Mauritius Revenue Authority issue guidance regarding place of effective management
Peter Nagle, Country Head - Mauritius
The Statement of Practice (SOP) issued by the Mauritius Revenue Authority seeks to clarify circumstances on when a company will be treated as a non-resident in Mauritius for tax purposes. Under the Mauritius Income Tax Act 1995 (as amended from time to time), a company is to be treated as non-resident if its Place of Effective Management (POEM) is based outside of Mauritius.
The purpose of the SOP is to act as a guidance for a newly authorised company introduced under the Financial Services Act 2007 (FSA) as amended by the Finance Act 2018. An authorised company is a company which is not subject to tax in Mauritius on its foreign income due to the fact that its POEM is based outside of Mauritius, although it is an entity incorporated in Mauritius. To demonstrate that POEM is based outside of Mauritius, the following must be met:
- Strategic decisions relating to the company’s core income generating activities have to be taken outside of Mauritius; and
- Any one of the following conditions are met:
- The majority of Board meetings are held outside of Mauritius; or
- The executive management of the company is regularly exercised outside of Mauritius.
In most situations, the authorised companies to demonstrate meeting the above by having its Board of directors composed of a majority of foreign directors and ensuring that the Board meetings are shown to be held from a location outside of Mauritius (e.g. where the said majority of the directors sit). The main consideration remains whether having the POEM in the location chosen raises any tax concerns.
Section 73A of the Mauritius Income Tax Act 1995 (“ITA”) relating to non-resident companies is complementary with Section 73 of the ITA. Section 73 relates to criteria to determine whether a company is resident in Mauritius, which is either the company is incorporated in Mauritius or its central management and controls are in Mauritius. It is recommended that the criteria for demonstrating POEM in Mauritius is followed where it is required to substantiate the tax residency of a company in Mauritius.
Demonstrating central management and control still remains an essential criteria to be met by the Global Business Licensed (GBL) entities (whether holding existing Category 1 GBL or the new GBL), which is defined under the criteria considered by the Financial Services Commission and listed in the FSA being inter alia, having at least two resident directors on the Board who attends all Board meetings, maintain its principal bank account in Mauritius, keeping its accounts at its registered office in Mauritius, prepares its statutory financial statements and cause same to be audited in Mauritius.
As long as the GBL1s (including those also holding a financial services license such as a Fund) meet the central management and control test and the new substance requirements (principally with respect to having full time equivalent employees directly or indirectly through the administrator and minimum expenditure level), the provisions of Section 73A and the SOP should not affect their tax residence from a Mauritius tax perspective since we expect demonstrating central management and control and enhanced substance in Mauritius to contribute towards demonstrating POEM in Mauritius. To read the SOP click here.
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