The Mauritian budget 2021: Same same but different

The Mauritian budget speech for 2021-2022 was presented on Friday 11 June 2021. We were hoping for effective economic boosting changes particularly after the end of the deemed credit regime from 1 July, as well as clarity on a few lacunae within the legislation, but this was not to be. However, the good news is that there have been no major tax increases or changes and nothing really to worry about. So, while it could have been better, it could have a whole lot worse, and the overall feeling is one of relief.

Specific sector changes 

• Manufacturing:
  • A 5% tax credit will be available over a period of three years in respect of capital expenditure incurred on new plant and machinery purchased until 30 June 2023;
  • Large manufactures will be able to claim a deduction of 110% of the expense incurred by products manufactured by local SMEs;
  • Manufacturing companies can now also carry forward unused investment tax credits for a period of 10 years;
  • There is a double deduction available to manufacturing companies for expenses relating to market research and product development that target the African market; and
  • A double tax deduction will be allowed for the acquisition of specialised software and system.
• Research and Development (“R&D”)
  • The existing R&D tax incentive scheme, which entitled persons incurring expenditure related to R&D to a double deduction, has been extended by five years and will now expire in June 2027.
• Commercial real estate:
  • Developers building pharmaceutical and medical device factories will be exempt from paying registration duty and land transfer tax, land conversion tax, and VAT on construction;
  • Construction and expansion of student campuses will also be exempt from land transfer tax and registration duty; and
  • New companies in the aquaculture, seafood processing, high-tech manufacturing, agri and food processing, healthcare, biotechnology, nursing and residential care, digital technology, and tertiary education sectors will be exempt from paying registration duty and land transfer tax for the purchase of immovable property.
• Medical, biotechnology, and pharmaceutical:
  • The corporate tax rate will be reduced from 15% to 3%; and
  • Biotechnology and pharmaceutical companies will be entitled to a 100% tax credit on the costs of the acquisition of patents.
• Tertiary education:
  • Private universities set-up in Mauritius will be subject to tax at a rate of 3%.

Tax holidays and partial exemption regime

The following amendments have been made to the tax holiday and partial exemption regimes:

Tax holidays

• The tax holidays for Family Offices and Fund and Asset managers have been extended from five to ten years; and
• An eight-year tax holiday has been introduced for new companies that have been issued with an Investment Certificate. In order to take advantage of this incentive, a company will need to be registered with the Economic Development Board (“EDB”).

Partial exemption regime

• The partial exemption tax regime has been broadened to include income earned by licensed investment dealers and activities relating to the leasing of locomotives and trains.

Authorised companies (“AC”)

It has been confirmed that ACs are not regarded as being tax resident in Mauritius; this should have been obvious, but the previous legislation had some technical issues that will now be addressed. As a result, an AC will only be subject to tax in Mauritius on Mauritian sourced income. Caution should however be given that the Mauritian sourced income is not generated from an activity taking place in Mauritius, as ACs are prohibited from carrying on activities in Mauritius.

Dividends declared between two ACs will expressly be exempt from tax in Mauritius, again clarifying previous legislative issues. Where an AC declares a dividend to a domestic company or a company holding a Global Business Licence (“GBL”), this would therefore be regarded as a foreign dividend and so the recipient could claim the partial exemption regime (and pay 3% tax) or the foreign tax credit (“FTC”) regime; the latter is unlikely to be applied.

Individuals resident in Mauritius receiving a dividend from an AC should then not be subject to tax on the AC dividend, provided it is not remitted to Mauritius.

Foundations and trusts

As expected, it has been confirmed that foundations and trusts which make use of the preferential tax regimes will need to comply with the same substance requirements that companies adhere to.

Visas and work permits

The Premium visa was first introduced in 2020 and allows foreigners to live in Mauritius for over a year, however, they cannot enter the local workforce, i.e., they have to earn foreign income. The Budget confirmed that a holder of a Premium Visa holder will be taxed in Mauritius if they spend more than 183 days there. However, to be taxed on foreign income earned, it needs to be remitted to Mauritius. This can be avoided by using foreign cards for all local payments. Such foreign income that is deposited into a Mauritian bank account will be taxable, except income that has already been taxed in a foreign country. This change will be backdated be effective from 1 November 2020.

The Mauritian Occupation Permit (“OP”) allows a person to live and work in Mauritius. The Mauritian Budget extended this permit for a period of ten years. Further flexibility has also been provided in that dependents can be any age, you may change jobs without reapplying for a permit, permit holders may be self-employed, and the qualifying activities for the young professionals OP will be taken away.

Corporate social responsibility (“CSR”)

Small and Medium Enterprises that choose to pay the presumptive tax of 1% turnover tax are not subject to the usual CSR contributions.

Where companies are making CSR contributions, it is proposed that they should be able to use 25% of their CSR funds to implement a new CSR program, in specified priority areas. The areas of priority have also been extended.

Arm’s length principle

The Mauritian Budget has now proposed that Global Business Companies will need to apply the Arm’s length test, which by their nature carry on business outside of Mauritius. When actually the arm’s length test currently applies to business activity carried on in Mauritius. So, this change is a bit confusing and highlights the need for clear, comprehensive transfer pricing regulations or a Statement of Practice to provide proper clarity on the arm’s length rule and how Mauritius intends to apply it.

We look forward to seeing the Finance Bill to see how these changes are enacted, but overall, it seems like positive if cautious clarificatory changes. Now that the Mauritian Budget Speech has been finalised, Mauritius will have to start considering how to respond to the G7 developments and of course to share more concrete plans about Mauritius being removed from the FATF and related blacklists.

If you have any concerns or queries about these changes and their effect on you and your business, 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.