Mauritius Budget 2019-2020 impacting global business

This briefing note was prepared by Peter Nagle, Country Head – Mauritius and Sheena Oograh-Rajcoomarsing, Senior Tax Consultant.

Background

The financial services sector has been highlighted in the 2019 annual budget (the “Budget”) as a vital sector of the economy in view of its sustained growth. Building up on:

• The international repute of Mauritius as fully compliant with the Organisation for Economic Co-operation and Development (OECD) standards on transparency and exchange of information for tax purposes.
• OECD validation of Mauritius’ current tax regime as being devoid of any harmful measures.
• The noteworthy progress for technical compliance with an upgrade on 11 Financial Action Task Force recommendations.

several measures have been announced to consolidate, develop and further elevate this important sector of the economy.

The key changes

Strengthening & Consolidation

Mauritius is ranked 20th globally and 1st in Africa in terms of ease of doing business in the jurisdiction. In an effort to improve the business environment for investors, the following measures were announced:

• Amendments to several legislations via a new Business Facilitation Act to facilitate the start of businesses and eliminate unnecessary permits and licences.
• Review of the procedure for processing applications for work and residence permits by Foreign Nationals.
• Alignment with international standards as regards to protection of minority investors and sharing of information.

The following have been announced in this respect

• The Securities Act 2005 will be amended to ensure immediate disclosure to the public should a transaction have a value of at least 10% of the total assets of a company registered as a reporting issuer.
• The Companies Act will be amended such that individual compensation of directors are disclosed in the annual report.
• The Companies Act will be amended such that dividend declared by the Board is paid within a maximum period of 15 months’ subject to solvency test.
• The Companies Act will also allow disqualification of a director upon a successful claim by shareholders.

Alignment with international best practices with the following measures

• The Financial Services act and the Income Tax Act would be amended such that a company shall not be considered a tax resident in Mauritius if it is centrally managed and controlled outside Mauritius.
• The substance requirements would be defined in more details in order for a taxpayer to enjoy the partial exemption benefit.
• Outsourcing of core-income generating activities would be allowed subject to adequate monitoring and the outsourced activities must be conducted in Mauritius.
• Rules on controlled foreign companies (“CFCs”) would be introduced.

Strengthening the regulatory framework to combat fraud, corruption and financial crimes by

• Setting up of a Financial Crime Commission to ensure greater coordination and coherence among the various investigative agencies in carrying out their functions, in particular in dealing with drugs investigations and other financial crimes.
• Empowering the Financial Services Commission (FSC) to develop a financial data handling Code of Conduct to address cyber risks.
• Introducing industry-wide Practice Notes with respect to handling clients’ requests.

Sanne Comments

Mauritius is recognised internationally as a highly reputable International Finance Centre of Choice. A key feature that make Mauritius an attractive financial jurisdiction is the islands approach to doing business. Implementation of the detailed measures, which are to be formulated, should give a further boost to Mauritius’ position in terms of the ease of doing business in the jurisdiction.

Investor confidence in the jurisdiction will see a boost in the array of measures devised to protect minority investors and the new framework to combat fraud, corruption and financial crimes to further bolster Mauritius internationally. The introduction of CFCs along with the expansion and diversification of financial services products also enable Mauritius to catch-up with the other international jurisdictions bringing it closer to being the leading international financial centre of choice.

Expansion & Development of the Financial Services Sector

Expanding accessibility of financial services

• Establishment of a new framework for fund administration and fund management.
• Setting-up a ‘single-window system’ for submission of documents for financial services and global business applications.
• Revamping the existing Special Purpose Fund regime to ease access to new markets.
• Entering into an agreement with Gujarat International Finance Tec-City (GIFT) to recognise Mauritian licensed funds and management companies as qualified to operate in the State of Gujarat.
• Extension of the partial exemption regime to cover companies engaged in leasing and provision of international fibre capacity, companies engaged in reinsurance and reinsurance brokering as well as those engaged in the sale, financing arrangement and asset management of aircraft and its spare parts, including aviation related advisory services.

Diversifying the product base of Mauritius’ International Financial Centre by introducing

• New rules and an attractive tax regime to promote the development of Real Estate Investment Trusts.
• An ‘umbrella licence’ for wealth management activities.
• A scheme for headquartering of ‘e-commerce’ activities.
• A framework for Green Finance in line with the ‘Marrakech Pledge’ – a continental coalition of African Capital Markets Regulators and Exchanges committed to foster green financing on the continent.
• A new trading platform at the Stock Exchange of Mauritius to allow medium sized profitable enterprises that do not qualify for listing on the official and Development & Enterprise Markets to raise capital and trade their shares.

