Mauritius

Gary Gowrea and Aveenash Ramtohul
Multiconsult - Taxand
Mauritius

The government continues to update the tax system to encourage foreign investment, explains Gary Gowrea and Aveenash Ramtohul of Multiconsult - Taxand

Over the years Mauritius has emerged as one of the strongest economies in Sub-Saharan Africa. Ideally situated at the crossroads of Europe, Asia and Africa and with a conducive business environment, legal framework and stable economy Mauritius has emerged as a preferred jurisdiction for cross border investment and trade.

As part of his initiatives to craft Mauritius as a more diversified, open and internationally integrated economy, the minister of finance and economic empowerment in his 2009 Budget Speech announced, amongst others, that Mauritius will be moving to a calendar year of assessment, previously running from 1 July to 30 June. For 2009, there is a transitional period which will run from 1 July 2009 to 31 December 2009.

Tax system and scope of tax

Mauritius runs a self-assessment based system. Income tax is charged on both natural persons and legal entities. The latter includes corporations, trusts, associations and foreign partnerships. Residents are taxed on their worldwide income, while non-residents are only taxed on income sourced in Mauritius.

Taxation of corporations

The tax rate is 15% on the company's taxable income, which consists of business/trading profits and passive income. Normal business expenses are deductible in computing taxable income. Furthermore, under the Income Tax (Foreign Tax Credit) Regulations 1996, a company can offset any foreign taxes paid against their Mauritius tax liability.

In the case of a qualified corporation, where evidence of foreign tax is not shown, a deemed tax credit of 80% of Mauritius tax is allowable on all foreign source income, resulting in an effective tax rate of 3%. A qualified corporation is defined as a corporation holding a Category 1 Global Business Licence (GBL 1) under the Financial Services Act 2007 (FSA 2007).

In addition to the income tax, these charges also apply:

Special levy on banks

Every bank must pay to the director-general of the Mauritius Revenue Authority (MRA) a special levy calculated according to their book profit and its operating income derived during the preceding year. The solidarity levy will be as follows:

Years of assessment commencing on July 1 2009 and January 1 2010 – 3.4% on book profit and 1% on operating income
Years of assessment commencing January 1 2011 and for every subsequent year – 1.7% on book profit and 0.5% on operating income.

Solidarity levy on telephony service providers

Every telephony service providers shall be liable to pay to the director-general of the MRA a solidarity levy calculated according to their book profit and turnover for the preceding income year. The applicable rates are as follows:

For the years of assessment commencing on July 1 2009 and January 1 2010 – 5% on the book profit and 1.5% on turnover.

Corporate social responsibility

From July 1 2009, every company is required to set up a corporate social responsibility (CSR) fund equivalent to 2% of their book profit derived during the preceding year to:

Implement an approved programme by the company
Implement an approved programme under the National Empowerment Foundation; or
An approved non-governmental organisation

Corporate social responsibility does not apply to global business companies.

Alternative minimum tax

The alternative minimum tax (AMT) applies if a company declares a dividend or distributes any shares instead of dividends and if the tax payable is less than 7.5% of the book profit. The AMT equals the lower of 7.5% of the book profit or 10% of the dividend declared.

The tax payable by the company is the higher of the AMT or the tax payable under normal rules. The provisions relating to AMT does not apply to companies that are exempt from tax and GBL1 companies

Capital gains

Capital gains are not taxable in Mauritius.

Tax administration

Annual returns

All companies are required to submit their annual tax returns within six months of their financial year end. Companies with a turnover of more than MUR10 million ($314,000) should file their returns electronically.

Advance payment system

Companies are also required to make quarterly provisional tax payments under the advance payment system (APS) based on their previous year's profits or profits for the quarter in question.

Companies having unrelieved losses for a preceding income year may not file an APS statement, except where they have paid AMT for that year.

New return date

Following the introduction of the Finance Act 2009, companies will have new approved return dates as follows:

Table 1: New return date
Approved return date ending between	Deemed income year ending on
January 1 and June 30	December 31 of preceding year (for example, approved return date March 31 2010 – return deemed to have been made in relation to income year ending December 31 2009)
July 1 to December 31	December 31 after that return date (for example, approved return date September 30 2010 – return deemed to have been made in relation to income year ending December 31 2010)

Advance tax rulings

A taxpayer may seek an advance ruling from the director-general of the MRA on the application of the Income Tax Act 1995 (ITA 1995) to the income the taxpayer intends to derive from Mauritius. The ruling is delivered within 30 days of the application and is binding upon the director-general unless there is any material difference between the facts relating to the transaction and the details contained in the application.

