The Mauritian Finance Bill – what just happened?

The Mauritian Finance (Miscellaneous Provisions) Bill (“Finance Bill”) was released late on Friday night, 16 July 2021. It is supposed to merely provide the legislative meat to implement the measures announced in the Mauritian Budget speech 2021-2022. You can read our summary of the budget here. Below, we discuss the key items that have been clarified (or not!) by the Finance Bill and two pretty big changes that have snuck in.

Corporate Tax
To start with some simple changes, the Finance Bill has clarified that in order to avail of the 3% tax export regime, companies need to hold an Export Development Certificate issued by the Economic Development Board, effective from years of assessment commencing on 1 July 2022. No guidance yet as to how exactly this certificate will apply and what it will cover but we expect this soon.

The Partial Exemption regime (where income is taxed at an effective 3%) was extended to include rail leasing income and income from investment dealers.

It was also clarified that only dividends paid by a company resident in Mauritius will be considered as income derived from Mauritius, and thus in particular that dividends paid by an Authorised Company are not regarded as Mauritian source income.

Transfer Pricing is here
A big surprise and one that will impact many taxpayers relates to the extension of the arm’s length principle which is the de facto transfer pricing rule. The arm’s length principle, as provided in Section 75 of the Mauritian Income Tax Act (“Tax Act”), has been expanded to include all businesses or income earning activities carried out in Mauritius or from Mauritius. From the current reading, this means that Global Business License (“GBL”) companies will likely fall into the transfer pricing net, as even though their trade / income, by definition must not be in Mauritius, it is generally derived from Mauritius. Thus, it appears that all GBLs can now be subject to transfer pricing adjustments made by the Mauritian Revenue Authority. To add insult to injury, the Bill seems to propose that this be effective retrospectively; in theory from the commencement of the Tax Act, i.e. from 1995. However, in our view, this cannot be successfully argued and thus it should only be relevant going back to non-assessed returns, i.e. generally going back three years. We will be monitoring this timeline closely, but this is a big extension to the transfer pricing environment in Mauritius and thus we recommend Mauritian businesses review their cross-border transactions carefully.

Non-resident trusts and foundations
Another big shock (and we hope unintentional as it strikes a dagger to Mauritius’ economic jugular) is the proposed change to non-resident trusts and foundations.

In general, a trust is regarded as resident in Mauritius in the following instances:

• The trust is administrated from Mauritius and the majority of the trust is resident in Mauritius; or
• If at the time the trust was created, the settlor was a Mauritian resident.

The Mauritian trust would however not have been subject to tax in Mauritius if the settlor was a non-resident and the majority beneficiaries of the trust were non-resident in Mauritius and where the trust applied for a certificate of non-residence within three months of the income year.

It now appears that Mauritian trusts and foundations established after 30 June 2021 will no longer be able to apply for the certificate of non-residence. Mauritian trusts and foundations set up before 30 June 2021 can avail of a grandfathering period in which they would only be allowed to apply for the certificate of non-residence up to the 2024/25 year of assessment. Thereafter in theory all Mauritian trusts and foundations will be Mauritian tax resident and thus subject to full Mauritian tax at the standard rate of 15%.

A huge change and surely not the intention, given the strength of the island’s trust business? Only time will tell….

If you are unsure of the effect of the Finance Bill on your business or would like to know more about it, click below to contact us and we will set up a call.

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.