Taxation and the latest tax-related developments in Mauritius

Dev R Erriah

Erriah Chambers, Port Louis

An overview of the relevant provisions

The Income Tax Act 1995, as amended, applies to the taxation of authorised funds, collective investment scheme (CISs), investment clubs and other entities carrying out fund-related business. In various cases, the Income Tax (Foreign Tax Credit) Regulations 1996, as amended, and the agreements entered into by Mauritius for the avoidance of double taxation (DTAs) are also applicable to the provision of foreign tax credits and to avoid double taxation.

A fund established by a corporate entity will be resident for tax purposes if it is incorporated or its central management and control is located in Mauritius. A company has its central management and control in Mauritius if all its day-to-day management and affairs are being carried out from Mauritius, based on the principle established in De Beers Consolidated Mines Ltd v Howe (Surveyor of Taxes) (1906) AC 455. A trust used in relation to a CIS will be resident in Mauritius if the trust is administered in Mauritius and a majority of the trustees are resident in Mauritius, or where the settlor of the trust was resident in Mauritius at the time the instrument creating the trust was executed.

A fund established by a corporate entity in the form of a Groupe Bruxelles Lambert (GBL) company will be taxable on its foreign income at a rate of 15 per cent, but will be eligible for a foreign tax credit of the full 15 per cent if it can show proof that it has paid foreign tax on its foreign income at the rate of 15 per cent or more and, therefore, such income will be taxable at the effective rate of zero per cent. In such circumstances, an entity will be taxed on its income at a rate of 15 per cent, although it will benefit from the following exemptions:

• eighty per cent on all its income derived in the course of its business activities; and
• ninety-five per cent in regard to its interest income effective from the year of assessment commencing on 1 July 2024, provided the fund meets the following conditions (the ‘Prescribed Conditions’):
  • it carries out its core income-generating activities in Mauritius;
  • it employs, directly or indirectly, an adequate number of suitably qualified persons to conduct its core income-generating activities; and
  • it incurs a minimum level of expenditure proportionate to its level of activities.

A trust that is authorised as a fund will be taxed at a rate of 15 per cent and is also entitled to a foreign tax credit based on the actual tax paid or a partial exemption of 80 per cent provided it meets the Prescribed Conditions, as the case may be.

The tax exemption on interest earned by CISs or closed-ended funds has been increased from 80 per cent to 95 per cent. 

A domestic company may also be used to establish a fund, and such company will be taxable at a rate of 15 per cent and will only be entitled to a foreign tax credit if it has actually paid foreign tax elsewhere, but it will not be presumed that it has paid tax and, therefore, will not be entitled to a foreign tax credit at the rate of 80 per cent. Alternatively, it may benefit from a partial exemption of 80 per cent provided that it meets the Prescribed Conditions.

There is no withholding tax on dividends in Mauritius that are paid to foreign shareholders. Similarly, there is no capital gains tax in Mauritius, which is one of the most significant attractions in regard to the use of hedge funds in Mauritius. Furthermore, there is no inheritance or succession tax in Mauritius.

A GBL company will be resident in Mauritius for tax treaty purposes if it has a Tax Residency Certificate (TRC), obtainable from the Mauritius Revenue Authority (MRA) upon application to the Financial Services Commission (FSC).

The fiscal regime for offshore business

An offshore entity is subject to a more attractive tax regime than a domestic entity. The Category 2 Global Business Licence (GBC2) was abolished in January 2019 and companies that previously held a GBC2 licence are required to apply for authorisation from the FSC as an authorised company. An authorised company will be required to file an income tax return to the MRA within six months of its year end. However, an authorised company is treated as a non-resident for tax purposes in Mauritius and will be taxed on Mauritius-source income only.

As of 1 January 2019, companies holding a Category 1 Global Business Licence (GBC1) were renamed as GBL companies. A GBL company is tax resident in Mauritius and may apply for a Tax Residence Certificate (TRC) from the Director General of the MRA should this be required by the tax authorities in the jurisdiction in which the company is conducting its business. A GBL company incorporated in Mauritius pays tax at a rate of 15 per cent, but is entitled to a foreign tax credit on its foreign source income pursuant to the Income Tax (Foreign Tax Credit) Regulations 1996 if it qualifies in regard to either of the following aspects:

• if the GBL company can prove that it has paid foreign tax on its foreign income it is entitled to a full 15 per cent tax credit and the end result is that the company is not liable for tax at all; or
• if the GBL company has not paid any foreign tax on its foreign income, then the company is entitled to a partial exemption of 80 per cent on certain specified income, such as foreign-source dividend or interest income, provided it has met the prescribed substance requirements. No foreign tax credits are allowed on foreign-source income if the GBL company has claimed the 80 per cent tax exemption.

