f the shift in Mauritius tax by Regan van Ross

2021 – A seismic shift in the Mauritius tax landscape

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.

Tax Holidays

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.

Conclusion

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.

Our app

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 info@reganvanrooy.com

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.

About TBI

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.

Disclaimer

Our aim with our articles is to make them digestible. We keep them short and relevant but do not update them. They are not designed to be legally relied upon. This article contains no legal, tax or financial advice, all of which should be sought from relevant professionals.

Please get in touch to find out more.

Bank Accounts in Mauritius

Bank Accounts in Mauritius

It looks like COVID-19 did not disrupt the banking, financial and offshore sectors in Mauritius too much. Although the virus spread has was contained in Mauritius, the economic ramifications of the global shutdown are not to be underestimated. Our aim with this article is to say what can be set-up remotely during the lockdown, what options there are in terms of Mauritius bank accounts and Mauritius offshore company formations, and the general procedures and processes thereof.

What can be set-up remotely in Mauritius?

Mauritian bank accounts, companies and Funds can be set up without ever having to come to Mauritius. This includes Mauritian business registration of Global Business Companies (GBCs), Authorised Companies (ACs) and Mauritian domestic companies. The same can be said for the more complex financial licences like a Payment Intermediary Services Licence (a PSP in other jurisdictions), an Investment Dealer Licence, an Investment Adviser Licence and a CIS Licence to name but a few.  One can invest in property without having to come here, (although make sure you have someone trustworthy on the ground) as well as setting up an investment vehicle for purchasing the property. One can even apply for a residence permit via the EDB online portal from abroad. With internet banking the limitations of a bank account in a foreign jurisdiction are somewhat minimised.

What types of bank accounts are available in Mauritius?

The banking sector in Mauritius is sophisticated, stable and provides multi-currency accounts, internet banking and international bank cards to its many global customers. Personal offshore Mauritian bank accounts for those living abroad can be set up in a few weeks as long as KYC and compliance tests are passed. Equally Mauritian offshore bank account openings are available both Mauritian companies and foreign companies.  Mauritius offshore bank accounts are actually very popular for companies incorporated elsewhere, notably in Hong Kong, Dubai and Cyprus, due to the strength of the banking sector here and the lack of exchange controls. A company that is tax resident in Mauritius such as a GBC, must have its primary bank account in Mauritius.

Which Banks are present in Mauritius

Currently licenced by the Bank of Mauritius are the following banks: ABC, Absa (formerly Barclays), AfrAsia, Bank of Baroda, Bank of China, Bank One, Banyan Tree, BCP, Century Banking Corporation, Habib Bank, HSBC, Investec, MauBank, SBI, SBM, MCB and Warwyck. These banks differ in size, capability and offerings. There are global names, niche banks, formidable Mauritian and African competitors and an Islamic Bank.

What currency of account can I have?

One can choose any of main world currencies for a Mauritian offshore bank account. Many individuals and companies therefore have EUR, GBP, USD and MUR accounts. The internal exchange rate is competitive with most of the banks here so having multiple accounts is a significant benefit.

What needs to be provided to set up an offshore bank account in Mauritius?

Each bank has their own procedures to apply for a bank account, normally lasting for a few weeks. Expect the usual checks on individuals for their personal accounts, as there are for directors, shareholders and UBOs of companies, including certified copies of a passport and a recent utility bill. Reference letters, generally from a current bank are requested but substitute documents can normally suffice such as 6 months of current bank statements and a signed form allowing the Mauritian bank to contact the current bank.

The key focus is on the funds that will be arriving in the bank account, to show firstly where the money is coming from, and then that there is no chance that this money is in any way made from illegal activities, or that the bank account or company is going to be used to launder money. Mauritius takes its Money Laundering obligations very seriously as shown by its OECD and EU status. Expect the Business plan for any company account to be looked into in detail.

Unlike certain jurisdictions, there are no exchange-controls in Mauritius and the hard thing is to bring money into Mauritius. Once it is here, it is easy to move around and so it is a great banking jurisdiction for a trading company. For example, for any company buying goods in Asia and selling them in Africa or Europe, if a GBC is set up, then it is very easy to pay all the suppliers from Mauritian bank accounts. With 80% exemption on corporation tax, it means that there is only 3% tax on profits and no tax on dividends so this is a very popular option.

How to successfully set up an offshore Mauritius bank account

We would break down the key elements of successfully opening bank accounts into the following sections:

  1. The Activity of the company or individual – For example if the activity is something that is illegal in Mauritius, such as cannabis oil, online gambling or weapons, or if it is deemed very risky such as cryptocurrency exchanges with clients predominantly from countries which makes banks nervous, then it will rarely get off the ground. Mauritian banks are still very cautious when any company activity involves cryptocurrency, even if it is licenced by the FSC in Mauritius. One can ask for dispensation from the FSC for a GBC to have a primary bank elsewhere, and there are now some banks in Mauritius that have more of an appetite for the Fintech future. A bank account opening will always be difficult in any jurisdiction with these activities.
  2. The Shareholders and the UBO – Expect thorough KYC checks on all parties involved, especially those owning the company or account, from World-Check to media checks. If there are potential issues such as historical media attention, then try and tackle it from the start rather than hope that no one sees it. It is much easier to set up a bank account in Mauritius if it is for a Mauritian company rather than a foreign company so bear in mind it is sometimes worth setting up a holding or trading company in order to utilise the banking sector here if you are struggling to do so with a foreign company.
  3. The preparation in the application – The most successful applications are those where the client’s agent in Mauritius, normally holding an EIC (Eligible Introducer Certificate), has asked in advance all of the question that the bank will ask, and therefore, the initial application is comprehensive, and the evidence preempts any concerns. Ultimately if the first two elements above are not right then there will still be an issue but there are many clients who fit into a grey area and with the right assistance then they can have a bank account setup in Mauritius.
  4. Picking the right bank – Some of the more popular banks can be risk-averse and some of the banks are more Fintech-friendly for example. When setting up a company in Mauritius either with a Regulatory Sandbox Licence or a PIS licence dealing with cryptocurrency for example, then you can seek guidance from the Regulatory body, the EDB or the FSC respectively, as to which bank will be more likely to open an account if it is successful with its licence application. Some of the banks have far better internet banking than others and some are far quicker for account opening.

Conclusion

Mauritius offers a stable and welcoming environment to do business. Even though the world is in COVID-19 turmoil, many clients are finding they have the opportunity to focus on things that they have been meaning to for a long time. It is clear that risk management and diversification is something that every individual and company need to consider. Whether it be a life insurance policy or a trust to protect one’s estate, an investment in property that gives a permanent residence backup for the buyer and their family or just their company or personal banking moved to a stable jurisdiction for ease or to mitigate tax, then Mauritius has something to consider for everyone.

About the Author:

Philip Tsalikis is a practising UK barrister based in Mauritius and registered there as a foreign lawyer. He is the founder of TBI Mauritius, a consultancy firm based in Mauritius but with a global reach and network. TBI assists individuals and businesses with their investment, setup and operations in Mauritius, and throughout Africa.

Disclaimer

Our aim with our articles is to make them digestible. We keep them short and relevant but do not update them. They are not designed to be legally relied upon. This article contains no legal, tax or financial advice, all of which should be sought from relevant professionals.

Please get in touch to find out more.