Corporate Tax 2020

Last Updated January 15, 2020

Mauritius

Law and Practice

Author



Dentons Mauritius LLP is one of the leading and largest law firms on the island, with established expertise and experience in the banking, finance, corporate, M&A, tax, private equity, litigation and arbitration sectors. The firm prides itself on its multidisciplinary team of lawyers with qualifications from the UK, South Africa, Australia, France, the USA and Mauritius. Dentons is the world's largest law firm by global headcount, with a legacy of legal experience that dates back to 1742. The firm in its current form was created in 2013 and, as the first truly polycentric global law firm, has no single headquarters and no dominant national culture, with offices in more than 170 locations serving more than 70 countries. Lawyers and professionals in Mauritius are equipped to assist clients in a wide range of areas, in both English and French.

Businesses generally adopt a corporate form. The different forms of corporate structure can be summarised as follows:

  • Domestic Company – this form of corporate structure is usually adopted by companies doing business essentially in Mauritius, and by businesses owned principally by Mauritian citizens.
  • Company holding a Global Business Licence (GBC) – companies requiring a Global Business Licence are those having the majority of their shareholding, legal or beneficial interests held by non-citizens of Mauritius and conducting business principally outside Mauritius.
  • Authorised Company – companies authorised to conduct business as an Authorised Company have similar requirements as a GBC in terms of ownership and conduct of business. However, an Authorised Company should also maintain its central management and control outside Mauritius.
  • Protected Cell Company (PCC) – a PCC may take the form of either a Domestic Company or a GBC. PCCs are generally used for entities that carry out different businesses or strategies, and/or have segregated investors for each business. Each cell of a PCC houses a specific business/strategy or a specific group of investors. The benefit of using a PCC is the legal ring-fencing of the assets and liabilities of one cell against those of another.

All the corporate structures are taxed as separate legal entities. PCCs have the flexibility to be taxed at a company level or at a cell level, based on a one-time election.

The most common type of transparent entity used in Mauritius is the Limited Partnership structure, which is mostly used by private equity funds (and also by a few hedge funds), for a number of reasons, including the following:

  • to accommodate US investors who are more familiar with the Limited Partnership model, as opposed to a corporate model, for investing in investment funds;
  • for ease of handling the repayment of capital and surpluses – under a Limited Partnership structure, such repayments can usually be carried out through the respective limited partners’ capital accounts and are therefore not subject to the satisfaction of a solvency test or the availability of accumulated profits, as would be the case for companies for a dividend distribution or a redemption of shares; and
  • flexibility on tax status – as a principle, Limited Partnerships are not liable to income tax in Mauritius. Rather, their limited partners are subject to income tax on their respective share of income from the Limited Partnership if they are resident in Mauritius. Accordingly, the Limited Partnership structure is useful in cases where investment in non-treaty jurisdictions is contemplated, in which case the Limited Partnership model acts as a tax-exempt fund in the same manner as a Cayman Islands fund would do, for instance.

A Limited Partnership holding a Global Business Licence may alternatively opt to be taxed as a company through a one-time election, in which case it is generally considered as a tax resident of Mauritius and can therefore avail of the benefits of double tax avoidance agreements entered into by Mauritius. In such cases, investors retain the ease of doing business of a Limited Partnership with the ability to obtain tax residency for the purposes of tax treaties.

In addition to transparent entities, there are also potentially hybrid structures, which are neither incorporated businesses nor technically transparent. In this league, Mauritius offers Trust and Foundation structures, both of which are essentially private wealth management structures, although Foundations are technically also allowed to carry out commercial activities.

Company

A company, including a domestic company or a GBC, is considered to be tax resident in Mauritius if it is either incorporated in Mauritius or has its central management and control exercised in Mauritius. However, a company incorporated in Mauritius is only considered to be tax resident in Mauritius if its central management and control are also situated in Mauritius.

Authorised Company

An Authorised Company is, by default, not resident in Mauritius by virtue of its central management and control being outside Mauritius.

Limited Partnership

A Limited Partnership is considered as being tax resident in Mauritius if it has its seat in Mauritius and at least one partner is resident in Mauritius.

Trust

A Trust is tax resident in Mauritius if:

  • it is administered in Mauritius and a majority of the trustees are resident in Mauritius; or
  • the settlor of the trust was resident in Mauritius at the time the instrument creating the trust was executed.

However, if a Trust’s settlor and beneficiaries are all non-tax residents of Mauritius in an income year, it may file a declaration of non-residence with the Mauritius tax authorities for that income year. A Trust that has filed such declaration is exempt from income tax for that year.

