Mauritus: tax aspects

The Finance (Miscellaneous Provisions) Act 2018 (FA 2018) providing for implementation of measures announced in the Budget Speech delivered on 14 June 2018 received the Acting President’s assent on 9 August 2018.

In line with the OECD’s initiatives to counter harmful tax practices and the commitment of the Government of Mauritius to step up and strengthen its good repute as an International Financial Centre, major amendments have been made to domestic legislations.

Major amendments brought by FA 2018 relate to inter alia the introduction of the partial exemption regime for certain types of income, abolition of the deemed foreign tax credit, and regulatory and fiscal changes affecting entities holding Category 1 and Category 2 Global Business Licenses (GBC1s and GBC2s).

Corporate Tax

New enhanced substance requirements

As part of the amendments brought by the FA 2018, Category 1 (GBC1) and Category 2 (GBC2) Global Business licenses will no longer be issued as from 1 January 2019. Instead, new licenses are introduced, namely the Global Business Corporation (GBC) and Authorised Company (AC).

Licensing conditions for a GBC includes, inter alia, carrying out of its core income generating activities at all times in, or from, Mauritius by:

  • employing, either directly or indirectly, a reasonable number of suitably qualified persons to carry out the core activities
  • having a minimum level of expenditure, which is proportionate to its level of activities

Abolition of the 80% Deemed Foreign Tax Credit (DFTC)

Effective from the 1 January 2019, the Deemed Foreign Tax Credit (DFTC) regime available to GBC1 companies will be abolished and GBL companies will thereafter be taxed at the rate of 15%.

DFTC will be abolished with the following grandfathering provisions:

GBC1

DFTC to continue to apply up to 30 June 2021 for GBCs set up on or before 16 October 2017, except on:

  • Intellectual property assets acquired from related party after 16 October 2017
  • Intellectual property assets acquired from unrelated party or newly created intellectual property assets after 30 June 2018
  • Income derived from such specific assets acquired/projects started after 31 December 2018 as the Director-General may determine

“Intellectual property assets” now defined to cover any copyright of literary, artistic or scientific work, any patent, trade mark, design or model, plan and any secret formula or process.

Segment B operations for Banks

DFTC to continue to apply up to year of assessment commencing on 1 July 2020 for companies with a banking license issued on or before 16 October 2017.

Introduction of a Partial Exemption Regime 80%

The FA 2018 introduced a Partial Exemption Regime of 80%. The following income streams will be exempted from tax:

  • Foreign dividend (subject to such an amount not being treated as an allowable deduction in source country)
  • Foreign source interest income
  • Profit attributable to a permanent establishment of a resident company in a foreign country
  • Foreign source income derived by a Collective Investment Scheme (CIS), Closed End Fund, CIS manager, CIS administrator, investment adviser or asset manager licensed or approved by the Financial Services Commission (FSC)
  • Income derived by companies engaged in ship and aircraft leasing

The 80% exemption is available upon meeting specific substance requirements as issued by the FSC.

Reduced corporate tax rate of 3% on export of goods

Export of goods is now defined to include international buying and selling of goods by an entity in its own name whereby shipment of such goods is made directly by the shipper in the original exporting country to the final importer in the importing country without the goods physically landing in Mauritius.

Companies treated as non-resident in Mauritius

Companies incorporated in Mauritius having place of effective management situated outside Mauritius shall be treated as non-resident. Such companies have to submit a return of income electronically within six months after the end of their financial year and pay any tax due.

Advanced payment system is applicable to companies treated as non-resident.

Foreign source income: new definition of foreign source income, now defined as income which is not derived from Mauritius

Foreign source income of a GBC1 incorporated on or before 16 October 2017 includes income derived from transactions with non-residents or other GBCs up to 30 June 2021.

Tax losses

Losses may be subject to another determination by Mauritius Revenue Authority (MRA) where initial determination has been overstated.

Any person who are not satisfied with losses determined by MRA may object to the determination.

Companies benefiting from tax holidays may carry forward unrelieved tax losses during period of exemption.

Introduction of new tax rates for banks

  • Up to MUR 1.5B: 5%
  • Over MUR 1.5B: 15%

However, chargeable income in excess of MUR1.5B may be subject to:

  • Reduced rate of 5% to apply, provided:
    • chargeable income of current year exceeds MUR1.5B
    • chargeable income of base year does not exceed MUR1.5B
    • current year’s chargeable income exceeds that of base year; and
    • bank satisfies prescribed conditions
  • Graduated rates to apply (5% up to MUR 1.5 B, 15% over MUR 1.5 B up to chargeable income of base year, 5% on the amount exceeding chargeable income of base year, provided:
    • chargeable income of current year exceeds MUR1.5B
    • chargeable income of base year exceeds MUR1.5B
    • current year’s chargeable income exceeds that of base year; and
    • bank satisfies prescribed conditions

VAT

Special levy on banks

New basis for special bank levy introduced are as follows:

  • 5.5% for banks earning leviable income up to MUR 1.2B
  • 4% for banks earning leviable income exceeding MUR 1.2B

Leviable income is defined as net interest income and other income from transactions with residents.

No levy is applicable where bank incurred a loss in an accounting period

Remittance of levy would be effected to MRA within 5 months from end of accounting period.

Penalty and interest applicable on late payment of levy are as follows:

  • Penalty of 5%
  • Interest of 0.5% per month

Deferred payment of VAT at importation

  • Payment of VAT at importation of capital goods, being plant and machinery, may be deferred by a VAT registered person
  • Deferred VAT to be reported as output VAT in VAT return
  • Deferred VAT not declared as output VAT shall become due and payable, recovery through Customs Act
  • Penalty of 5%
  • Interest of 0.5% per month

Assessment

  • MRA is empowered to make additional assessment if tax assessed is subsequently found to be under claimed or excess carried forward has been overstated.
  • New requirement to provide invoice number for all supplies, other than supplies by retail, for persons required to file monthly VAT returns
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Jean Bernardini

Jean est avocat et responsable du Desk Afrique au sein de Taj, il dispose d’une expérience de plus de 10 ans sur les problématiques juridiques et fiscales de gestion de […]