International Taxation

Taxation in Mauritius : At a Glance

1. History

The British ruled Mauritius for 158 years until 12 March 1968 when it became an independent country within the Commonwealth. It is an island colonised by the Dutch, French and English. It has a history heavily influenced by India, Africa and China.

2. Facts

The capital of Mauritius is Port Louis. It has a multi cultural and cosmopolitan population of about 1.2 million inhabitants, having 90% literacy rate. The total area is approximately 1,865 square kilometres. The currency is Mauritian Rupee. . The beaches are a trademark of the country, which has fuelled tourism and it provides the right mix for business and pleasure. Mauritius is well connected globally and offers multiple opportunities for foreigners for investments. Over the years, the viable and attractive fiscal policies have provided a very business-friendly image to Mauritius making it an international business hub.

3. Economic climate

Mauritius has a strong economy characterized by a thriving export led manufacturing sector, a sophisticated sugar producing agricultural sector, an attractive tourism sector, a modern freeport and a rapidly growing financial services sector. The Mauritian Government is also concentrating on investments the Information and Communication Technology (ICT) sector and the foremost plan is the setting up of state-of-the-art technology. Park.

4. Government & political system

Mauritius has a presidential democracy based on the British parliamentary system. The political system has three branches of the legislative, executive and judiciary, which are separated from each other. The President is the Head of State and Commander-in-Chief. Full executive power rests with the Prime Minister who is head of the government. The Members of Parliament are elected every five years by popular vote and a number of political parties contest the elections every five years.

5. Legal system

The Republic of Mauritius is a member of the Commonwealth and has a hybrid legal system consisting both, civil and common law practices. Private law is largely based on the Napoleonic Code and public and administrative laws are modelled essentially on English Common Law.

1. Income tax law

The taxation of income of both companies and individuals is governed by the Income Tax Act, 1995 which is substantially based on UK tax law. Mauritius has a global system of taxation. Under this system, income from all sources is added up and the appropriate tax rate or rates are applied after taking into consideration all allowable deductions and exemptions

1. Year of assessment, income year and filing of returns

Under the Mauritian tax law, a ‘year of assessment’ is defined as a year in and for which tax is payable under section 4 and a ‘year’ is defined as a period of twelve months commencing on July 1.Hence, the year of assessment runs from July 1 to June 30 and tax is levied on income derived during the preceding year. Income year in relation to the income of a person is defined as the year in which that income is derived by him. Every taxpayer should furnish a return of income and pay tax due not later than September 30 every year. A corporation whose accounting year ends on June 30 must file its tax return within seven months. In all other cases, a corporation has a time limit of four to fourteen months.

2. Due dates for filing annual returns

Under the tax law, following are the dates by which the annual tax returns must be submitted by the below mentioned categories of taxpayers.

1. Individuals

Individuals are required to submit returns of income and pay tax, if any, by 30 September.

2. Companies

Companies having accounting year ending on 30 June are required to submit their returns and pay tax, if any, by 31 January

3. Other companies

Other companies are required to submit their returns and pay tax, if any, by 30 September.

4. Sociétés and Successions

Sociétés and Successions are required to submit their returns by 30 September

3. Income chargeable to tax

Income earned or derived by a person is chargeable to tax. Income is deemed to be derived by a person where;

• The income was derived from Mauritius in that income year, whether the person was a resident of Mauritius or not or

• The income was derived during the income year when the person was a resident of Mauritius regardless of whether the income was derived from Mauritius or not.

4. Determination of income year

Income year is defined in the Act in relation to the income of any person as the year in which the income is derived by him.

1. Income earned in Mauritius

Income is deemed to be derived during the period when,

• It has been earned by the person or when it has accrued to him or

• It has been dealt with in his interest or on his behalf whether or not it has become due or receivable.

2. Income earned outside Mauritius

Income earned outside of Mauritius is deemed to be derived by a person during the period when,

• It is received in Mauritius by him or on his behalf, or

• It is dealt with in Mauritius by him or on his behalf

5. System of assessment

Mauritius runs a self-assessment system based on the residence concept. A person resident in Mauritius is liable to tax on the worldwide income derived by that person. However, earned income derived from overseas by an individual resident in Mauritius is taxable to the extent it is remitted to Mauritius. A non-resident is taxed on income derived from sources in Mauritius

6. Computation of taxable income

Taxable income of a person is arrived at by aggregating the gross income from different sources less allowable deductions. Taxable income of an individual includes salaries and benefits derived from employment. No tax is levied on capital gains. Profits from the sale of securities and units are also exempt from tax. There is no withholding tax on dividends.

7. Personal income tax

An individual is liable to pay income tax on the following categories of income,

• Income from employment, including allowances, bonuses, commissions, gratuities (in cash or in kind);

• Pensions and annuities resulting from past employment; and compensation for loss of office;

• Dividends;

• Interest;

• Rents;

• Business income

1. Personal tax rates

Mauritius has a maximum marginal tax rate of 30%.

