Today we have a fascinating article from Caoilfhionn van der Walt from our African tax partner Regan van Rooy (RvR) about the impending cessation of the grandfathering provisions for GBC 1s and 2s. The article covers the changes, the options and how to move forward. There are thousands of Mauritian offshore companies that need to move quickly to maintain/ improve/ limit their tax position and RvR give some ideas and solutions to you. They also have included a link to their app which gives free guidance on the options.
2021 – A seismic shift in the Mauritius tax landscape (by Caoilfhionn Van der Walt)
No more deemed tax credit or GBC2 – will Mauritian companies pay 15% tax from now on?
Up until June 2018, Mauritius Global Business Company Category 1 companies (GBC1s) were subject to an effective tax rate of 3% and GBC2 entities were not taxed at all. However, from 1 July 2021 this is no longer the case – the GBC2 regime will be abolished completely and all Mauritian entities will be subject to a headline tax rate of 15%.
So what has changed and why?
In terms of background to these changes, Mauritius has been under pressure from the OECD and EU tax committees for some time due to what those bodies perceived as “harmful tax practices”.
As a result, the 2018 Mauritian Finance Act 2018 announced two key changes – firstly the deemed tax credit regime (whereby GBC1 entities were able to claim a presumed tax credit of 80% of the Mauritian tax on foreign income, resulting in a 3% effective tax rate) was abolished. Secondly, the entire GBL2 regime was abolished (a specific legal entity which was considered non-taxable in Mauritius). Grandfathering provisions were introduced whereby GBL1 licences issued on or before 16 October 2017 would remain valid until 30 June 2021, and would be allowed to claim the deemed tax credit up until such date. However, from 1 July 2021, GBC1 companies (known as GBLs going forward) will be subject to the normal 15% Mauritian tax rate.
The deemed credit and GBC2 regimes were the bedrock of Mauritius’ attractiveness as a holding company location, so this is a massive shift for Mauritius. In addition, and also in response to OECD and EU pressure, Mauritius has recently introduced detailed substance requirements for Mauritian resident entities, as well as controlled foreign company rules. So overall, doing business in Mauritius, can seem, at first blush, a lot harder.
However, the good news is that, due to these measures, Mauritius is now off the various “grey-lists” in terms of tax measures (just to be put on another blacklist in terms of AML rules but that’s another story).
Does this mean all Mauritian companies will pay 15% tax?
No, but great care needs to be taken to identify the best option to pursue. There are still plenty, absolutely above-board, ways to have a very attractive effective tax rate in Mauritius. We discuss the three main routes below:
Partial exemption regime
An 80% partial exemption can be claimed against the Mauritius tax levied on certain specified foreign-source income, resulting again in an effective tax rate of 3%. This applies in respect of:
- foreign-source dividends;
- interest income;
- profits of a permanent establishment;
- Income from collective investment schemes and reinsurance;
- Income from ship and aircraft leasing;
- Income from international fibre capacity.
Mauritius has a very broad range of generous tax holidays, 19 in total. For larger groups, wanting to hold or support their African operations underneath a Mauritian holding company, the global headquarter administration license regime is highly attractive. This is a total corporate tax holiday for eight years for companies that provide back-office or strategic support to at least three related parties, and subject to a number of conditions including that the company must have a physical office in Mauritius and employ at least 10 staff. Other key tax holidays, which apply for five or eight years, include:
- Global treasury or legal advisory activities;
- Overseas family office;
- Innovation-driven or high-tech activities related to IP development in Mauritius;
- E-commerce platform activities;
- Peer-to-peer lending;
- Tertiary education campus;
- Manufacture of nutraceutical products;
- Manufacture of pharmaceutical products or medical devices.
Double taxation relief
Finally, Mauritius has a very generous double taxation relief system – foreign tax credits are not subject to a limitation, and can be mixed, i.e. set off against other taxable foreign income (although excess credits cannot be carried forward to the next tax year). Also, where foreign dividends are earned, the Mauritian recipient can claim credit not only in respect of the withholding tax suffered, but also on the corporate tax suffered on the profits out of which the dividends were paid! And then offset the excess against other foreign income streams. This is particularly relevant for Mauritian companies holding African subsidiaries, which are almost always subject to high tax and thus can often lead to 0% tax payable in Mauritius.
Lots of options therefore! And the benefit of all these changes, is that you now can have a situation where your headline tax rate is 15% (above the minimum tax rate mooted in terms of BEPS Pillar II) but your effective tax rate could be zero, due to absolutely above-board tax benefits such as tax holidays, specific exemptions or foreign tax credits, which make for a pretty unassailable situation even for those who use tax morality or harmful tax practices as a stick to beat the tax-payer.
But how do you decide which option is best for your company? Well, we at Regan van Rooy have designed an app to help, this is an easy-to-use online smart questionnaire to help you identify whether any opportunities exist to optimise your company’s tax position, and which is the best route to pursue, depending on your company’s business operations and income flows. The questionnaire should take five minutes to complete. There is also a separate tool to identify whether your company meets Mauritius’ new enhanced substance requirements.
Contact us to discuss at firstname.lastname@example.org
About the Author
Caoilfhionn van der Walt – MA, MSc, CA (ICAEW), H Dip (International Tax)
Caoilfhionn has 20 years of international tax experience. She started her career in the international tax team at Arthur Andersen, London, and thereafter at Deloitte London before moving to Johannesburg where she was the head of international tax at the Sasol group for nine years, as well as a part-time and guest lecturer in international tax at the University of Johannesburg. Caoilfhionn joined Regan van Rooy in 2016 and heads up the Mauritian office.
TBI Business Advisors is a Mauritian consultancy firm with a global reach and network. TBI assists individuals and businesses with their investment, setup and operations in Mauritius and throughout Africa, as well as relocation, permits and residence. Please contact us for any further information about any of these services and we would be glad to email/ chat on a Zoom/ Teams call.
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