Mauritius’ Beneficial 3% Tax for Exports – All You Need to Know!

Mauritian companies engaged in the export of goods are subject to a beneficial tax rate of 3% on their chargeable income attributable to Mauritius export tax. The definition of ‘export of goods’ in the Income Tax Act (“ITA”) includes “international buying and selling of goods by an entity in its own name, whereby the shipment of such goods is made directly by the shipper in the original exporting country to the final importer in the importing country, without the goods being physically landed in Mauritius.” Simply put, the goods do not physically transit through to be considered as export of goods so long as the transaction is carried out by the company in its own name. This applies to both domestic companies and global business companies set up in Mauritius.

It gets a bit tricky when a company carries out multiple business activities, including export of goods. The question is, how to determine the chargeable income that is taxable at the rate of 3% and 15%? The Mauritius Revenue Authority (“MRA”) has already included the following formula in the legislation to avoid any confusion on how to apportion the chargeable income attributable to export of goods.

Where:

• ‘a’ is the gross income derived from the export of goods in that income year;
• ‘b’ is the gross income derived from all activities of the company in that income year;
• ‘c’ is the chargeable income of the company in that income year.

Today we look at an income tax ruling issued by the MRA in September 2023 which provides clarity on how to apply the appointment method on chargeable income attributable to export of goods, especially when a company is engaged in multiple activities.

The Facts

• Incorporated on 14 September 2009, Company X is a private company limited by shares and holds a Global Business License (“GBL”).
• At incorporation, the principal activity of X was that of investment holding company focusing on investments in logistics, rail, terminals, and infrastructure space.
• Over years X diversified its business and principally derives its income from the following business activities:
  • Equity investments holding
  • Ocean Freight Project – chartering in and out of vessels
  • Syrah Project – logistic services
  • Rail activity – leasing of locomotives/rolling stock
  • Trading of commodities
  • Debt investment
  • Chartering of vessels and Ocean Freight.

Point at Issue

The big question was whether the total chargeable income of X should be taken into consideration for the purpose of computing the chargeable income attributable to export. And the MRA’s verdict was that the apportionment method should take into account the total chargeable income in accordance with the provisions in the ITA.

Our Views

From the tax ruling above, we can see that one of the company’s business activities is ‘trading of commodities’ which meets the definition of ‘export of goods’. When applying the formula, ‘a’ should be the income derived from trading of commodities, ‘b’ should be income derived from all activities of the company, and ‘c’ should include the total chargeable income of the company in the income year. This means that the portion of the company’s chargeable income relating to the export of goods will be taxable at 3% and the remaining will be chargeable at 15%. In the end, its only a matter of correctly applying the formula by keeping an accurate record of income generated from each business activity. With the introduction of the Corporate Climate Responsibility (“CCR”) Levy of 2%, one should not forget that the effective tax rate for export companies whose turnover exceeds MUR 50 million or approximately USD 1,1 million will increase from 3% to 5%.

You may encounter some discrepancies between your tax computation and when uploading your corporate tax return on the MRA website. One of the most common reasons for this is that taxpayers usually include exempt income in ‘b’ in the above formula which is incorrect. This is because the definition of ‘gross income’ in the ITA does not include exempt income and any other income which is capital in nature. Such income should be properly allocated in the tax return when uploaded on the MRA website.

For any inquiries or concerns regarding your tax compliance or other tax-related matters, we encourage you to reach out to us.