Foundation

A Foundation is considered as being tax resident in Mauritius if it is registered in Mauritius or has its central management and control in Mauritius.

However, a Foundation whose founder and beneficiaries are non-tax residents of Mauritius in an income year may file a declaration of non-residence with the Mauritius tax authorities for that income year. A Foundation that has filed such declaration is exempt from income tax for that year.

Domestic Companies and GBCs

Effective since 1 January 2019, all Domestic Companies and GBCs are subject to the headline income tax rate of 15%, but are eligible to claim an 80% partial exemption on certain income types (including foreign dividend, interest income, and ship/aircraft leasing), subject to satisfying certain prescribed substance requirements. 

They may alternatively claim credit for actual foreign taxes suffered (including withholding tax, underlying tax and tax sparing relief) in any income year, provided they do not claim the 80% partial exemption in that same year. Depending on the extent of foreign taxes suffered, the effective tax rate may be reduced to lower than 3% and even to zero in certain circumstances, especially for passive holding companies. However, Domestic Companies are subject to a 2% Corporate Social Responsibility (“CSR”) Levy on their previous year’s chargeable income in addition to the income tax rate.

It should be noted that companies engaged in the export of goods and international trading activities are subject to a flat 3% income tax.

Profits or gains from the disposal of units, securities and obligations are tax exempt in Mauritius. 

Companies holding a Category 1 Global Business Licence issued on or before 16 October 2017 (except for companies deriving certain types of income from intellectual property assets) are subject to a transitional provision until 30 June 2021, during which period they are eligible to claim credit for foreign tax suffered equivalent to the higher of actual foreign tax paid (as described above) or an 80% deemed foreign tax credit, against their headline rate of 15%. Accordingly, the income tax liability of such companies should not exceed 3%, irrespective of the type of income they derive. From 1 July 2021, these companies will be recharacterised as GBCs, and will therefore be subject to the above-mentioned tax regime applicable for GBCs. 

Protected Cell Companies

PCCs are generally taxed as companies. However, where a PCC has made an election under the Companies Act to present separate financial statements in respect of each of its cells, every cell of that company shall be deemed to be a separate entity and shall be liable to income tax in respect of its own income. 

Nonetheless, if a PCC elects to pay tax at cell level and a cell owes income tax, the Mauritius tax authorities may have recourse to the cellular assets as well as the non-cellular assets of the PCC for the recovery of the income tax due.

Authorised Company

An Authorised Company is treated as a non-tax resident of Mauritius on the basis that it is centrally managed and controlled from outside of Mauritius. As a non-tax resident of Mauritius, an Authorised Company is subject to income tax in Mauritius only with respect to income derived from Mauritius, at the standard income tax rate of 15%; foreign-source income earned by an Authorised Company is outside the scope of the Mauritius income tax legislation and is therefore not subject to income tax in Mauritius. Authorised Companies are also subject to CSR at a rate of 2% on their chargeable income.

Trust and Foundation

Trusts and Foundations are subject to income tax as companies if they are resident in Mauritius and do not file a declaration of non-residence with the Mauritius tax authorities.

Limited Partnerships

As a principle, Limited Partnerships are tax-transparent vehicles in Mauritius, and are therefore not subject to income tax in Mauritius – rather, their limited partners, if resident in Mauritius, would be subject to income tax on their share of net income from the Limited Partnership.

However, a Limited Partnership holding a Global Business Licence may opt, through a one-time election, to be taxed in Mauritius as a company.

The starting point of a company’s tax computation is the accounting profits, drawn on an accruals basis. The accounting profits are then adjusted on the basis of exempt income/non-taxable income, unauthorised deductions and other allowances.

Substantial negative adjustments (disallowances) would normally reflect expenses deemed to be capital in nature, accounting adjustments such as depreciation, and expenses generally not deemed to be incurred for the production of taxable income. On the other hand, positive adjustments would be in respect of exempt income (eg, the 80% partial exemption, capital allowances and any foreign taxes suffered).

The income of a company that was set up on or after 1 July 2017 and involved in innovation-driven activities for intellectual property assets that are developed in Mauritius, or income derived by a company from intellectual property assets that are developed in Mauritius on or after 10 June 2019, is subject to an eight-year tax holiday.

Similarly, income derived from the manufacture of pharmaceutical products, medical devices and hi-tech products by a company incorporated after 8 June 2017 is exempt for a period of eight income years, starting from the income year in which the company starts its operations.

