By Mr. Patrice Tze Sek Sum, CPA (US), MIntTax, TEP
Over the past few years, Mauritius has undergone significant transformation in order to maintain itself as a serious jurisdiction of substance. While Mauritius remains the de facto hub to Africa due to its political stability, independent judiciary and strong institutional framework, and absence of foreign currency exchange control, it has had its fair share of challenges over the past year. Mauritius has enhanced its AML/CFT laws accordingly and restructured some of its tax regimes which were deemed harmful from the perspective of the OECD especially in regard to some ring-fencing and base erosion schemes that were only available to non-residents. Despite the significant overhaul of the tax system, Mauritius continues to offer an attractive tax system.
2. Global Business Corporation
Headline Tax Rate: 15%, 80% exemption allowed on qualifying income
Key Features: 80% exemption on passive income types such as dividend and interest income. Certain royalty income derived from IP rights gets an 8-year tax holiday. Access to the Mauritius DTA Network.
Key Uses: Investment Holding Companies, Financial Services, Intellectual Property
On January 1st, 2019, the Global Business Category 1 Company (GBC1) was abolished and replaced by the Global Business Corporation (GBC). Under the previous regime, GBC 1 companies enjoyed an automatic Deemed Foreign Tax Credit equivalent to 12% (or 80% of the headline tax rate of 15%), irrespective of income characterization. Furthermore, if a GBC 1 suffered tax (whether withholding or underlying), they could apply for a greater tax credit (12% upwards to a maximum of 15%) by providing proof of tax liability.
Under the new regime, Companies owned by a majority of foreign (non-Mauritian citizens) shareholders must apply for a Global Business Licence (GBL) with the Financial Services Commission (FSC). The GBL, conditional on meeting tax residency and substance requirements, allows a Company to operate as Global Business Corporation.
A GBC now must elect between using a Foreign Tax Credit (if GBC anticipates foreign taxes suffered to be more than the exemption provided) or benefiting from the tax exemption of 80%. The 80% exemption is applicable on certain qualifying income such as foreign-sourced dividends and interest and business profit attributable to a Permanent Establishment of the GBC in a foreign country and some industry-specific incentives as discussed below. With no capital gains tax and no withholding tax on outgoing dividends, GBCs are very attractive investment vehicles for holding companies and financial services companies.
3. Industry-Specific Corporate Tax Incentives
a. Financial & Legal Services
In a bid to enhance Mauritius as an International Financial Centre, the Government has recently extended the 80% exemption regime to GBCs with the following qualifying income:
- Foreign-sourced income related to investment funds, investment managers, administrators, advisors, and asset managers licensed by the FSC (Financial Services Commission)
- Interest income derived by a person from money lent through a peer-to-peer lending platform operated under a license issued by the FSC
- Income derived from reinsurance and reinsurance broking activities
Further, companies holding the following licenses are entitled to a 5-year tax holiday on corporate income taxes, subject to meeting substance requirements:
- Global Treasury Activities Licence
- Global Legal Advisory Services Licence
- Overseas Family Office (Single) Licence
- Overseas Family Office (Multiple) Licence
b. Global Headquarters Administration License
Multinational companies relocating to Mauritius are eligible for an 8-year tax holiday on corporate income taxes. To benefit from such exemption, the company would need to hire at least 10 resident full-time professional staff and incur a minimum annual operating expenditure of MUR 5 million (Approx. USD 125,000). They would also need to have a physical office as well as a primary bank account based in Mauritius.
c. Transportation (Shipping and Aircraft)
An 80% corporate tax exemption for GBC’s on income derived from the following:
- Ship/aircraft leasing
- Sale, financing, and asset management of aircraft and aircraft spare parts
- Aviation-related advisory services
d. Health & Medical
Companies are eligible for an 8-year corporate income tax exemption on income generated from the manufacturing of pharmaceutical products, nutraceutical products, and medical devices.
e. Technology & Innovation
Companies are eligible for an 8-year corporate income tax exemption on income generated from the manufacturing of high-tech products and the development of Intellectual Property Assets such as patents, designs, and trademarks.
Qualifying Research & Development (R&D) expenses developed in Mauritius between July 1st, 2017, and June 30th, 2022 will be allowed a 200% corporate tax deduction. Qualifying R&D expenses must involve innovation, improvement, or development of a process, product, or service.
f. Film Rebate Scheme
The Film Rebate Scheme is a cash-back incentive for audio-visual productions in Mauritius. A cash rebate of 30% and up to 40% for high-end Feature film and TV series is reimbursed to eligible film producers on all Qualifying Production Expenditure incurred and spent in Mauritius. The Film Rebate Scheme applies to products in the category of the feature film, commercials, TV serials/programs, documentary programs, music videos, and dubbing productions.
g. Green Initiatives
Qualifying expenses towards the installation and acquisition of a water desalination plant will be allowed a 200% corporate tax deduction.
