Singapore is a well-reputed global financial center. The offshore banking and finance sector is supported by a robust economy and fundamental institutions, making it an attractive base for financial institutions. The country is strategically located to bridge the time differences between the United States and European financial markets. Singapore enjoys a stable social, political and economic environment with a skilled workforce and supported by government incentives. The Singapore exchange market is ranked fourth in the world, fifth largest center for derivatives trading and ninth in terms of offshore lending. There are three types of banks in Singapore, these are: Full banks, Restricted banks, and offshore banks.
Full banks can offer a variety of banking services as stated in the Banking Act. Restricted banks can offer the same services as full banks only that they cannot open savings accounts for clients in Singapore dollars and fixed account deposits of less than 250,000 in Singapore dollars for non-bank clients.
The history of Singapore as a global financial center dates back to 1973 when foreign banks began to operate in the country, this is the time when the category of offshore banks was created. These banks can offer the same services as full and restricted banks, only that their role is more limited. In the local market, offshore banks can only receive interest accumulating deposits from approved financial institutions. In addition, they cannot open more than one branch.
In Singapore, offshore banks conduct their business under separate financial reporting entities referred to as Asian Currency Units (ACUs). ACUs can incur liabilities and hold assets and conduct all types of banking activities in other currencies but not in Singapore dollars. There are a number of incentives that are available for ACUs; one of the most important is that ACUs are subject to only 10% taxation of profits compared to 27% that apply to other entities. In addition, ACUs are not subject to liquidity and reserve requirements that apply to other banks. The main role of ACUs is to route capital from North America, Europe and the Middle East to the emerging markets in Asia.
On the other hand, Mauritius is an emerging global financial center. Normally, offshore transactions are carried out in other currencies except in the Mauritius rupee by non-residents. Offshore business is mainly focused on areas of investment trading, holding and fund management. The Island is gaining reputation as a destination of choice for structuring offshore funds and investment vehicles. With respect to location, Mauritius is strategically located between Africa and Asia and is considered as a gateway to Africa.
The history of offshore banking in Mauritius can be traced back to 1989 when offshore banks were allowed to set up their operations in Mauritius. However, it was in 1992 when two acts of parliament were passed paving the way for the growth of the financial services sector.
There are a number of factors that make Mauritius an attractive hub for offshore financial activities which include: withholding tax exemption for interest bearing deposits and freedom from other regulations applied to domestic banks. Offshore banks are also exempted from the regulations of the exchange control act. Compared to Singapore, offshore banks are subject to a rate of 5 per cent as opposed to 10 per cent in Singapore. Banks are also free to repatriate their profits without additional taxation. These banks are also exempted from stamp duty on documents associated with offshore activities. They also have access to double taxation avoidance agreements that have been signed by Mauritius with more than 33 countries. Finally, offshore banks are also exempted from taxation of capital gains and no inheritance shares attract taxes.