Mauritius and CMC: Why It Matters for Tax Residency

Mauritius determines tax residency for companies using the Central Management and Control (“CMC”) concept rather than the Place of Effective Management (POEM). Let’s explore why this shift happened and its implications for Mauritian corporate tax residents. The CMC concept was reinstated in 2019 in response to concerns raised by the Global Business Sector after the introduction of the Place of Effective Management (“POEM”) concept in 2018. POEM created significant uncertainty in determining tax residency for companies in Mauritius, leading to its replacement with the more clearly defined CMC criteria.

What does the legislation in Mauritius tell us about CMC?

As per the tax residency provision in the Mauritian Income Tax Act (“ITA”), a company is considered a tax resident in Mauritius if the company is incorporated in Mauritius or it has its CMC in Mauritius. Therefore, a company incorporated outside Mauritius can be tax resident in Mauritius if it is centrally managed and controlled from Mauritius. The ITA, however, also states that where a company does not have its CMC in Mauritius, it will be considered not to be tax resident in Mauritius. Thus, the concept of CMC is critical for determining tax residence for companies with a connection to Mauritius.

The ITA does not provide any criteria on how to determine where the CMC of a company is located, and, since there is no local case law, the Mauritius Revenue Authority (“MRA”) relies on international tax principles. The concept of CMC as a residency test was first established in the landmark case De Beers Consolidated Mines Ltd v Howe, which determined that a company’s tax residency is where its Board of Directors exercises control, regardless of its place of incorporation. Key factors in determining a company’s CMC include the location from which, and jurisdiction in which, its Board of Directors makes significant strategic and commercial decisions.

In Mauritius, the Companies Act provides that the business and affairs of a company shall be managed by or under the direction or supervision of the Board of Directors. The MRA will use the location of the Board and the powers it exercises there as a guide to determine a company’s CMC, unless it is established that such powers are being delegated to people other than the Board.

CMC for Global Business Corporations in Mauritius

From a regulatory perspective, the Financial Services Commission (“FSC”) governs the Global Business Sector in Mauritius and, according to the Financial Services Act (“FSA”), a Global Business License (“GBL”) company must, at all times, be managed and controlled from Mauritius. To be considered as centrally managed and controlled from Mauritius, the FSC advises that it shall have regard to the following criteria:

1. The company has two Mauritius resident directors of sufficient calibre to exercise independence of mind and judgement;
2. The company maintains, at all times, its principal bank account in Mauritius;
3. The company keeps and maintains, at all times, its accounting records at its registered office in Mauritius;
4. The company prepares its statutory financial statements and causes such financial statements to be audited in Mauritius; and
5. The company provides for meetings of directors to include at least two directors from Mauritius.

While these conditions validate a company’s Global Business License, they do not necessarily determine where key strategic and commercial decisions are made.

Key considerations for CMC

The usurpation of powers of the board of directors should also be factored in, and this was taken into consideration in the case of Bullock v The Unit Construction Co Ltd. If it could be established that actual control is being exercised by people other than the board of directors, such as a dominant shareholder(s), then the place of central management and control is the place where the shareholder is exercising control. In this case, the board of directors would tend to merely rubber-stamp the decisions made by the shareholder.

Even the control of an ex-director can shift the corporate residency. This is what happened in Laerstate BV v Revenue and Customs Commissioners. In this case, a Netherlands company’s ex-director and a 100% shareholder was found to be exercising control from the UK and the company was found to be a UK tax resident.  The court found that decisions about the company were not made in board meetings but by the ex-director on his own, and mainly from the UK. The board of directors were merely rubberstamping the decisions made by the ex-director. In effect, the board of directors did not function as it was supposed to. This further highlights that who and where the decisions are made and who and where control is exercised – even if they hold no official capacity – is important as it affects tax residency considerations.

Where a parent company takes all key strategic and commercial decisions on behalf of the subsidiary and the latter is only carrying out the day-to-day operations, then the CMC will lie with the parent company.

Even if instructions are being received from a majority shareholder, the Board must exercise its duties to properly scrutinise such instructions before taking a final decision on whether to proceed. If a Board can deliberate and make key decisions independently, without undue influence from a parent company or majority shareholder(s), it indicates that the CMC is located where the Board operates.

To conclude, it is fair to say that the MRA is guided by the international tax principles to apply the concept of CMC in Mauritius. It relies on other countries, such as the United Kingdom and Australia, on how to apply the CMC concept.

Determining the CMC of a company is crucial for tax residency in Mauritius. The MRA applies international tax principles and references global best practices to assess where key decisions are made. Businesses operating in Mauritius should ensure they understand and apply CMC criteria to avoid tax residency disputes.

Need expert guidance on tax structuring in Mauritius? Contact our team at Regan van Rooy today to ensure your business is set up for success.