Research and development, including the innovation, improvement or development of a process, product or service, will qualify for annual allowances at the rate of 50% on cost.

Tax Holidays

Companies holding a Global Headquarters Administration Licence issued on or after 1 September 2016 are exempt from income tax for a period of eight income years. 

Companies holding any of the following licences issued on or after 1 September 2016 are exempt from income tax for a period of five income years:

  • a Global Treasury Activities Licence;
  • a Global Legal Advisory Services Licence;
  • an Overseas Family Office (Single) Licence; or
  • an Overseas Family Office (Multiple) Licence.

Companies wholly owned by a non-citizen with an investment of not less than USD25 million are exempt from income tax for a period of five successive income years from the year in which the investment is made. However, such exemption will not apply if the investment is reduced to less than USD25 million at any time during the first five years.

Companies deriving their income from the exploitation and use of deep ocean water for providing air conditioning installations, facilities and services benefit from an eight-year tax holiday.

Income derived from food processing activities by a company incorporated on or after 8 June 2017 and registered with the Economic Development Board is exempt from income tax for a period of eight income years, starting from the income year in which the company starts its operations.

A five-year income tax exemption is available for income derived by a project developer or project financing institution in collaboration with the Mauritius Africa Fund for developing infrastructure in Special Economic Zones.

An eight-year income tax exemption is available for income derived by a company registered with the Economic Development Board and engaged in the manufacturing of automotive parts.

An eight-year tax holiday also applies on activities under the sheltered farming scheme set up by the Food and Agricultural Research and Extension Institute.

A four-year tax holiday is granted on income derived from the bunkering of low sulphur heavy fuel oil for companies with an income year ending 30 June 2019 or newly set up companies after 1 July 2019.

A five-year tax holiday is available for income derived from a Peer-to-Peer lending platform operated under a licence by the FSC starting operation before 31 December 2020, subject to satisfying certain prescribed conditions.

An eight-year tax holiday is granted to a company set up on or after 10 June 2019 and engaged in the development of a marina.

A five-year tax holiday is available for companies setting up an e-commerce platform in Mauritius before 30 June 2025 and holding an e-commerce certificate issued by the Economic Development Board, subject to satisfying certain substance conditions.

Income derived from fishing activities by an industrial fishing company incorporated on or after 1 September 2016 and approved by the Board of Investment is exempt for a period of eight years, starting from the income year in which the company starts its operation.

Income derived by the registered owner of a foreign vessel from the operation of the vessel, including any income derived from the chartering of such vessel, is exempt from income tax. Income derived by the registered owner of a local vessel registered in Mauritius is also exempt, provided the income is derived from deep sea international trade only.

Effective from the year of assessment commencing on 1 July 2010, enterprises that have a gross income not exceeding MUR10 million and that are engaged in the following activities can make an election to pay a presumptive tax of 1% of their gross income as final income tax, as opposed to the 15% income tax rate:

  • agriculture, forestry and fishing;
  • manufacturing, excluding restaurants; and
  • wholesale and retail of goods, including the sale of food to be consumed off premises.

Any unrelieved loss can be carried forward for a maximum of five years. 

However, there is no time limit to carry forward loss attributable to annual allowance in respect of capital goods.

Companies may treat their interest payments as tax-deductible expenses to the extent that they relate to capital employed exclusively in the production of gross income.

However, the Mauritius tax authorities may disallow such interest expense if the interest is payable to a non-resident who is not chargeable to tax on the amount of the interest, or if the interest is not likely to be paid in cash within a reasonable time.

There is no concept of group taxation in Mauritius; there is also no group tax relief. Accordingly, company tax losses can only be used against future profits to the extent such losses can be carried forward.

There is no capital gains tax in Mauritius; profits or gains from the disposal of units, securities and obligations are exempt in Mauritius.

The disposal of shares of companies holding immovable property are nevertheless subject to Land Transfer Tax, at the rate of 5% of the proceeds. The acquirer of such shares is then also subject to Registration Duty, at the rate of 5%. Specific Land Transfer Tax and Registration Duty amounts are payable in respect of immovable property under the Property Development Scheme.

There are no other significant taxes payable.

Incorporated businesses are not subject to any other notable taxes.

Local closely held businesses in Mauritius operate in both corporate and non-corporate form, depending on the type of business activity.

Both the headline corporate income tax rate and the headline rate applicable to individuals are 15%. Domestic Companies are subject to an additional 2% CSR on their previous year’s chargeable income.

