Corporate Tax 2021

Last Updated March 15, 2021

Mauritius

Law and Practice

Authors



Prism Chambers is a full-service business law firm based in Mauritius which specialises in all aspects of tax law, on a domestic and international scale. Prism Chambers’ team of five fee earners is headed by dual-qualified (Mauritius and England & Wales) Johanne Hague. Prism Chambers has a leading advisory and transactional tax practice, with a particular focus on cross-border transactions involving the African continent. The lawyers at Prism Chambers also represent clients at all stages of tax controversy matters, including before the Supreme Court of Mauritius. The firm is regularly instructed to advise on international taxation matters, particularly in connection with the implementation of the BEPS proposals and on AEOI matters. Its other main practice areas include private client, corporate and commercial, and insolvency and restructuring.

Businesses usually adopt a corporate form to carry out their trading activities.

Companies limited by shares are the most common structures. Depending on whether their beneficial owners are Mauritian citizens and whether the entity intends to carry out business in or outside Mauritius, companies may be required to apply for a Global Business Licence from the Financial Services Commission. Such companies are required to be centrally controlled and managed in Mauritius for regulatory purposes.

Companies may also apply for an “authorised company” licence from the Financial Services Commission. The scope of activities of an authorised company is limited and it is required to have its place of effective management outside of Mauritius. In short, it should not be tax resident in Mauritius.

Companies owned by Mauritian citizens or carrying out their business mainly in Mauritius are not required to be regulated by the Financial Services Commission. They are commonly referred to as “domestic companies”.

Whilst companies limited by shares are by far the most common structures, businesses may be organised through other types of companies: companies limited by guarantee, unlimited companies and companies limited by shares and guarantee. It is also possible to incorporate protected cell companies.

All of the above-mentioned corporate structures are separate legal entities for tax purposes and are taxed as such.

Partnerships (including sociétés, limited partnerships and limited liability partnerships) are most commonly used as tax transparent entities. Resident partnerships are not liable to income tax, but their resident associates are liable to tax on their share of profits.

Limited partnerships/limited liability partnerships are commonly adopted in private equity funds due to the great degree of flexibility afforded to such structures as opposed to companies. Prospective investors are also keen to adopt these structures as they are commonly used in other jurisdictions, such as the USA.

It is apposite to note, however, that a partnership which holds a Global Business Licence is able to elect to be “opaque” for tax purposes and therefore may be subject to income tax at its level.

Companies

A company is tax resident in Mauritius if it is incorporated in Mauritius or if it has its central control and management in Mauritius. The Income Tax Act was amended in 2019 to provide that, despite being incorporated in Mauritius, a company will be treated as a non-resident for tax purposes if its central control and management are situated outside of Mauritius.

Trusts

A trust is tax resident in Mauritius if it is administered in Mauritius and a majority of the trustees are resident in Mauritius. In addition, where the settlor of a trust was resident in Mauritius at the time the instrument creating the trust was executed, that trust shall also be tax resident in Mauritius.

A trust is treated as being a company for tax purposes.

Foundations

A foundation is tax resident in Mauritius if it is registered in Mauritius or has its central management and control in Mauritius.

Trusts and foundations are able to file a declaration of non-residence on a yearly basis if the trust’s settlor and beneficiaries/foundation’s founders and beneficiaries are all non-tax residents of Mauritius in an income year. They will then be tax-exempt.

Transparent Entities

Transparent entities (ie, sociétés or partnerships) will be treated as being a resident entity if their seat (or siège) is located in Mauritius or if they have at least one associate, associé or gérant resident in Mauritius.

Headline Rate

The headline rate for corporate tax is 15% in respect of incorporated entities.

Tax Transparent Entities

For tax transparent structures, any resident partners who are individuals are taxed at the rate of 15% and may be additionally subject to solidarity levy at the rate of 25% on their leviable income (broadly their chargeable income plus dividends) if it is above MUR3 million, subject to a cap of 10% on their total chargeable income.

Grandfathered Global Business Companies

Some entities holding a category 1 Global Business Licence will continue to benefit from grandfathering provisions (if they were incorporated prior to 16 October 2017) until 30 June 2021, whereby they will be taxed at an effective rate of 3% through application of the deemed foreign tax credit. Grandfathered category 2 Global Business Licence companies (ie, those which were incorporated prior to 16 October 2017) continue to be tax exempt until 30 June 2021 (for completeness, it should be noted that there are some narrow exceptions to this exemption in connection with IP assets or IP-related income).