A trust is liable for income tax on its chargeable income. A trust is liable for tax at a rate of 15 per cent, but it is entitled to a foreign tax credit on any foreign-source income if it has paid foreign tax on its foreign income. However, non-resident trusts and non-resident beneficiaries are exempt from tax in respect of income from the trust.

Dividends derived from Mauritius and paid to non-residents of Mauritius are exempt from tax.

Royalties derived from Mauritius and paid to non-residents are tax free.

Tax treaties

Mauritius has developed a wide network of double taxation treaties, with a number of countries.

There is no capital gains tax in Mauritius; any gain realised elsewhere by a Mauritian resident is not subject to capital gains tax in Mauritius. Mauritius has become a popular route for channelling investment into India, as there is no capital gains tax on gains realised on the sale of shares in India by a company resident in Mauritius.

So far, Mauritius has concluded 45 tax treaties and is party to a series of treaties that are currently subject to negotiations.

The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting

On 5 July 2017, Mauritius signed the Organisation for Economic Co-operation and Development (OECD) and G20’s Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (otherwise known as the ‘BEPS multilateral instrument’). In total, 68 jurisdictions have signed the BEPS multilateral instrument. The BEPS multilateral instrument implements tax treaty-related measures to prevent treaty abuse, improve dispute resolution, prevent the avoidance of permanent establishment status and address other hybrid mismatch arrangements. The BEPS multilateral instrument is not a standalone treaty, but rather modifies existing bilateral tax treaties. Over 1,100 tax treaties are expected to be modified by the BEPS multilateral instrument.

Mauritius has indicated that 23 of its double taxation treaties that are currently in force will be covered by the BEPS multilateral instrument, together with a commitment to revise the remaining 19 treaties on a bilateral basis to ensure that they comply with BEPS minimum standards.

The Foreign Account Tax Compliance Act (FATCA)

Although FATCA is a piece of US legislation, it imposes on foreign financial institutions (FFI) established outside the US certain obligations to withhold tax on behalf of, and report and disclose information to, the US Internal Revenue Service. FFIs are non-US entities that take deposits in the ordinary course of banking or other similar business, hold financial assets on account for others, engage primarily in the business of investing, reinvesting or trading in securities, partnership interests or commodities, or conduct certain insurance-related business.

On 27 December 2013, Mauritius and the US signed a Tax Information Exchange Agreement (TIEA) and a Model 1 Intergovernmental Agreement (IGA) in relation to FATCA. FFIs that fall within the scope of FATCA, therefore, need to report directly to the Mauritius Revenue Authority, which will then transmit such information to the US Internal Revenue Service.

The latest developments

On 7 March 2024, India and Mauritius signed a protocol to amend the tax treaty between the two countries by replacing the existing treaty preamble and introducing the principal purpose test (PPT) into the treaty. The new protocol is yet to enter into force and, as such, is not effective. The impact of the inclusion of PPT applicability (once the protocol becomes effective) will assume significance.

Reference is being made to a recent case, namely Tiger Global International III Holdings v AAR [2024] 165 (Delhi), where the Delhi High Court has upheld the Mauritius treaty benefit for a foreign private equity fund, thereby, quashing the Indian Authority for Advance Rulings (AAR). Tiger Global International III Holdings, the taxpayer, was a tax resident of Mauritius. It had a GBC1 and a TRC, issued by the Mauritian authorities. The immediate shareholders of the taxpayer were also Mauritian companies which, in turn, were part of a foreign private equity fund. It is interesting to note that the taxpayer argued that the indirect transfer should not be taxable in India by virtue of Article 13(4) of the tax treaty, whereas the AAR held that the treaty is not applicable to the transfer of shares in a Singapore company by a Mauritius tax resident. However, the Delhi High Court held that this transaction was to be grandfathered under Article 13(3A) of the tax treaty and that it was not designed for the avoidance of tax. Article 13(3A) of the treaty provides that gains arising in regard to a Mauritian resident on the alienation of shares in an Indian company acquired on or after 1 April 2017 may be taxed in India. Article 13(4) provides that gains arising in regard to a Mauritian resident from the alienation of other properties will be taxable in Mauritius only.

The Delhi High Court also noted that Mauritius is one of the preferred destinations for investors wishing to invest in Southeast Asian economies and India, subsequent to the liberalisation measures adopted in 1991. This is because of the country’s proximity to India, the wide array of agreements with various nations around the globe, the country’s liberalised exchange controls, the favourable investment climate and its socio-political stability. The law does not entail a presumption of tax evasion, treaty abuse, illegality or disreputability in regard to foreign investments made through entities domiciled in Mauritius. Neither are such entities obliged to satisfy a separate/stricter standard of legitimacy.