Companies investing in renewable projects will be allowed to deduct the interest incurred from the issuance of debentures/bonds. The debenture/bond issue must be approved by the Mauritius Revenue Authority (MRA).
h. Food & Beverage
Companies are entitled to an 8-year corporate income tax exemption on income generated from food processing activities and industrial fishing.
An 8-year tax holiday also applies to activities under the sheltered farming scheme set up by the Food and Agricultural Research and Extension Institute.
In an effort to promote Mauritius as a knowledge hub, Mauritius has introduced an 8-year tax holiday to the top 500 educational institutions in the world if they set-up a campus in Mauritius.
The E-Commerce scheme allows global e-Commerce operators to re-domiciliate their electronic platforms and related ancillary activities to Mauritius. The scheme provides a tax holiday of 5 years to E-Commerce operators, provided they meet substance requirements.
4. Authorised Company
Headline Tax Rate: 0%
Key Features: Used for transactions where there is low or no WHT in the source country. Non-Tax Resident. No access to Mauritius DTA network.
Key Uses: Foreign (Non-Mauritius) Active Business Income, Investment Holding, Property Holding, International Trade, Management and Consultancy, IT Services, Logistics, Marketing, Ship Management
Unsuitable: Financial Services, Banking, Investment funds, and its ancillary activities, trusteeship services, Intellectual Property Rights (See GBC incentives), corporate services.
The previous regime, known as the GBC 2 has been abolished and is replaced by the Authorised Company. Existing GBC 2 companies have until June 30, 2021, to convert either to a GBC or an Authorised Company.
The Authorised Company is particularly attractive as it is a tax-exempt entity (0% tax rate). An Authorised Company is allowed to operate on the premise that it is not a tax resident of Mauritius since its central management and control is based outside of Mauritius, ceding its taxation rights to the source country instead. As the Authorised Company is a non-resident of Mauritius, it is ineligible for a Tax Residency Certificate (TRC) and therefore has no access to the Mauritius DTA network. It must still file an Income Return with the MRA and a Financial Summary with the Financial Services Commission (FSC).
This structure is very suitable for use for transactions where there is low or no withholding taxes in the source country or where access to DTAs are not required.
5. Company with a Freeport License
Headline Tax Rate: 3% on physical goods transiting or transformed in Mauritius
Key Features: Goods and raw materials imported into the freeport are tax-exempt from custom duty, tariffs, VAT. Flat corporate tax rate of 3% on income generated from freeport activities
Key Uses: International Trade (Physical Goods)
Unsuitable: Domestic Mauritius Trade
The Income Tax Act – Finance Act 2018 reforms brought some changes to the Mauritius Freeport. All products imported into the free zone will continue to be tax-exempt from customs duties and import taxes. However, the corporate profit derived from the subsequent re-exportation will now be taxed at 3%.
a. Freight Rebate Scheme
This scheme, operational since 2014, allows products Made in Mauritius or products which have gone significant transformation in Mauritius (including the Freeport zone) to become eligible for freight subsidies on sea exports to Africa and air exports to qualifying countries.
b. International Trade Agreements
Mauritius has an impressive array of trade agreements that give preferential access, quotas, and reduced tariffs on various products. Mauritius is a member of the Common Market for Southern and Eastern Africa, Southern African Development Community, Indian Ocean Community which gives it free trade access to a combined area of more than 500 million people. Mauritius also has trade preferences with the European Union under the Interim Economic Partnership Agreement. Mauritius also has several bilateral agreements with the United States (under AGOA), China, Pakistan, Turkey, and the UK (once it leaves the E.U).
6. Alternative Tax System for qualifying Small Enterprises
Headline Tax Rate: 1%
Key features: Simplified tax filing
Key uses: Ideal for qualifying businesses with minimal allowable expense deductions with gross income not exceeding Rs 10 Million Rupees (approximately USD 250,000)
A small enterprise may, on or before the due date for the filing of its return of income, elect to pay a presumptive tax at the rate of 1% of its gross income instead of the official headline corporate tax rate of 15%. Where a small enterprise has made an election to pay presumptive tax, it shall not be entitled to claim any deduction, Income Exemption Threshold (IET), relief or allowance.
Small Enterprise means a person engaged in agriculture, forestry and fishing, Manufacturing excluding restaurants, Wholesale of foods, Retail of goods, including the sale of food to be consumed off-premises.
7. Limited Partnerships
Headline Tax Rate: 0%, Fiscally Transparent
Key Benefits: Flexible. Taxed in the hands of partners. Can elect to be taxed as a corporation.
Key Uses: Investment Funds (Collective Investment Schemes), Investment Holding
Limited Partnerships are a very popular structure in the realm of fund management in part due to their flexibility. General Partners (G.Ps) and Limited Partners (L.Ps) can be formed with individuals or corporate entities (such as a Seychelles IBC or a Mauritius GBC) or can be an unincorporated entity like a Mauritius Trust. In addition, the Partners can be incorporated in Mauritius or anywhere else around the world. A limited partnership can elect to be taxed as a corporate and can accept capital contributions in cash or non-monetary.