Other Companies

Companies that are involved in the import and export of goods are subject to a reduced rate of tax of 3%.

Special rates apply to freeport companies, subject to certain substance requirements being met.

Businesses Held by Individuals Directly

Individuals who own businesses directly are subject to tax on the chargeable income of the business at the headline rate of 15%. The solidarity levy will also be applicable if the chargeable income exceeds MUR3 million.

Corporate tax is applied on the “chargeable income” of an entity. The chargeable income refers to the net income of the company (ie, gross income minus any allowable deductions).

Although it is not statutorily provided for, taxable profits are generally based on accounting profits, subject to adjustments provided for in the Income Tax Act 1995.

The Mauritius Revenue Authority is able to make adjustments to the chargeable income of an entity if it is satisfied that some transactions have not been carried out in accordance with the “arm’s-length” principle or provisions applicable to controlled foreign corporations. In addition, there are other targeted anti-avoidance provisions (as well as a general anti-avoidance provisions) aimed at adjusting taxable profits or losses.

Entities report their income on an accrual basis, but small enterprises (generally a person with an annual turnover not exceeding MUR10 million) may apply to the Mauritius Revenue Authority for permission to compute their net income on a cash basis.

Incentives are available in respect of R&D expenditure for the period 1 July 2017 to June 2022, as follows:

  • a person who has incurred any qualifying expenditure directly related to his existing trade or business, may deduct twice the amount of the expenditure in the income year in which the qualifying expenditure was incurred, provided the research and development is carried out in Mauritius; and
  • a person who has incurred qualifying expenditure that is not directly related to his existing trade or business may be allowed a deduction of the expenditure in the income year in which the expenditure was incurred.

Income tax holidays are available for companies involved in innovation-driven activities (see 2.3 Other Special Incentives for more details).

Partial Exemption Regime

A partial exemption regime (PER) amounting to 80% of the chargeable income is available to certain streams of income and holders of certain licences, subject to fulfilling certain conditions (which broadly relate to substance such as employment and expenditure in Mauritius and the carrying out of core income-generating activities of the entity in Mauritius).

Such streams of income include dividends, certain types of interest, and aircraft and ship leasing income.

Holders of licences from the Financial Services Commission such as a Fund Manager licence or a closed-ended fund licence are also able to avail themselves of the PER.

Tax Holidays

Tax holidays (of up to eight years) are available for certain activities, including the following, in each case subject to certain substance criteria being met:

  • income derived from activities of a company holding a global headquarters administration licence;
  • the income of a company 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;
  • income derived from the manufacture of pharmaceutical products, medical devices and hi-tech products; and
  • income derived from the manufacturing of nutraceutical products.

Tax holidays of five years are available for entities holding a global treasury activities licence or a global legal advisory services licence, subject to substance criteria being met.

Other Special Rates

Special tax rates also apply to the income of banks.

Losses incurred in the production of gross income can be set off against gross income for that income year. Any excess loss may also be carried forward for set-off against income derived in the five succeeding income years. However, this is not applicable to any amount of loss that is attributable to annual allowance claimed in respect of capital expenditure incurred on or after 1 July 2006.

There are also restrictions on the carry forward of losses in a change of ownership of the company.

Only interest incurred in respect of capital expenditure employed exclusively in the production of gross income is deductible. Deductions of interest may be disallowed by the Mauritius Revenue Authority where the interest is payable to a non-resident who is not chargeable to tax on the amount of the interest, or where the interest is not likely to be paid in cash within a reasonable time.

There is no tax consolidation in Mauritius for groups, except for permanent establishments being consolidated at the head office level given that they form part of the same legal entity.

There is no taxation on capital gains in Mauritius.

Transactions may trigger registration duty or land transfer tax if they relate to the transfer of immovable properties in Mauritius.       

Incorporated businesses may also be subject to a corporate social responsibility (CSR) charge (currently equivalent to 2% of a company’s chargeable income).

Businesses in certain sectors, such as telephony service operators (in the telecommunications sector) and banks, may also be subject to an additional levy based on their income.

