Mauritius

Offshore Legal and Tax Regimes

There used to be one main source of 'offshore' regimes in Mauritius, the Mauritius Offshore Business Activities Authority (MOBAA) constituted under the Mauritius Offshore Business Activities Act 1992 (MOBA Act 1992), which supervised almost all types of offshore entity other than banks, including the Free Port, and the Export Processing Zone.

In May 2000 Mauritius wrote a 'commitment letter' to the OECD in order to avoid inclusion on the OECD's list of jurisdictions which offer 'unfair' tax competition.

Partly as a result of this commitment, the Government passed a range of replacement legislation in 2001 including the Financial Services Development Act 2001, which set up a Financial Services Commission to replace MOBAA.

Most existing offshore legislation has been 'grandfathered' into the new regime.

In August 2007, the Mauritius National Assembly adopted new Financial Services legislation, establishing the independence of the Financial Services Commission and liberalizing the international 'global business companies' regime.

Introducing the Bill to Parliament, the Deputy Prime Minister and Minister of Finance and Economic Development, Mr Rama Sithanen said: “in line with our philosophy to simplify processes and procedures, to remove hurdles to investment, to facilitate delivery of services, and to achieve international standards in every activity so as to be globally competitive, we are improving and modernising the legal framework that govern the non-bank financial services sector.”

The bill became the Financial Services Act 2007 and provides a common framework for licensing and supervision of all financial services other than banking and for the global business sector.

The new law specifically provides for the independence of the Financial Services Commission as a regulatory body.

The Financial Services Act redefines the concept of global business. Under the new provisions, all resident companies conducting business outside Mauritius may opt for an alternative legal regime. The former restrictions on activities conducted by Category 1 Global Business Companies are being removed.

The Act also provides for the designation of industry associations in all financial services sectors as Self Regulatory Organisations.

Two other bills were also approved by the assembly at this time; The Securities (Amendment) Bill and the Insurance (Amendment) Bill.

The Securities (Amendment) Bill extends the scope of “securities” and “exchanges”, thus enabling the Commission to approve the trading of a wider range of instruments and license Commodity and other exchanges.

The Insurance (Amendment) Bill removes certain administrative obligations on branches of foreign insurers operating in Mauritius and provides for greater flexibility in exceptional circumstances.

The Financial Services Act 2007, the Securities Act 2005 and the Insurance Act 2005 came into force on 28 September 2007.

Forms of Offshore Operation

Offshore operations may take place within the following forms:

• GBC Category 1 (old Offshore Company)
• GBC Category 2 (old International Company)
• Limited Life Offshore Company
• General Partnership
• Limited Partnership
• Offshore Trust

In addition, the Free Port, the Export Processing Zone and the Export Service Zone, whose occupants don't have to have offshore status as such, offer benefits broadly similar to those available to offshore companies.

Mauritius Tax Treatment of Offshore Operations

A GBC1 (old Offshore Company) pays corporate income tax at 15% (0% if it was incorporated before 1st July 1998). In fact until 2003 it could opt to pay tax at any rate it chooses between 15% (or zero) and the top corporate tax rate, and normally made this choice according to the rules governing 'controlled foreign corporations' in the country where its major shareholder is based. Legislation enacted in 2000 removed the facility to choose tax rates from 2003.

GBC1 Companies are also exempt from stamp duty, land transfer tax, and capital gains (morcellement) tax. The expatriate staff of offshore companies pay half the normal rate of personal income tax; two of them per company can import cars and household equipment free of customs duty.

There are no withholding taxes or equivalent deductions on dividends or other payments made by GBC1 companies to non-resident shareholders (residents aren't normally allowed to hold the shares of such companies).

GBC1 Companies are regarded as being resident, and are therefore able to take advantage of Mauritian Double Tax Treaties. The tax treaty with India is particularly favourable, and Mauritius is a favoured location for holding companies for those trading with or investing in India.