Losses

Carry-back of losses is not allowed. However, tax losses can be carried forward for a maximum period of 5 years.

Withholding taxes

Mauritius does not impose any withholding taxes (WHT) on dividend payments by a corporation in Mauritius. Furthermore, interests and royalties paid out of a GBL1 do not attract any WHT in Mauritius. However, the ITA 1995 requires tax to be withheld at source on royalty payments made by Mauritius corporations (other than a GBL 1).

Table 2: Anti-avoidance legislation
Transfer pricing	No transfer pricing legislations
Thin capitalisation	No thin capitalisation
Controlled foreign companies	No controlled foreign companies
Interest on debentures issued according to shares, excessive remuneration to shareholders or directors, benefits to shareholders, excessive management expenses, leases for other than adequate rent, rights over income retained and transactions designed to avoid income tax	As per ITA 1995

Global business companies

Entities setting up in the Global Business Sector are licensed and regulated by the Financial Services Commission (FSC). There are two types of global business company that can be set up in Mauritius – a GBL 1 and a category 2 global business company (GBL 2).

A GBL 1 is tax resident in Mauritius and can take advantage of the 34 bilateral tax treaties that Mauritius has ratified.

A GBL 2 is a resident corporation. However, part I of the second schedule of the ITA 1995 considers a GBL 2 to be an exempt person for tax purposes. Furthermore, a GBL 2 is ineligible to benefit from Mauritius's tax treaties.

Taxation of a GBL 1

A GBL 1 pays tax at the rate of 15%. However, under the Income Tax (Foreign Tax Credit) Regulations, a GBL 1 can offset any foreign taxes (withholding taxes and underlying taxes) against its Mauritius tax liability.

Furthermore, where evidence of foreign taxes is not shown, the GBL 1 will be entitled, as a qualified corporation, to a deemed tax credit of 80%; resulting in an effective tax rate of 3%.

Residency of a GBL 1

A company is considered resident in Mauritius if it is incorporated or has central management and control in Mauritius. In the case of a GBL 1, the emphasis is on central management and control.

Section 71(4) of the FSA 2007 states the FSC shall have regard to the following in determining whether the management and control of a GBL 1 is being exercised from Mauritius:

The GBL 1 shall have at least two directors, resident in Mauritius, of sufficient calibre to exercise independence of mind and judgement;
The GBL 1 maintains at all times its principal bank account in Mauritius
The GBL 1 keeps and maintains, at all times, its accounting records at its registered office in Mauritius
The GBL 1 prepares its statutory financial statements and causes to have such financial statements to be audited in Mauritius.
The GBL 1 provides for meetings of directors to include at least two directors from Mauritius.

Where a person wishes to be certified as resident in Mauritius for an income year, then he should apply to the Director General of the MRA for a tax residency certificate which is delivered within seven days of the application. The application for a GBL 1 is routed through the FSC.

Mauritius tax treaty network

Mauritius has 34 bilateral DTAAs in place, which are based primarily on the OECD model. These treaties primarily provide for taxing rights to the resident state, that is, Mauritius. As far as passive income such as dividends, interest and royalties is concerned, the negotiated rate of withholding tax is beneficial. With several countries, it is zero or less than the domestic rate applicable in the source country.