Closely held local businesses would mostly operate in corporate forms, such as private companies limited by shares.

The headline rates for income tax at the corporate level and the individual level are identical (other than CSR applicable for corporates).

However, it may be more tax efficient, to some extent, for individuals subject to the solidarity levy (which falls within the definition of income tax) to conduct their professional activities through a corporate vehicle. No specific anti-avoidance taxation rules have been put in place regarding personal services companies, and they are fairly commonly used in practice. If the Mauritius Revenue Authority wished to challenge these type of entities, it would have to base the challenge on the general anti-avoidance legislation.

There is currently no legislation preventing closely held corporations from accumulating earnings for investment purposes.

Dividends (in cash or in shares) from Mauritius resident companies are exempt from income tax in the hands of individuals but would be accounted for when computing the solidarity levy that applies to individuals earning income above MUR3 million (see 1.4 Tax Rates).

There is no tax on the gain on the sale of shares.

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

Interest

There is no withholding tax on interest payments being made to a Mauritius resident person.

Interest payments by a person (other than a bank or a non-bank deposit-taking institution) made to a non-resident are generally subject to withholding tax at the rate of 15%.

However, interest payments paid to a non-resident not carrying on any business in Mauritius by a corporation holding a Global Business Licence out of its foreign source income or by a bank would not be subject to withholding tax as long as the interest is paid out of gross income derived from its banking transactions with non-residents and corporations holding a Global Business Licence.

Royalties

Royalties paid to residents are subject to withholding tax at the rate of 10%.

Royalties paid to non-residents are subject to withholding tax at the rate of 15%.

Dividends

There is no withholding tax on dividends.

The above rates are subject to any exemption or reduction under any applicable double tax treaty.

Foreign investors wishing to invest in local corporate stock or debt usually invest locally directly.

Local tax authorities do not normally challenge the use of treaty country entities by non-treaty country residents but they may deny treaty benefits under the limitation of benefits provisions.

Transfer pricing is a very new area in Mauritius tax legislation. There is only one section of the Income Tax Act 1995 (section 75) dealing with arm’s-length transactions, and there are no transfer pricing regulations or published Mauritius Revenue Authority guidance. In addition, there is currently no transfer pricing case law, and a handful of ongoing cases are being heard at the first stage of appeal of tax cases (the Assessment Review Committee).

As far as is known, the Mauritius Revenue Authority has not challenged the use of related-party limited risk distribution arrangements for the sale of goods or provisions of services locally.

Please see 4.4 Transfer Pricing Issues. In practice, the Mauritius Revenue Authority may rely on OECD standards.

As far as is known, no transfer pricing disputes have yet been resolved through double tax treaties or MAP procedures. However, the local competent authorities have promoted the use of the MAP process in a wholesale manner as part of Mauritius’s BEPS commitments.

This question is not applicable in Mauritius.

Local branches are typically taxed on the profits attributable to that branch.

Subsidiaries (as a separate legal entity) are taxed on their worldwide profits.

There is no taxation on capital gains in Mauritius.

Change of control provisions may apply if the change of control has an impact on the ownership of an immovable property in Mauritius; registration duty and/or land transfer tax may be applicable.

A change of control may also impact the availability of losses that may be carried forward. The current exemptions upon mergers or takeovers only apply to a limited category of local companies engaged in manufacturing.

Formulas are not used to determine the income of foreign-owned local affiliates selling goods or providing services.

Any payments by local affiliates for management and administrative expenses incurred by a non-local affiliate may be scrutinised by the Mauritius Revenue Authority if they are not at arm’s length. There have been several cases where the Mauritius Revenue Authority has sought to challenge such payments as being excessive.

There are no specific constraints on related-party borrowing, except that any such borrowing (and any related interest payments) should be made on an arm’s-length basis.

Local corporations are taxed on their worldwide income. The local corporation may apply for tax credit if it has suffered foreign tax on any foreign source income and if it is able to show proof of such foreign tax suffered. In addition, it may claim the PER (see 2.3 Other Special Incentives) on any profits attributable to a permanent establishment located abroad.

This question is not applicable in Mauritius.

Foreign dividends are generally subject to tax at the headline rate of 15%. However, an entity may claim the PER (ie, an exemption of 80% on its foreign dividends provided that these dividends have not been allowed in their country of source and that the entity shows that it complies with its regulatory filing obligations and has adequate resources for managing its equity participation).

