So your Mauritian 3% tax rate ends in June 2021, what next?
In June 2021, many GBC companies who currently avail of an effective 3% corporate tax rate in Mauritius will be looking at a very different tax landscape.
This is due to the drastic changes ushered in by the 2018 Budget speech, which abolished both the GBC2 regime and the deemed tax credit regime which had previously been the bedrock of Mauritius’ attractiveness as a holding company jurisdiction. Under those rules, 80% of the headline tax of 15% was deemed to be a foreign tax credit resulting in an effective 3% tax rate.
GBL1 licences issued on or before 16 October 2017 will remain valid until 30 June 2021, and such entities will be allowed to claim the deemed tax credit til then. However, from 1 July 2021 the normal 15% Mauritian tax rate will ordinarily apply.
Of course, there are always options, and specific tax holidays and tax reliefs can be availed of, we discuss these in high level below.
Partial exemption regime
Notwithstanding the abolition of the deemed tax credit, an 80% partial exemption will be claimable against the Mauritius tax levied on certain specified foreign-source income, resulting again in an effective tax rate of 3%. This applies in respect of:
- foreign-source dividends;
- interest income;
- profits of a permanent establishment;
- Income derived by a CIS, closed-end fund, CIS manager, CIS administrator, investment adviser or asset manager, or from reinsurance;
- Income derived by companies engaged in ship and aircraft leasing and certain aviation advisory services;
- Income derived from leasing and provision of international fibre capacity.
In order for GBL’s to qualify for the partial exemption, they are required to satisfy additional Mauritian substance requirements (refer to our previous newsletter of 13 August for more information).
Double taxation relief
Mauritius has a relatively generous double taxation relief system – foreign tax credits are not subject to a limitation, and can be mixed, i.e. set off against other taxable foreign income with no restrictions. In addition, foreign tax credits can often be claimed even where the foreign tax was levied in contravention of a double taxation agreement (unlike in South Africa). However, excess credits which are not utilised in the year they arise are lost and cannot be carried forward.
Therefore, double taxation credits could mean that, where you are suffering high overseas tax or withholding tax, your effective Mauritian tax could be 3% or even less.
Furthermore, it may be more beneficial to claim the actual tax credit rather than the partial exemption on the specified streams discussed above, particularly where a company earns foreign income from countries which levy a relatively high withholding tax. A company cannot use both the partial exemption regime and claim actual credits, and should thus determine which route is more beneficial.
Another potential option is whether any tax holidays could apply, in particular, the global headquarter administration license regime. This applies for eight years subject to a number of conditions including that the company must have a physical office in Mauritius, employ at least 10 professional and two managerial staff and incur an annual expenditure of MUR 5 million.
Other tax holidays available
A number of other tax holidays are available, for either eight or five years in respect of the following activities (subject to specific conditions):
- Global treasury or legal advisory activities;
- Overseas family office;
- Income arising from an investment by a non-citizen who has invested at least USD25 million in Mauritius;
- Innovation-driven activities related to IP development in Mauritius;
- Project development or project financing for developing infrastructure in special Economic Zones;
- E-commerce platform activities;
- Peer-to-peer lending;
- Marina development;
- Inland aquaculture;
- Industrial fishing;
- The exploitation of ocean water for air conditioning;
- Tertiary education campus;
- Manufacture of nutraceutical products;
- Manufacture of pharmaceutical products or medical devices;
- Food processing;
- Sheltered farming scheme projects;
- Manufacture of automotive parts.
If you would like to discuss the above options in more detail, please contact us.
How can we help?
How you structure your business is a critical question as you expand globally. The right structure will protect your assets, improve your currency position, support your business operations, facilitate future business expansion and changes, and optimise your overall tax rate. Trying to unscramble a sub-optimal structure entered into in haste or without full consideration of relevant facts is complex and expensive, so it’s important to plan upfront.
Structuring an international business is both a science and an art – this is our specialist area of expertise. Regan van Rooy is an international tax and structuring advisory firm focussing on Africa. We have offices in South Africa, Mauritius and Ireland and we can help you with any international tax or structuring query.