and statutory protections for investors in digital assets. Besides, the inherent risks of investment in cryptocurrencies still exist, threatening potential investors.
Crypto Law In Mauritius
Mauritius’ eagerness to create a proactive, accommodating regulatory framework for virtual assets, striking the proper balance between innovation and tight compliance standards, has been applauded by experts. A number of initiatives put in place by the island nation were designed to create a friendly environment for digital assets.
“This Guideline is issued under the authority of sections 11C and 100 of the Banking Act 2004, section 50 of the Bank of Mauritius Act 2004, and section 17 of the National Payment Systems Act 2018.”
One of them was the 2016 Regulatory Sandbox License (RSL). This license creates the avenue for innovative firms to test blockchain and fintech projects without the need for a full regulatory license, hence accelerating their path into the market. RSL supported numerous projects in the field of fintech and blockchain and could be replicated in the African market.
In June 2020, Mauritius issued guidelines on the licensing of “security token trading.” These guidelines require persons or entities offering custody services in respect of digital assets to apply for a Custodian Services (Digital Asset) license from the FSC.
Such custodianship services, which the guidelines refer to as “Trading Securities Systems,” or TSS, are subject to strict conditions. Prospective parties must meet the standard requirements for cybersecurity, have a minimum capital of 35 million rupees, and have a board structure with at least three directors, one resident, and 30% independent directors.
The other requirements include that they have an office in Mauritius as well as maintain updated, detailed transactional records besides quarterly and annual financial statements of the investment to be filed with the FSC within the prescribed time frame. However, a caveat exists that investors will not benefit from any statutory compensation schemes in Mauritius.
Therefore, projects raising funds through STOs would need to obtain pre-approval from the FSC, unless their intention is to sell only to “sophisticated” or “professional” investors, professional funds, or schemes for investment. Also, solicitation of transactions in security tokens without a license would be a crime under the Securities Act.
The Virtual Asset and Initial Token Offering Services Act (VAIOS Act) 2021 encompasses activities from direct sales of tokens and exchanges to custody and staking services, which require entities to obtain licenses based on the business model.
In addition to the various licensing requirements, the businesses in question must adhere to AML and CFT regulations under the Financial Intelligence and Anti-Money Laundering Act 2002, FIAMLA. This AML/CFT focus acts as a testament to how far Mauritius has come concerning international financial standards and supports investor confidence.
Taxation of Cryptocurrency in Mauritius
Taxation of cryptocurrencies in Mauritius is a rather complex issue that has been guided principally by the general principles of taxation rather than by specific legislation. Consequently, the Mauritius Revenue Authority (MRA) would consider general principles of tax law as there is no regulation regarding such cryptocurrencies as Bitcoin or Ethereum.
“The MRA is responsible for collecting approximately 90% of all tax revenues and for enforcing tax laws in Mauritius.”
Taxation for crypto-assets that are exchanged against fiat currency like the USD or EUR depends on the nature of gains. However, if income constitutes revenue—that is also derived from an activity that is considered commercial or of a business nature—then it falls within the tax and forms part of the gross income of the taxpayer.
This distinction highlights the fact that there might be cases in which income is held to be revenue just because there is sufficient trading or exchanging taking place.
Along the same line of thinking, the use of crypto assets to obtain goods or services falls squarely within this framework; the gains and profits derived from such exchange transactions are subject to taxation to the extent that the material gain constitutes either revenue or capital.
In Mauritius, activities relating to crypto-assets would be deemed a professional or business activity if they met specific “badges of trade,” which simply means criteria resorted to determine whether an activity is commercial.
Under the Income Tax Act (ITA) 1995, taxpayers whose crypto transactions exhibit regularity, profit motive, or business infrastructure may find these activities characterized as business income and thereby have the gains subject to income tax.
This also aligns with the ITA’s broader definition of business to include “any trade, profession, vocation, or occupation carried on in pursuit of gain.” As such, frequent traders of crypto may be engaging in carrying on a business, meaning such gains would be fully taxable.
Under general principles of tax, crypto-related losses are allowed to be treated like any other loss in Mauritius. They are available to offset against future gains only if they are revenue losses. The loss on the disposal of crypto assets which is like capital loss does not have a similar case and does not offset other income heads.
