August 27, 2018
The Mauritian Prime Minister, Hon. Pravind Kumar Jugnauth, recently presented the 2018/2019 Mauritian budget speech to the National Assembly for deliberation and subsequent enactment. Based on the budget speech, there will be significant changes to the Mauritian tax regime and the Global Business sector. This is with a view to stimulating local content production and increasing the standard of living of Mauritians. We have highlighted some of the proposed changes to the tax regime below:
The deemed foreign tax credit regime available to companies holding the Category 1 Global Business Licence (GBC 1) will be abolished from 31 December 2018. Companies holding GBC 1 business license will now move from deemed foreign tax credit regime to a partial exemption regime effective 1 January 2019.
The partial exemption regime will exempt from income tax, 80% of companies’ specified income such as
To enjoy the partial exemption regime, all companies in Mauritius will have to satisfy pre-defined substantial activities requirement, except banks licensed by the Financial Services Commission. The existing credit system for relief of double taxation will continue to apply where partial exemption is not available.
GBC 2 regime which currently enjoys full income tax exemption will be discontinued and new GBC 2 licences will no longer be issued from January 2019. However, companies which have been issued licences prior to 16 October 2017 will enjoy the current tax exemption until June 2021.
The budget also seeks to introduce a five-year tax holiday for Mauritian companies collaborating with the Mauritius Africa Fund for the development of infrastructure in Special Economic Zones.
An investment tax credit of 5% will be granted in respect of expenditure in new plant and machinery (excluding motor cars) by companies importing goods in semi knocked-down forms, provided that at least 20% local value addition is incorporated therein. Such credits will be available in respect of investment made up to 30 June 2020.
The proposed budget also seeks to increase the income exemption threshold of all employees by Rs 5,000 effective 1 July 2018 and decrease the income tax rate from 15% to 10%. In addition, high net worth individuals who derive net income and exempt income exceeding 15 million rupees in an income year or own assets worth above 50 million rupees, are required to submit a statement of assets and liabilities and income tax returns.
The 2018/2019 Mauritian budget seeks, among other things, to harmonise the fiscal regime for domestic and global business companies. The proposed changes are not unexpected given that Mauritius is signatory to the Multilateral Instrument to implement tax treaty related measures to prevent Base Erosion and Profit Shifting. The Country has also been under pressure from the Organisation for Economic Co-operation and Development to amend its tax laws to remove harmful tax practices and fight against tax avoidance and base erosion.
The eradication of GBC 2 licenses holds significant implications for international tax planning and investment in Africa, considering that a substantial portion of foreign investments into Africa are routed through Mauritius. Nigerian companies that have traditionally used Mauritius GBC 2 companies for tax planning purposes will have to review their current shareholding and operating structures.
Similarly, investors using GBC 1 companies to invest into Africa will need to meet increased substance requirements in order to continue to operate these companies and enjoy the attendant tax benefits. Consequently, it is imperative for taxpayers who currently have Mauritian entities to seek relevant professional advice as there may be an urgent need to restructure their Mauritian entities to align with the proposed changes.