However, from 1 July 2018, resident individuals deriving annual net income not exceeding MUR650,000 are subject to a lower income tax rate of 10%. In addition, a tax credit of 5% is available to employees deriving salary not exceeding MUR50,000 in the first month, provided the annual net income does not exceed MUR700,000. Also, income earned by individuals beyond MUR3.5 million is taxed at an incremental 5% rate.

Given the limited divergence between the two rates, there are no specific rules catering for planning between corporate rates and individuals’ rates.

There are no rules preventing closely held corporations from accumulating earnings for investment purposes.

Dividends payable by a Mauritian resident company and gains on sales of shares are exempt from tax in Mauritius. However, if an individual’s leviable income (ie, chargeable income and dividends) exceeds MUR3.5 million, then the balance is taxed at an additional 5% rate. Therefore, any dividend income falling into this category will be subject to 5% tax.

see 3.4 Sales of Shares by Individuals in Closely Held Corporations.

The withholding taxes applicable in the absence of a tax treaty are as follows.

Interest

A withholding tax of 15% is applicable on interest paid to non-resident companies. However, interest payments made to a non-resident not carrying out any business in Mauritius by a GBC out of its foreign-source income are exempt from withholding tax.

Similarly, interest payments on bonds and sukuks quoted on the Stock Exchange of Mauritius held by a non-resident company are not subject to withholding tax.

Dividends

There is no withholding tax in Mauritius on dividend payments.

Royalties

A 15% withholding tax is applicable, but royalties paid to a non-resident by a company out of its foreign-source income are exempt.

Structuring from a tax planning purpose for investment locally in Mauritius is rarely seen.

Local tax authorities do not generally challenge the use of treaty country entities by non-treaty country entities.

There are no specific transfer pricing laws or guidelines in Mauritius. However, Section 75 of the Income Tax Act 1995 provides that transactions should be carried out at arm’s length. In practice, the tax authorities in Mauritius rely on the OECD’s Transfer Pricing Guidelines when assessing transfer pricing cases.

One of the most frequent transactions triggering the application of transfer pricing rules is back-to-back loan arrangements.

Please see 4.4 Transfer Pricing Issues.

Please see 4.4 Transfer Pricing Issues.

This topic is not applicable in Mauritius.

Local branches of non-local corporations are not taxed differently to local subsidiaries of non-local corporations; branch taxation is similar to company taxation in Mauritius.

There is no capital gains tax in Mauritius.

Registration Duty and Land Transfer Tax liability may be triggered under certain circumstances upon the disposal of shares of a company holding – directly or indirectly – immovable property situated in Mauritius.

In addition, a change in control of beneficial ownership of a Mauritius company may cause unutilised tax losses to lapse.

This topic is not applicable in Mauritius.

No expenses are available for deduction if the expenses have not been incurred by the taxpayer itself.

The general rule is that expenses shall be tax deductible to the extent that they have been incurred exclusively in the production of gross income.

Certain items of expenditure are not deductible for income tax purposes, including expenditure of a capital or private nature, reserves or provisions of any kind, business entertainment or gifts, income tax or foreign tax, any expenditure to the extent to which it is incurred in the production of exempt income, etc.

The Mauritius tax authorities may disallow such interest expenses on related party borrowing if the interest is payable to a non-resident who is not chargeable to tax on the amount of the interest, or if the interest is not likely to be paid in cash within a reasonable time.

In addition, under Section 75 of the Income Tax Act 1995, transactions between related parties should be carried out at arm’s length. Consequently, it should be ensured that the interest rates applied on the related party debts that are provided to the local affiliates are in line with market rates for similar loan transactions. If the Mauritius tax authorities consider the interest rates not to be at arm’s length, they may seek to adjust the interest expenses.

The foreign income of local corporations is generally taxable in the same manner as local income. 

This topic is not applicable in Mauritius.

Local corporations will be subject to income tax at the rate of 15% in Mauritius on such foreign dividend income, but will be eligible to claim either a partial exemption of 80% against the income tax payable in Mauritius, provided certain conditions are met, or credit for actual foreign taxes suffered, whichever is more beneficial. 

There is no Mauritius income tax on the transfer of intangibles to non-local subsidiaries.

Section 90A of the Income Tax Act provides that where a “resident company carries on business through a controlled foreign company and the Director-General considers that the non-distributed income of the controlled foreign company arises from non-genuine arrangements which have been put in place for the essential purpose of obtaining a tax benefit, that income shall be deemed to form part of the chargeable income of the resident company.”

