Mauritius 2018-2019 Budget Overview
The 2018-2019 Mauritian Budget as presented by Prime Minister and Minister of Finance and Economic Development, Pravind Jugnath on Thursday, 14 June 2018 introduced new poles of economic growth aiming to create an inclusive high-income country based on innovation and sustainable value-creation.
The Budget while setting to bolster the growth and development of the Country was particularly centered around ‘transformation’. Mauritius has long been rather conservative holding tight to traditional pillars and the 2018-2019 Budget indicates a departure from such policies with the opening of Mauritius economy to Artificial Intelligence, Cryptocurrency and Blockchain amongst others. The Global Business Sector is one of those sectors that will undergo transformational changes with major revisions being announced to the regulatory framework. This business update sets out the propositions that directly impact the Global Business Sector and other key changes and implications.
1. New harmonised fiscal regime for domestic and Global Business Companies
1.1 The Deemed Foreign Tax Credit regime available to companies holding a Category 1 Global Business Licence will be abolished effective 31 December 2018.
1.2 A partial exemption regime will be introduced whereby 80% of specified income will be exempted from income tax. The exemption will be granted to all companies in Mauritius, except banks, and shall apply to the following income:
- Foreign source dividends and profits attributable to a foreign permanent establishment;
- Interests and royalties; and
- Income from provision of specified financial services.
1.3 Companies licensed by the Financial Services Commission (“FSC”), claiming the partial exemption, will have to satisfy pre-defined substantial activities requirement of the FSC.
1.4 The existing credit system for relief of double taxation will continue to apply where partial exemption is not available.
Our high level overview: With effect from 1 January 2019, an entity holding a Category 1 Global Business Licence (“GBL1”) would no longer have the choice of claiming the higher of (i) the 80% deemed foreign tax credit, or (ii) credit in respect of actual foreign tax suffered. In lieu, the entity holding a GBL1, to be renamed as Global Business Licence, could claim for partial exemption of 80% on specified income provided it meets substance requirements, such substance requirements are yet to be defined. The partial exemption regime would be available to both Global Business Companies and Domestic Companies.
More clarity is required on whether Companies could only claim relief for actual foreign tax credit when partial exemption of 80% on specified income is not available, or the Company has to opt for the most efficient method (Credit Method versus Exemption Method) to eliminate double taxation. We expect to have more details and certainty when the Finance Bill is approved around August/September this year.
Generally speaking, the revenue lines of GBL1 would fall in one or more of the three income categories. The budget proposal should therefore not adversely impact its tax position.
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2. Cease the issuance of Category 2 Global Business Licence
The Category 2 global business regime will be abolished and the Income Tax Act provisions applicable to that regime will be reviewed accordingly.
In particular, effective January 2019, the FSC will stop issuing Category 2 Global Business Companies licences (“GBL2”). GBL2 holders having been licensed before 16 October 2017 will benefit from a grandfathering provision until 30 June 2021.
Our take on the situation: The backdrop to doing away with the GBL2 regime is to align the global business sector offerings with best international norms and standards, and addressing the concerns of Organisation for Economic Co-operation and Development.
Clarity on GBL2 integrating in the reformed financial services space will be available through Regulations / amendments giving sufficient time for transition.
We shall keep clients having GBL2 updated on future developments.
3. Enhanced substance conditions
Global Business Companies will be required to comply with enhanced substance conditions.
Our take on the situation: Currently, entities holding a GBL1 are required to meet the requirements of the Financial Services Act 2007 and, effective 1 January 2015, one of the six criteria of the enhanced substance requirements issued by the FSC.
Further guidelines are expected to be issued on what would constitute substance requirements or “substantial activities” requirements.
4. Reduced Rate of Corporate Tax for Trading Companies
The corporate tax rate of 3% applied on profits derived by any company from export of goods will be extended to global trading activities effected by companies.
Our take on the situation: Global Business Companies engaged in trading activities outside Mauritius could potentially benefit from this tax incentive. The mechanics through which the Companies could elect for the reduced tax rate would be known once the relevant statute is amended or regulations issued.