Alternatively, the entity may claim credit for any foreign withholding taxes suffered or underlying tax credit (if it holds more than 5% of the shares in the foreign subsidiary).

In practice, unless the subsidiary is located in a zero-tax jurisdiction, there should be minimal tax leakage on foreign dividends in Mauritius.

This question is not applicable in Mauritius.

CFC rules have been enacted in Mauritius and seek to tax income (which will be attributed to the chargeable income of the resident parent company) where the non-distributed profits of a CFC are deemed to have arisen from non-genuine arrangements that have been put in place for the main purpose of obtaining a tax benefit.

A CFC is defined as a company that:

  • is not resident in Mauritius;
  • has more than 50% of its participation rights held either directly or indirectly by a resident company or together with its associated enterprises; and
  • includes a permanent establishment of the resident company.

However, CFC rules do not apply in the following instances:

  • if accounting profits do not exceed EUR750,000 and non-trading income is less than EUR75,000;
  • if accounting profits represent less than 10% of its operating costs for the tax period; or
  • if the tax rate in the country of residence of the CFC exceeds 50% of the Mauritian tax rate (ie, where the headline income tax rate is more than 7.5%).

This question is not applicable in Mauritius.

Gains on the sale of shares in non-local affiliates would not be subject to corporate tax at the level of the Mauritius resident corporation.

General Anti-avoidance Provision

The fiscal legislation in Mauritius contains a general anti-avoidance provision, which seeks to catch transactions that have been entered into or effected to provide a tax benefit to a relevant person.

Case law on the matter indicates that, in addition to several factual factors (such as the manner in which the transaction has been entered into, any change in the financial position of the parties, etc), the relevant test to establish whether the anti-provision provision has been triggered is to determine whether a reasonable person would conclude that the taxpayer entered into the impugned transaction for the dominant purpose of enabling himself or herself to obtain a tax benefit.

Special Anti-avoidance Provision

There are also specific anti-avoidance provisions that relate to the following:

  • interest on debentures issued by reference to shares;
  • excessive remuneration or share of profits;
  • excessive remuneration of shareholders or directors;
  • benefits to shareholder;
  • excessive management expenses; and
  • leases for other than adequate rent.

There is no regular routine audit cycle, but the Mauritius Revenue Authority is empowered to carry out investigations and seek documents from any person for the purposes of ascertaining his or her tax liability.

The Mauritius Revenue Authority is not able to exercise these powers in respect of a period beyond three years of assessment preceding the current year of assessment unless it has issued a notice setting out the reasons for which such information or such books and records are required. It is important to note that a right of review exists in respect of such a notice.

Mauritius has been engaging with the BEPS project recommendations quite significantly.

The fiscal legislation was overhauled in 2018 in order to be compliant with the recommendations on Action 5 (Countering Harmful Tax Practices more effectively, Taking into Account Transparency and Substance). The revamped fiscal legislation is now aligned with the recommendations of the Forum on Harmful Tax Practices (FHTP).

Regimes such as the deemed foreign tax credit and the Freeport regimes were deemed to have potentially harmful tax features and have now been abolished (subject to limited grandfathering provisions, which end on 30 June 2021).

Other regimes that had been earmarked as having potentially harmful features, such as the previous regime for the taxation of banks and the Global Business Licence category 2 companies, have been reformed to ensure compliance with the BEPS proposals.

Substance requirements have also been introduced.

Mauritius has also ratified the Multilateral Instrument (Action 6: Prevention of Treaty Abuse) and enacted legislation to allow for country-by-country reporting (Action 13: Country-by-Country Reporting).

Finally, Mauritius has implemented Action 14: More Effective Dispute Resolution by inserting an article that seeks to strengthen the Mutual Agreement Procedure into its tax treaties through the operation of the Multilateral Instrument.

The government has been very vocal about its commitment to ensuring compliance with the BEPS recommendations. Mauritius is a member of the BEPS All-Inclusive Framework and has speedily implemented changes to its fiscal legislation following its review by the FHTP in 2018.

Mauritius is also in line with any EU recommendations and is not on the EU list of non-co-operative jurisdictions for tax purposes.

