Who would have thought that directors’ salaries and directors’ fees could be taxed differently in Mauritius? Well, in the Income Tax Act 1995 (“ITA”), the definition of “emoluments” includes “any advantage in money or money’s worth which is salary, wages…, or remuneration in respect of or in relation to the office or employment of that individual.” It also includes “a remuneration to the holder of any office and fees payable to the director of a company.” We can therefore say that directors’ salaries and directors’ fees will form part of the emoluments of directors, but the actual tax can be different for salary and fees.
Individuals are liable to income tax on their gross income and salaries are considered part of the gross income. In the ITA, directors’ fees are not considered part of gross income but that does not mean they are not subject to income tax. Rather there is a specific section in the ITA stipulating that where any fees are payable by a company to any of its directors, tax shall be withheld from the directors’ fees at the rate of 15% and the amount of tax so withheld is the final amount of tax payable on those fees by the director. So a flat 15% may not be bad, but the downside is that no allowable deductions can be claimed against directors’ fees.
When we look at directors’ salaries on the other hand, we see a different story. Where a director is deemed an employee of the company and receives a salary, that individual shall be treated as any other employee for tax purposes. This means that the director’s salary will be considered as gross income and will be eligible for the income exemption threshold and any other reliefs and allowances available in Mauritius.
What about non-resident directors?
Non-Mauritian resident directors can also be subject to tax on their income. This is because the ITA provides that income will be deemed to be derived from Mauritius will include “directors’ fees and any other similar payments made to an individual in his capacity as a member of the board of directors of a company which is resident in Mauritius, whether the services are performed in, or from outside, Mauritius.” In other words, Mauritian resident companies paying directors’ fees to non-resident directors also need to deduct the 15% tax to be withheld on such fees. Of course, this is subject to any relief available under the tax treaty between Mauritius and the director’s country of residence, and the director may also be able to offset the Mauritian tax against his in-country tax.
An income tax ruling issued by the Mauritius Revenue Authority (“MRA”) on 23 September 2023 sheds some more light on the matter.
The facts
A is a private company limited by shares and engaged in the business of providing professional accounting services to domestic and international clients. Mr X is an executive director of A, he is a Mauritian national working remotely in Singapore, where he lives, and therefore performing his employment duties wholly in Singapore.
The big question was whether A should withhold income tax (PAYE) from the emoluments of Mr X, and the MRA’s verdict was that the company should indeed deduct PAYE from any emolument paid to Mr X pursuant to section 93.
Our views
Income deemed to be derived from Mauritius also includes “emoluments derived from any office or employment, the duties of which are performed wholly or mainly in Mauritius, whether such emoluments are received in Mauritius or not.” In this particular ruling, the duties of the director are not being performed in Mauritius and therefore no income tax should have been withheld if he was merely an employee. Given that the individual is an executive director of a Mauritian resident company, and he is a member of the board of directors of the company, his emoluments are deemed to be derived from Mauritius and therefore subject to income tax irrespective of whether his services are performed in, or from outside Mauritius.
The distinction between directors’ fees and salary is important as paying a director’s fee means that the individual is performing his duties as a member of the board of a company whereas salary means that the individual is being paid for duties performed daily. Below is a summary of the differences in taxation between directors’ salary and directors’ fees:
- Directors’ salary – For a resident director, he will be subject to income tax under the Pay As You Earn (“PAYE”) system. For a non-resident director, no PAYE will apply unless he is performing his duties in Mauritius.
- Directors’ fees – For both resident and non-resident directors of a Mauritian resident company, a flat rate of 15% is applicable on such fees.
So, the moral is to be careful when you plan remuneration for your Mauritian directors! Reach out to us today and find out how you can stay on the safe side.
English 
French