Accordingly, if a company qualifies as a CFC under the ITA and generates income that is not distributed to the Mauritius company in any income year, and such income is deemed to arise from "non-genuine arrangements" for the essential purpose of obtaining a tax benefit, then the Mauritius company will be required to account for the chargeable income of the CFC in its own tax return in Mauritius and pay any tax thereon as if the CFC was a Mauritius tax resident company. 

A CFC is defined under Section 90A (5) as a company that is not resident in Mauritius and in which more than 50% of the participating rights are held by a resident company, either individually or together with its associated enterprises. However,  the provisions relating to a CFC do not apply in an income year where:

  • the CFC’s accounting profits are not more than EUR750,000, and non-trading income is not more than EUR75,000;
  • the CFC’s accounting profits amount to less than 10% of its operating costs for the tax period; or
  • the tax rate in the country of residence of the controlled foreign company is more than 50% of the tax rate in Mauritius.

This topic is not applicable in Mauritius.

Capital gains on the sale of shares are exempt in Mauritius.

The Income Tax Act provides against tax avoidance schemes or arrangements. In addition to a general anti-avoidance provision regarding transactions designed to avoid liability to income tax, the Mauritian tax legislation has specific anti-avoidance rules designed to prevent the misuse of legal provisions for tax avoidance or evasion in respect of the following: 

  • interest on debentures issued by reference to shares;
  • excess remuneration on share of profits;
  • excessive remuneration to shareholder or director;
  • benefit to shareholder;
  • excessive management expenses;
  • leases for other than an adequate rent; and
  • rights over income retained. 

The legislation also contains provisions dealing with transactions that are not carried out at arm’s length and under CFC rules.

This topic is not applicable in Mauritius.

All changes recommended under the BEPS Minimum Standards have been implemented, particularly the following:

  • the tax regimes of companies have been aligned with the requirements of Action 5, including the introduction of substance requirements for availing of tax incentives and the removal of any potentially harmful feature;
  • the introduction of treaty abuse provisions in the Multilateral Instrument;
  • Country-by-Country Reporting; and
  • the dispute resolution mechanism.

Mauritius tax reforms have already been validated by the OECD and the EU.

As a member of the BEPS Inclusive Framework, Mauritius is committed to the OECD’s BEPS initiative.

International tax has a high public profile. Mauritius has a growing international financial centre, which has historically been rooted on the basis of its tax treaties. Nevertheless, the country is committed to the BEPS standards as well as EU requirements.

Mauritius is a member of the BEPS inclusive framework, and is fully committed.

The Mauritius tax system has been completely aligned with the requirements of the OECD and the EU.

Hybrid instruments may lead to hybrid mismatches in terms of taxation. With regard to addressing the issue of hybrid mismatches, the Mauritius Income Tax Act provides that the partial exemption regime shall not apply to foreign dividends where such dividends have been allowed as a deduction in the country of source.

Mauritius operates a residence basis of taxation.

Mauritius has adopted a residence basis of taxation.

As an International Financial Centre, Mauritius has significant business supported by tax treaty provisions, so the proposed DTC limitation of benefit or anti-avoidance rules are likely to have an impact.

There is no specific transfer pricing legislation in Mauritius.

Mauritius has already adopted country-by-country reporting, in addition to Common Reporting Standards and FATCA.

No changes have yet been made regarding the taxation of transactions effected or profits generated by digital economy businesses operating largely from outside Mauritius.

As mentioned earlier, Mauritius is a member of the BEPS All-Inclusive Framework and the approaches in relation to digital taxation will be in line with BEPS Action 1. No proposals have been brought forward so far. 

This topic is not applicable in Mauritius.

There are no further general comments about the BEPS process.

Dentons Mauritius LLP

Mezzanine, Ground and 3rd Floor
Les Jamalacs, Vieux Conseil Street
Port Louis
Mauritius

+230 212 1150

+230 212 2422

www.dentons.com
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Law and Practice

Author



Dentons Mauritius LLP is one of the leading and largest law firms on the island, with established expertise and experience in the banking, finance, corporate, M&A, tax, private equity, litigation and arbitration sectors. The firm prides itself on its multidisciplinary team of lawyers with qualifications from the UK, South Africa, Australia, France, the USA and Mauritius. Dentons is the world's largest law firm by global headcount, with a legacy of legal experience that dates back to 1742. The firm in its current form was created in 2013 and, as the first truly polycentric global law firm, has no single headquarters and no dominant national culture, with offices in more than 170 locations serving more than 70 countries. Lawyers and professionals in Mauritius are equipped to assist clients in a wide range of areas, in both English and French.

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