Given that Mauritius wishes to retain its reputation as an international financial centre of repute and has, over the years, built up a thriving sector in that respect, international tax is a consideration of utmost importance at both industry and governmental level.

The industry stakeholders are consulted to some degree in the implementation of BEPS recommendations and are invited to provide their insight on a practical level. Investors are more attuned to the relevance of BEPS recommendations on their dealings in Mauritius.

Whilst at industry level it is clear that the implementation of the BEPS recommendations may result in an uneven playing field for OECD members and non-OECD members, Mauritius is committed to aligning its tax legislation to the minimum standards.

The fiscal legislation was amended in 2018 to provide for a PER system that removes any ringfencing in the economy, and imposes key substance requirements to be tied to any eligibility to the PER. Whilst the PER has been cleared by both the FHTP and the EU, it is still subject to scrutiny on an annual basis.

In respect of hybrid mismatches, Mauritius has limited restrictions on interest deductibility. The multilateral instrument amending Mauritius’s covered tax agreements (CTAs) provides that the article covering hybrid mismatches is “optional”. Mauritius’s position is that it has reserved the right for the entirety of this article not to apply to its CTAs.

Mauritius does not have a territorial tax system.

Mauritius does not have a territorial tax system.

The proposed changes to treaties via the application of a principal purpose test are relevant in the context of cross-border investment, especially as it adds a new layer of uncertainty in terms of interpretation (Mauritius has opted for the principal purpose test, rather than the limitation of benefits clause).

Inbound investors would be wise to seek tax advice from local counsel before implementing such structures, and to properly document the commercial rationale of any contemplated structure.

Mauritius does not currently have detailed transfer pricing legislation but has a general “arm’s-length” rule. However, detailed regulations on the application of the “arm’s-length” rule may well be forthcoming in the near future. This would be welcome as it would add some level of certainty for taxpayers and their advisers by providing an established framework for such assessments.

As far as is known, the taxation of profits from intellectual property is not currently subject to any controversy in Mauritius. Since 1 January 2019, any income from intellectual property assets is subject to tax at the headline rate of 15% (subject to certain limited tax holidays related to intellectual property assets on innovation-driven activities).

Mauritius has been rated as being overall compliant in terms of its efforts regarding transparency, particularly the exchange of tax rulings and the implementation of automatic exchange of information systems.

Mauritius has also already implemented country-by-country reporting.

Whilst these changes place a significant compliance burden on businesses, it is important that the jurisdiction is rated favourably in these aspects in order to ensure its reputation as an international financial centre.

Mauritius is a member of the BEPS All Inclusive Framework and accordingly provides its input on developments such as Pillar 1 and Pillar 2 Blueprints.

Please see 9.12 Taxation of Digital Economy Businesses. There has been no indication of any proposal to be implemented in Mauritius but the government are expected to be guided by the pace taken by the OECD.

The Finance (Miscellaneous Provisions) Act 2020 sought to introduce VAT on digital and electronic services but the entry into force of the legislation has not yet been proclaimed.

There are no special rules dealing with intellectual property assets (other than withholding tax rates applicable on payments of royalties and a targeted tax holiday applicable to income derived from IP assets on innovation-driven activities).

Prism Chambers

Level 5
Alexander House
35, Cybercity
Ebene
72201
Mauritius

+230 403 0900

jhague@prismchambers.com www.prismchambers.com
Author Business Card

Law and Practice

Authors



Prism Chambers is a full-service business law firm based in Mauritius which specialises in all aspects of tax law, on a domestic and international scale. Prism Chambers’ team of five fee earners is headed by dual-qualified (Mauritius and England & Wales) Johanne Hague. Prism Chambers has a leading advisory and transactional tax practice, with a particular focus on cross-border transactions involving the African continent. The lawyers at Prism Chambers also represent clients at all stages of tax controversy matters, including before the Supreme Court of Mauritius. The firm is regularly instructed to advise on international taxation matters, particularly in connection with the implementation of the BEPS proposals and on AEOI matters. Its other main practice areas include private client, corporate and commercial, and insolvency and restructuring.

Compare law and practice by selecting locations and topic(s)

{{searchBoxHeader}}

Select Topic(s)

loading ...
{{topic.title}}

Please select at least one chapter and one topic to use the compare functionality.