5. Companies Act 2001 (CA 01)
A number of revisions were announced in respect of the Companies Act 2001 of Mauritius (CA 01). Some of the main changes are set-out below:
5.1 Duty to disclose Personal Interests
A Director of a company would commit an offence for breach of duty where the Director fails to disclose that he has an interest in a transaction or a proposed transaction with the company. On conviction, the Director will be liable to a fine of up to Rs 100,000 and imprisonment for a term of up to one year.
Our take on the situation: While under Section 143(1)(i) of CA 01, a Director already has a duty to disclose his/her interest where he/she is interested in a transaction, it is here intended to create a specific offence for such breach of duty.
5.2 Maintenance of Share Register
Keeping of the share register would be extended to seven years following the removal of the company from the register.
Our take on the situation: This proposed change would be more relevant for domestic companies as Global Business Companies were already under an obligation to keep their records for a period of seven years as per the Financial Services Act 2007.
Other notable changes intended for CA 01 are to:
- Allow for enhanced protection to minority shareholders; and
- Allow for more transparency to shareholders.
6. Disclosure of Beneficial Ownership in specific instances
The CA 01 will be amended to permit disclosure and availability of Beneficial Ownership Information following enquiries related to AML/CFT. Likewise all other legislations regulating specific vehicles/entities will undergo similar changes to provide for equivalent disclosures. The statutes caught would be the Foundations Act, the Limited Partnerships Act and the Limited Liability Partnerships Act.
Our take on the situation: While the authorities or regulatory bodies could always requests for such information from the relevant entity, it is anticipated from a practical purpose that the relevant entities would be obliged to keep a register of beneficial ownership which may further be required to be filed with a relevant authority in Mauritius.
7. Opening the Economy to the rest of the world
In order to attract High Net-Worth Individuals to invest in Mauritius, two schemes are being proposed:
Mauritian Citizenship > Foreigners would need to make a non-refundable payment of USD1 Million to a Mauritius Sovereign Fund while their spouse and dependents would have to make an additional contribution of USD100,000 per member of the family.
Mauritian Passport > Foreigners would need to make a non-refundable payment of USD500,000 to a Mauritius Sovereign Fund while their spouse and dependents would have to make an additional contribution of USD50,000 per passport.
Foreign retirees will further be exempted from payment of customs duties on the import of personal effects up to a value of Rs 2 million.
8. Insolvency Act 2009 (IA 09)
The IA 09 would be amended to allow for the filing of the declaration of solvency with the Director of Insolvency Service to be effected on the same date as the resolution for winding up of the company.
The IA 09 would further empower the FSC to make a petition to wind up a company which is a past licensee of the FSC to cater for situations where the licences have been terminated and the company is no longer a licensee.
9. Limited Partnership Act
The Registrar of Companies would be allowed to remove the name of an LP from the register where the LP has ceased to carry on business and has failed to pay any fee due under the LPA within 30 days from the date of notice.
10. Regulatory Oversight
The Financial Services Act 2007 would be amended to give greater powers of the FSC in its supervisory role whereby the FSC would notably be allowed to:
- Give directions to any person to ensure compliance with licensing conditions
- Appoint an administrator in relation to the business activities of a person whose authorisation has been withdrawn
Other key matters noted in the powers given to the FSC:
- All restrictions relating to dealing with residents would be removed.
11. Fintech, Artificial Intelligence and Cryptocurrency
A National Regulatory Sandbox Licence Committee would be set-up for issues relating to sandbox licensing for fintech activities.
The FSC would licencing new activities, such as custodian of digital assets and digital assets market place.
Guidelines on investment in the investment and development of blockchain technologies and cryptocurrencies as digital assets will be issued.
Our take on the situation: This initiative is very much welcomed in light of the keen interest towards this sector. Investors who were previously barred from pursuing such investment objectives might reconsider their positions once the guidelines are in place. The ‘Sandbox’ licensing also demonstrates the authorities’ intention to be as flexible as they can be in terms of the types of operations /activities they would regulate.