Revenue losses, however, can be carried forward for up to five years. This does help active traders who realize losses from frequent trading activities.
Factors Driving Crypto Adoption in Mauritius
The following are potential factors affecting crypto adoption in Mauritius:
Government Policies and Support
Crypto adoption will be widespread if the Mauritian government can commit to establishing and revising its regulatory policies. Favorable government policies, especially those that have shown clarity on tax policies, licensing requirements, and protection for investors, can lure offshore and resident businesses to become part of the crypto economy.
Financial Infrastructure
The adoption of crypto directly depends on the availability of sound financial infrastructure, which includes secure crypto exchanges, digital wallets, and easy access to the internet. For example, easily accessible regulated exchanges to buy, sell, or trade cryptocurrencies will increase adoption.
Global Market Trends
As cryptocurrency and blockchain technology adoption rise globally, the rate of adoption within Mauritius will more than likely follow suit. Such signs are bound to influence the way Mauritius adapts to crypto adoption—for instance, increased use of DeFi, NFTs, and CBDCs.
Public Perception and Trust
Cryptocurrency adoption is important in the eyes of the general public and businesses in Mauritius. Good perceptions will help foster confidence in digital assets through awareness campaigns and transparency of the set regulations.
Challenges Facing Crypto Adoption in Mauritius
While crypto adoption in the country remains low, it is due to several challenges, and they include the following:
Regulatory Uncertainty
While the government of Mauritius has begun setting up a broad-based regulatory framework with respect to digital assets, some contexts of its regulatory environment are still not well defined. That, in turn, builds uncertainty among both investors and crypto businesses.
Market Volatility
With their nature, cryptocurrencies are very volatile—that is, their prices can considerably fluctuate within a very short period. This presents a great risk to investors and companies alike, but most especially to those who might be new to crypto markets and may find such unpredictability difficult to handle. The volatility makes it potentially unsuitable for everyday practical use because people may not be very fond of the idea of a payment system, which can easily lose or go up in value.
Limited Awareness and Education
Another challenge is the complexity of blockchain and cryptocurrency. A majority of Mauritanians do not know how cryptocurrency actually works or even how it differs from other systems of finance. Hence, they are skeptical and distrustful.
AML and Compliance Risks
The very nature of cryptocurrency decentralization carries tendencies of money laundering risks and other financial crimes, which might affect the reputation of Mauritius as a compliant financial hub. While the FSC and MRA ensure compliance, digital assets raise the challenge bar concerning maintaining AML and CTF compliance.
Potential Benefits of Crypto Adoption
Mauritius stands to gain a lot if a majority of its citizenry adopts and uses cryptocurrency and similar crypto-assets. These benefits include the following:
Diversification of Economy
The adoption of cryptocurrency opens a window for Mauritius toward economic diversification from traditional strong sectors like tourism and manufacturing. The move further supports the position of Mauritius as a modern financial hub in Africa, attracting international companies that are willing to experiment with blockchain technology and digital assets.
Attract Foreign Investment
The crypto-friendly regulatory environment in Mauritius will be extremely attractive to foreign investors and companies looking forward to establishing their base in Africa. The government of Mauritius has been one of the friendliest jurisdictions for blockchain and cryptocurrency ventures, having clear regulations on digital assets.
Increased Financial Inclusion
Crypto will help provide better financial liberty by offering financial solutions centered around cryptocurrencies to the unbanked and underbanked populations of Mauritius and other African countries. From this perspective, blockchain provides a secure and efficient way of taking part in financial transactions for those without the facility of traditional banking.
Promote Cross-border Trade
The adoption of cryptocurrency facilitates fast and easy cross-border trades without depending on expensive and time-consuming conventional banking facilities. With increased adoption of digital assets across more African countries, this might provide an added advantage for Mauritius to seal its trade relationships within and outside the continent.
Conclusion
Mauritius’ bold stance on digital assets, super-friendly regulatory environment, and commitment to embracing blockchain technology strongly reinforce the notion that this nation is ready to be Africa’s financial technology gateway.
By creating an authoritative IFC, proactive FSC guidelines, and a pending CBDC rollout, Mauritius provides a promising base for crypto adoption and promotes fintech innovation. This is in line with its broader vision to achieve international financial hub status, much like Singapore, and an example of African economies that seek to experience digital transformation.