Diagram 1: Tax treaties

Table 1: Double tax avoidance treaties signed by Mauritius
Year		Country	Permanent establishment if more than	Tax Sparing Clause	Maximum Tax Rates applicable in the country of source
Signed	Ratified				Dividends	Interests		Royalties
Signed	Ratified				Dividends	Banks	Other	Royalties
2004	2005	Barbados $	> six months	Yes	5%	5%	5%/ (j)	5%
1995	1999	Belgium	> six months	Yes	5%/10%(c)	10%	10%/(j)	0
1995	1996	Botswana	> six in any 12 months	Yes	5% /10%(d)	12%	12%/(j)	12.5%
1994	1995	China #	> 12 in any 24 months	Yes	5%	10%	10%/(j)	10%
2002	2003	Croatia	> 12 months	yes	0	0	0	0
2000	2000	Cyprus	> 12 months	Yes	0	0	0	0
1980	1982	France #	> six months	No	5% /15%(c)	(f)	(f)	15%
1978	1981	Germany #	> six months	No	5% /15%(d)	(f)	(f)	15%
1982	1985	India #	> nine months	Yes	5% /15%(c)	0	(f)	15%
1990	1995	Italy	> six months	No	5% /15% (d)	(f)	(f)	15%
1997	1998	Kuwait	> nine months	Yes	0	0	0/(p)	10%
1997	2004	Lesotho	> six months	yes	10%	10%	10%/(j)	10%
1995	1996	Luxembourg	> six months	no	5%/10% (c)	0	0	0
1994	1995	Madagascar $	> six months	No	5%/10%(v)	10%	10%/(j)	5%
1992	1993	Malaysia	> six months	Yes	5% /15% (c)	15%	15%/(j)	15%
1997	1999	Mozambique #	> six months	Yes	8% /10% /15%(n)	0	8%	5%
1995	1996	Namibia	> six months	Yes	5% /10%(d)	0	10%/(j)	5%
1999	1999	Nepal $	> six months	Yes	5% /10%/15%(i)	10%(k)	15%/(j)	15%
1998	1998	Oman	> six months	Yes	0	0	0	0
1994	1995	Pakistan #	> six in any 12 months	Yes	10%	10%	10%/(j)	12.5%
1995	*	Russia	> 12 months	No	5%/10% (e)	0	0	0
2001	2003	Rwanda $	> 12 months	Yes	0	0	0	0
2002	2003	Senegal $	> nine months	Yes	0	0	0	0
2005	2005	Seychelles	> 12 months	Yes	0	0	0	0
1995	1996	Singapore #	> nine months	Yes	0	0	0	0
1996	1997	South Africa #	> nine months	Yes	5%/15%(c)	0	0	0
1996	1997	Sri Lanka	> six months	Yes	10% /15% (c)	0	10%/(j)	10%
1994	1994	Swaziland $	> six months	Yes	7.5%	5%	5%/(j)	7.5%
1992	1992	Sweden #	> six months	Yes	5% /15%(c)	0	15%/(j)	15%
1997	1998	Thailand	> six months	Yes	10%	10%	15%/(j)	5%/15%(m)
2008	2009	Tunisia	>12 months	Yes	0	2.5%	2.5%	2.5%
2003	2004	Uganda	> six months	Yes	10%	10%	10/(j)	10%
2006	2007	UAE	> 12 months	Yes	0	0	0	0
1981	1987	UK #	> six months	Yes	10% /15%(c)	0	(f)/(j)	15%
1992	1992	Zimbabwe $	> six months	Yes	10% /20%(d)	0(h)	10%/(j)	15%

* Not yet ratified

# - Investment Promotion and Protection Agreement (IPPA) is in force with these countries. In addition, the following non-treaty countries ha/ve an enforceable IPPA: Portugal, Switzerland, Czech Republic and Romania.

$ - IPPA with these treaty countries is awaiting ratification. In addition, IPPA with the following non-treaty countries is awaiting ratification: Benin, Burundi, Ghana, Mauritania, Chad, Comoros , Guinea Republic and Cameroon.

IPPA awaiting signature: Malawi, Uganda, Chile, Turkey, Korea and Lesotho.

Treaties awaiting signature: Bangladesh, Tunisia, Nigeria and Zambia Treaties being negotiated: Canada, Greece, Portugal, Malawi, Iran, Vietnam, Czech Republic and Egypt.

Dividends derived from Mauritius by non-resident companies are tax free.
Interest and royalties paid by GBC1 companies to non-residents are tax free.
Lower rate applies to companies holding at least 10% of capital.
Lower rate applies to companies holding at least 25% of capital.
Lower rate applies in the case of an investment of at least $500,000 in the capital of the payer of dividends.
Interest taxed in source country according to local law. 0% if paid to any bank carrying on a bona fide banking business. However, there is no withholding tax in Mauritius on interest paid by a GBC1 company.
Lower rate applies to companies holding at least 20% of capital.
In case of Zimbabwe, subject to certain conditions.
5% applies to companies holding at least 15% of capital, 10% applies to companies holding at least 10% but less than 15% of capital and 15% in all other cases.
Exempt if derived and beneficially owned by the government or the central bank. In case of Nepal, also applies to local authority or a government controlled financial institution. In case of Uganda, applies only to government, local authority or a political subdivision or an institution, board or a body wholly owned by government, local authority or a political subdivision.
10% applies if it is received by any financial institution including an insurance company. In case of Nepal, also applies to an investment company receiving income from financial investments.
Exempt if derived and beneficially owned by the government, local authority or a political subdivision or indirectly through an institution, body or a board.
Lower rates applies to royalties received for the use of or right to use any copyright of literary, artistic or scientific work, excluding cinematography films and films, tapes or discs for radio or television broadcasting.
8% applies to companies holding at least 25% of capital, 10% applies to companies holding less than 25% of capital and 15% in all other cases.
Lower rate applies if derived and beneficially owned by the government, local authority and any other government agency agreed to by the contracting states.
Not more than 5% if interest arises from a business carried through a permanent establishment or is connected to a fixed base from where independent personal services are performed.