15 July 2019
MAURITIUS: New Budget Targets Offshore Funds, Boosts Investment and Trade
Mauritius has announced a number of new tax measures, including tightening of tax exemptions, new exemptions for insurance and leasing business, tax breaks for innovative businesses and a tougher stance on tax residency status for offshore funds based on the island.
Under the proposals, revealed in the government’s June annual budget release, the Income Tax Regulations 1996 will be amended to tighten up conditions for the partial exemption benefit regime. The regime will also be extended to include a number of new sectors, including insurance and reinsurance, as well as aircraft leasing activities.
Technology innovation also received a boost. Existing and newly founded innovation-driven companies will enjoy an eight year tax holiday on income derived from intellectual property assets developed in Mauritius. E-commerce and peer-to-peer lending operators will also get five-year tax holidays. Wealth managers stand to gain from a new ‘umbrella licence’ to replace multiple licences, while a reduced tax regime will also be introduced to encourage real estate investment trust (REIT) development.
Licensed freeport operator companies engaged in the manufacturing and sale of goods will now be taxed at only 3% instead of 15% on sale of goods in the local market, provided they employ a minimum of five people and have an annual local expenditure exceeding MUR3.5 million (US$97,200). They will also need to comply with statutory corporate social responsibility requirements.
However, the budget also introduces changes to the rules governing how a Controlled Foreign Company (CFC) is defined. The new rules state that a company will cease to be considered tax resident if it is centrally managed and controlled outside Mauritius. According to industry experts, this change may adversely impact hundreds of offshore funds operating out of the island nation. Many such funds may have their board of directors in Mauritius, with board meetings taking place in Mauritius, but are still arguably ‘managed’ from overseas. In these cases, the authorities may rule that the company is not eligible for tax residency.
Offshore fund managers are concerned that many of the structures currently set up in Mauritius exist specifically to claim the tax benefits provided under the island’s numerous tax treaties with other countries, such as India or China and that these benefits may now be lost.
Since the budget, the country's financial services regulator, the Financial Services Commission, has stated that it will process all applications for new offshore funds and advisory services within two months, provided that the applicants meet all legislative obligations. However, many of the structures currently set up in Mauritius claiming tax treaty benefits on the basis that they have tax residency certificates may now have to re-examine their structures.