GBC1 Companies can also utilise the unilateral foreign tax credit which is 80% of the Mauritian tax rate (leaving a residual liability of 20% of the Mauritian tax rate = 3%); the credit used to be at the rate of 90% and it is possible that there will be further reductions.

Offshore Banking Units (since abolished), Captive Insurers and Offshore Investment Funds, all of which have the GBC1 Company as their basis, are taxed as for GBC1 Companies in general. The same applies to GBC1 Companies holding ships on the Mauritian Open Registry (this is the mandatory structure), but additionally, earnings from shipping operations are exempt from tax, the crew of the ships are exempt from payroll taxes, and materials, fuel, equipment etc for the ship are all free of customs and excise duties.

A GBC2 (old International Company), - officially an exempt-status GBC1 Company - has the same tax benefits as a GBC1 Company; however, it is considered as non-resident, and cannot make use of Mauritian Double Tax Treaties.

The Limited Life Company Offshore Company can be based on either a GBC1 or GBC2 Company, and will have equivalent treatment from a tax point of view.

Both General Partnerships and Limited Partnerships can acquire offshore status under the Code de Commerce Amendment Act 1995; and under the Finance Act 1996 they are given access to Mauritian Double Tax Treaties Offshore partnerships would normally have non-resident partners, and they are treated as companies for tax purposes, in a way that is analogous to the treatment of GBC1 and GBC2 Companies (see above).

Offshore trusts are taxed in the same way as GBC1 and GBC2 Companies, see above. However, chargeable income is defined as the difference between (a) the net income derived by the trust; and (b) the aggregate amount distributed to the beneficiaries under the terms of the trust deed. Moreover, any amount distributed to non-resident beneficiaries is exempt from Income Tax.

An offshore trust is allowed a credit for foreign tax on its foreign-source income. If no written evidence is presented to the Mauritius Commissioner of Income Tax showing the amount of foreign tax charged, the amount of foreign tax shall nevertheless be conclusively presumed to be equal to 80 per cent of the Mauritius tax chargeable with respect to that income.

An offshore trust may opt by written notice to the Mauritius Commissioner of Income Tax to be treated as non-resident in Mauritius for tax purposes, in which case it will not be subject to any income tax in Mauritius. However, being non resident, the offshore trust may not benefit from Mauritius' extensive network of double taxation agreements.

Taxation of Foreign Employees of Offshore Operations

There is in fact no distinction between the employees of resident or non-resident operations. Most types of compensation and benefit paid to employees are taxable; there are no special privileges or exemptions for expatriate workers, except for the special situations detailed below:

• The expatriate staff of GBC1 and GBC2 Companies (and of the other types of offshore entity listed above) pay half the normal rate of personal income tax; two of them per company can import cars and household equipment free of customs duty.
• The crew of ships on the Mauritian Open Registry are exempt from payroll taxes;
• For companies in the Export Processing Zone, two expatriate staff are partly exempted from income tax.

Exchange Control

Theoretically speaking, exchange controls were abolished in 1994, but the rules still state that repatriation of foreign investment and the profits from it is subject to proof of the origin of the money, and subject to payment of any outstanding Mauritian taxes.

Offshore Activities

The various forms of offshore entity in Mauritius are limited as regards the trading they can do in the jurisdiction, but not as regards the running of their businesses from Mauritius

The business of an offshore company must be conducted in foreign currency other than for day-to-day transactions; and offshore companies must not do business in Mauritius, other than to take professional advice, employ local labour, and to rent property.

Companies in the Export Processing Zone and the Export Services Zone are allowed, with permission, to conduct 10-20% of their trading domestically; but profits raised in this way will be taxed according to the normal domestic regime.

Employment and Residence

Work permits are necessary for non-Mauritians to be employed; there is no maximum stay as such, but work permits are issued for a minimum period of 6 months and a maximum of 3 years. Permits are issued by the Prime Minister's Office in association with the Ministry of Human Resource Development and Reform Institutions.

In order to buy property, non-Mauritians require authority from the Prime Minister's Office.