Being a fiscally transparent entity, all profits automatically flow through to its partners and not the limited partnership. When structured properly (e.g., with tax-exempt partners), the entire tax structure can potentially result in a very attractive effective tax rate for the beneficial owners.
8. Trusts & Foundations
Headline Tax Rate: 0% for non-resident trusts & foundations, 15% for resident trusts & foundations
Key Benefits: Confidentiality. Can be used to avoid inheritance, estate, and gift taxes. Can be used to avoid creditor claims in the case of insolvency.
Key Uses: Asset Protection, Wealth Management
Governed by the Trusts Act 2001 and the Foundations Act 2012, both entities may be used in Mauritius as private wealth management vehicles.
A Mauritius Trust allows for the avoidance of probate, forced heirship rules. It is confidential as a Mauritius Trust is not obligated to be registered in Mauritius nor are the beneficial owners required to be disclosed. A protector can be added to the trust for added protection. A trust can be set-up by an individual, corporate entity, or by will. While the headline tax rate for trusts is 15%, a trust which has non-resident settlers & beneficiaries may elect to file a declaration of non-residence with the MRA. This annual election gives the Trust tax exemption for the year.
On the other hand, a Mauritius Foundation follows in the footsteps of a Trust, but has added benefits of legal personality and can sue and be sued. A foundation can be set-up by an individual or a corporate entity or by will. Interestingly, a Mauritius Foundation can be used for charitable or non-charitable purposes as long as it is stated in the Charter. While the headline tax rate for foundations is 15%, a foundation that has non-resident founders & beneficiaries may elect to file a declaration of non-residence with the MRA. This annual election gives the Foundation tax exemption for the year.
9. Private Wealth
a. Offshore & Corporate Banking
Mauritius has a very long and rich history in banking and finance and boasts a large selection of well-established local and international banks suitable for all types of enterprises and individuals. The Mauritius Commercial Bank Ltd, founded in 1838 is the oldest bank in the Southern Hemisphere and the largest bank on the island. Mauritius has no exchange controls and allows for free repatriation of capital and profits.
Remote bank account opening is also widely accepted by most banks on the island, one of the few jurisdictions remaining where remote bank account opening is possible for foreign-incorporated entities. This is useful for Jurisdictions with source or remittance-based taxation systems. Bank accounts can be opened for offshore companies such as Seychelles and mid-shore jurisdictions such as Hong Kong and Singapore.
b. Wealth Management
With a low individual headline tax of 15% and no tax on capital gains, Mauritius is an attractive destination for High Net Worth Individuals (HNWIs). In addition, Mauritius does not levy any inheritance, estate, or gift tax.
Mauritius is now the second-fastest-growing wealth market in the world, now being home to 4,400 HNWIs, compared to 1,800 ten years ago. Mauritius over the past years has been giving incentives to enticing wealth managers to relocate to the island to meet the growing demand for HNWI services. A Tax holiday has been provided to investment managers and operators of family offices.
Headline Tax Rate: 15%
Key Benefits: Low tax rate. No capital gains, inheritance, estate, or gift taxes. Foreign-sourced income taxable on remittance only.
Key Uses: For individuals looking to re-locate. Can be used for Common Reporting Standard (CRS) planning, and can be combined with shareholdings in GBCs. Attractive for high-skilled professionals, investors, and retirees.
Whether it is for business or pleasure, Mauritius has long been a year-round destination for HNWIs. In addition to being a low-tax jurisdiction, it is a safe and attractive destination for HNWIs looking for a comfortable lifestyle. The country is also one of the few countries to have come out of the COVID-19 pandemic relatively unscathed with very few cases.
Moreover with the advent of the CRS, carefully selecting where to live has enormous implications on a person’s tax liability, and choosing Mauritius can lead to significant tax savings. This is of course subject to the individual meeting all requirements to sever tax residency in the country of origin.
An individual is automatically resident if:
- His/her domicile is in Mauritius and he/she does not have a permanent place of abode outside Mauritius. or
- He/she spends 183 or more days in aggregate in Mauritius in the tax year; or
- He/she spends 270 or more days in aggregate in Mauritius in the tax year and in the 2 preceding tax years.
Foreigners looking at relocating to Mauritius may do so under several schemes including:
- Acquisition of residential property through the various schemes available such as Integrated Resort Scheme, Real Estate Scheme, Property Development Scheme, Smart City Scheme, and qualifying apartments.
- Professional & Young Professional Occupation Permit
- Investor Residence Permit
- Self-Employed Occupation Permit
- Retired Residence Permit
Although the headline tax is 15%, an individual receiving dividends from a resident entity is not subject to tax. Therefore, a foreign individual owning a GBC can receive all their dividends tax-free. A resident individual may however be subject to a Solidarity Levy on his chargeable income past a certain threshold.
Although individual residents are taxable on a worldwide basis (like most countries), foreign-sourced income is taxable on a remittance basis only. This allows individuals to keep their foreign assets tax-exempt.
In addition, there are no capital gains, inheritance, estate, or gift taxes in Mauritius.
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