A guide to taxes in Mauritius

Intent on understanding everything there is about the complex world of taxation, Cathie Hannelas spent a decade with PwC Mauritius, and more than a year (in progress) spearheading Rogers Capital’s Tax Services department. The spotlight today is on Mauritius’ fiscal advantages and its erroneous label as a “tax haven”. Amid hazy notions of what comprises today’s tax system and an outcry of criticism post Panama leaks, Cathie provides clear answers to your most pressing tax-related queries and puts some common misconceptions to bed.

How has Mauritius managed to position itself as an affluent international financial centre?

The surge in foreign investment on our island is largely due to our ideal geographical position, which has favored us ever since the spice trade. Today, financial services represent 12.1% of the GDP and employ more than 7,000 people (direct employment). Combine this with a favourable and harmonised tax environment, dozens of double

It is undeniable that Mauritius offers more than attractive fiscal incentives.

taxation avoidance agreements (DTAAs), a bilingual and skilled workforce, political stability, economic diversity, deal time zone and compliance with international standards – and you have a winning combination for the emergence of a world-class international financial centre.

What incentives are offered to foreign companies looking to put down their roots in Mauritius?
The Global Business sector, regulated and monitored by the Financial Services Commission (FSC), is the cornerstone of our financial industry that aided Mauritius in weathering the global financial crisis. A foreign company can fall in either one of two categories: GBC1 or GBC2.

In broad lines, a GBC1 licensee, as a Mauritian resident, is taxed at a normal corporate rate of 15% – but its eligibility to claim 80% in foreign tax credit reduces that effective rate to a maximum of 3%. No capital gains tax, no withholding taxes on royalties and dividends, no estate duty or inheritance tax. They also avail of the island’s extensive network of tax treaties.

A GBC2, on the other hand, is not liable to taxes but is denied the benefits of DTAAs.

The Global Business sector, regulated and monitored by the Financial Services Commission (FSC), is the cornerstone of our financial industry.

It is undeniable that Mauritius offers more than attractive fiscal incentives. As mentioned earlier, Mauritius has distinctive features making it the ideal investment platform. In addition, the reliable regulatory system, ease of doing business and other products offerings such as Protected Cell Companies, Limited Partnerships, Trusts and Foundations, Regional Headquarters or Family Offices can only contribute to provide the foreign companies with the optimised benefits that they are looking for. No doubt that the foreign companies are scrambling to put down their roots on the island.

So what exactly is a tax haven?
The term “offshore” tends to incorrectly trigger tax haven alarm bells. Most people simply imagine a tax haven to be a country with lenient tax laws, and more often than not, they conjure up images of a tropical island fringed with palm trees. Viewed this way, Mauritius fits right in. But this image is a far cry from reality. The OECD has identified some basic criteria to identify a real tax haven. These include:

  • No tax or low tax regimes on the relevant income.
  • Lack of effective exchange of information with authorities abroad.
  • Lack of transparency

Which begs the question, how does Mauritius fare with regards to these criteria? Let’s clear that right up. Mauritius applies a 15% tax rate – which is certainly not negligible and this rate is applied across board (income, corporate and VAT); we have ratified Tax Information Exchange Agreements with several countries, disclosing information upon request. DTAAs, by definition, also require the exchange of information with partner countries when necessary. Mauritius’ new Corporate Governance, combined with its presence on the OECD’s white list, represents great strides towards greater transparency. The island has permanently ditched its erroneous notoriety as a tax haven.

What further measures are being taken to break away from the tax haven label?

Mauritius is fully engaged in the international fight against tax evasion and has shown its commitment to combatting tax evasion by signing (on 5th July 2017) the Multilateral Convention to implement the Organisation for Economic Co-operation and Development’s (OECD) measures to prevent Base Erosion and Profit Shifting (BEPS “Multilateral Instrument” or “MLI”).

In addition to the signature of the MLI, Mauritius has also been recently rated as Compliant by the OECD as regards compliance with international standards for the exchange of information on request between tax authorities. With the view to enhance its transparency and collaboration framework, Mauritius is equally committed to the Common Reporting Standard (CRS) on the automatic exchange of financial account information, developed by the OECD.

Adding concrete actions to this commitment of global crackdown on tax abuse, Mauritius continues to reinforce its regulatory framework. In that respect, the FSC has played a detrimental role in ensuring that there is more economic substance in Mauritius. By “substance”, I mean they must have a real presence and genuine business activities in the incorporated country – the absence of which could suggest that the firm’s intents are purely tax-driven. In this case, Mauritius would be viewed as a destination for “treaty shopping.” Rather than simply functioning from the island, the companies must now prove that they are truly integrated. For instances, GBC1 companies are compelled to have at least two qualified local directors, a local auditor, local employees, a principal bank account, board meetings in Mauritius, office space and reasonable business expenditure, amongst others.

As companies shift to Mauritius for more than its tax rates, the value-creation story in the financial sector is only just beginning. This gives a clear signal that Mauritius is deepening its commitment to fight international tax avoidance whilst it continues to develop as a reliable and secure International Financial Centre.