Improving the framework for Fintech services by

• Establishing a regime for Robotics and Artificial Intelligence enabled financial advisory services.
• Introducing a new licence for Fintech Service providers.
• Encouraging self-regulation for Fintech activities in consultation with the United Nations Office on Drugs and Crime.
• Introducing the use of e-signatures and e-licences on a pilot basis.
• Creating Crowd Funding as a new licensable activity.

Sanne Comments

The key to assess the impact of these progressive diversification and expansion measures for the financial services sector would depend on the detailed rules, regulations and timelines for implementation.

Other notable regulatory changes

• Beneficial Owner would be defined under the Companies Act, the Limited Partnerships Act and the Limited Liability Partnerships Act.
• The Companies Act will be amended to provide for the board of directors of public companies to comprise of at least one woman.
• The limit on number of shareholders for a private company will be reviewed.
• The Insolvency Act 2009 shall be amended to provide for an insolvency practitioner to be:
• Ordinarily resident in Mauritius;
• A living individual and not a body corporate; and
• Remunerated as per certain prescribed rules

Sanne Comments

The limit on number of shareholders for a private company is expected to increase.

Important tax updates

Tax Residency of Companies
If a company is not centrally managed and controlled in Mauritius, it would not be considered as a tax resident in Mauritius.

Sanne Comments

This is a much awaited clarity by industry stakeholders in determining residency status.

Income Tax Holiday

Eight-year Tax holiday - Innovation Box Regime

• Available to newly set up companies involved in innovation-driven activities on income derived from intellectual property assets developed in Mauritius;
• Existing companies will benefit from the tax holiday if the intellectual property assets are
  developed in Mauritius after 10 June 2019; and
• The income tax holiday is available subject to satisfying pre-defined substance requirements.

Eight-year Tax holiday - Marina
An eight year tax holiday would be granted to a newly set-up company developing a marina.

Five-year tax holiday- e-Commerce
A five year tax holiday would be granted to companies setting up an e-commerce platform in Mauritius before 30 June 2025.

Five-year tax holiday – Peer to Peer Lending operations
A five year tax holiday would be granted to a Peer-to- Peer lending operator starting operation before 31 December 2020.

Four-year tax holiday- Bunkering
A four year tax holiday would be granted on income derived from bunkering of low sulphur heavy fuel oil.

Accelerated Depreciation
100% of the annual allowance of the cost of plant and machinery may be claimed in the year of acquisition if such amount does not exceed MUR 60, 000.

Freeport Regime
A freeport operator or private freeport developer engaged in the manufacture of goods will be liable to income tax at the rate of 3% on profits derived from the sale of goods on the local market.

Existing manufacturing companies issued with a Freeport certificate will have to meet the following substance criteria:
(i) Employ a minimum of five employees; and 
(ii) Incur an annual expenditure exceeding Rs 3.5 million.

Freeport Operators would also be liable to pay Corporate Social Responsibility (CSR) on sale of goods on the local market.

Carry Forward of Unrelieved Tax Losses
Currently, only entities in the manufacturing sector may carry forward their accumulated tax losses in the case of a change in beneficial owner, subject to meeting the set conditions. set out. This carry forward of tax losses would be extended to entities which are taken over by another shareholder due to financial difficulty.

Corporate Social Responsibility Assessment
The Mauritius Revenue Authority (MRA) would be empowered to raise tax assessment to entities which have not fulfilled their CSR obligations either by spending the CSR fund or by remitting same to the MRA.

Arm's Length Transaction
Provision relating to the arms length principle will be amended to remove any doubt or uncertainty about its application.

Sanne Comments

This is a welcome measure as the current legislation does not provide sufficient guidance on the arm’s length principle or transfer pricing policies. This is also of direct relevance and significance in the debt structuring space.

Our final thoughts

Measures brought in the 2018 Budget was the result of Mauritius’s willingness to show more economic substance in the country. The November 2018 OECD report clearly showed that Mauritius meet all of the international requirements of the BEPS Action 5 and the ‘partial exemption’ regime has been regarded as ‘not harmful’ as per the Report. Proper timing and implementation of these bold measures announced in the 2019 Budget should be a major sector enhancement for Mauritius’ IFC on the EU white list.

Should you have any further questions please feel free to contact Sheena Oograh-Rajcoomarsing, Senior Tax Consultant, +230 467 3000.