The rates of income tax on individuals for 2006 are as follows

Income, MR	Tax rate	Maximum cumulative tax in band
0 – 25,000	10	2,500
25,001 – 50,000	20	7,500
50,001 – 450,000	25	107,500
over 450,000	30	–

2. Personal taxation systems

Based on the category or source of income earned, a taxpayer is required to fill up Income Tax Returns forms which are category specific and he must submit the duly filled relevant form to the Commissioner of income Tax not later than 30 September together with a remittance of the amount of tax payable, if any, in accordance with the return

• Pay As You Earn (PAYE) System
  This system applies to employed taxpayers. It concerns salary earners, and covers salaries, wages, pensions and other income related to employment.
   

• Current Payment System (CPS)
  Current Payment System (CPS) concerns self-employed persons. It applies to persons whose income is derived from trade, business, profession and rent. Is also applies to the shares of income from société and succession deriving income from trade, business and rent.
   

• Other Income (Income NOT falling under PAYE and CPS)
  Income such as interest, royalty, foreign dividends, charges (including alimony), annuity. Which does not fall under either PAYE or CPS is categorized as other income.

3. Individual residence status

1. Resident

An individual is considered resident in Mauritius if he has;

• his domicile in Mauritius unless his permanent place of abode is outside Mauritius

• been present in Mauritius in that income year for a period of, or an aggregate period of 183 days or more

• been present in Mauritius in that income year and the 2 preceding income years, for an aggregate period of 270 days or more

An individual who is domiciled in Mauritius is considered to be resident regardless of presence (domicile is normally established by birth, but can be changed if an individual establishes a permanent home elsewhere).

2. Liability for taxation

A resident individual is liable for personal income tax on his or her worldwide income. However, earned income arising outside Mauritius is taxed only if it is received in Mauritius. Non-resident individuals pay tax only on their income arising or deemed to arise in Mauritius. There are some income tax privileges for certain employees of offshore entities

3. Tax exemptions and deductions

Certain types of income are exempted from income tax, and certain types of expense may be deducted: These are;

• Free travel between Mauritius and another country obtained under an employment contract is not taxed;

• Members of the main professional bodies may deduct the costs of attending seminars, conferences, training courses etc;

• A proportion of retirement allowances is exempt;

• Dividends received from 'incentive' companies, from listed companies, or from a company which is a full-rate (35%) taxpayer are exempt;

• Many types of interest on Governments borrowings and securities are exempt;

• The first one million MR received as a severance payment is exempt.

As well as these exemptions, there are significant personal allowances, including personal and children’s' deductions, earned income relief (15%), retirement scheme premiums, loan interest, and a proportion of any investments made into 'incentive' companies.

4. Non-Resident

The Mauritius Income Tax Act defines a Non-Resident as a person who is not resident in Mauritius

In the case of any other person, a Non-Resident is defined as a person;

1. whose center of economic interest is located outside Mauritius and

2. includes a company incorporated in Mauritius in so far as it’s banking transactions carried out through a permanent establishment outside Mauritius are concerned, but

3. does not include a company incorporated outside Mauritius in so far as it’s banking transactions carried out through a permanent establishment in Mauritius are concerned.

8. Corporation tax

Residence status of a corporation

The resident status of a company is determined on the basis of the place of it’s management and control.

Resident company

A company is treated as resident in Mauritius if it is incorporated in Mauritius or if it is managed and controlled from Mauritius. The place where central management and control is located would be determined by such factors as where the board meetings are held and hence where decisions are taken and orders given. A partnership or société having its seat in Mauritius with at least one partner or associate being resident in Mauritius is resident in Mauritius. A trust of which a settlor is non-resident or all the beneficiaries hold either Category 1 or Category 2 Global business licence can elect to be non-resident by filing a declaration to that effect, otherwise it is a resident trust for tax purposes.

Taxation of a resident company

A resident company is taxed on its worldwide income, excluding exempt income, which includes foreign-source income. Tax credits in respect of foreign-source income are available either through Double Tax Treaties through a participation exemption in respect of companies owning not less than 5% of the capital of the paying company, and finally through a unilateral credit offered by Mauritius in the absence of other relief. Foreign income may be aggregated in calculating relief due, but the relief may not exceed the Mauritian tax that would be due on the income concerned.

Until the year 2000, the unilateral foreign tax credit was 90% of the Mauritian tax rate (leaving a residual liability of 10% the Mauritian tax rate). Since then the credit has been 80% of the Mauritian tax rate and it is possible that there will be further reductions.

Taxation of non-resident company

A non-resident company is liable to income tax only on its income arising or deemed to arise in Mauritius, i.e. source income

Income derived in Mauritius

Income derived from Mauritius includes;

• Income derived from any business carried or any contract wholly or partly performed in Mauritius.

• Emoluments derived from any office or employment, the duties of which are performed wholly or mainly in Mauritius, whether such emoluments are received in Mauritius or not.

• Income derived from outside Mauritius by a resident of Mauritius.

• Income derived from investment in shares, debentures or other securities in Mauritius.

• Income derived by a person from money lent by him outside Mauritius

Where the source of any income is not exclusively in Mauritius, that income shall be apportioned between its source in Mauritius and its source elsewhere in such a manner as the Commissioner of Income Tax thinks fit

Income Exempt from Tax

The following categories of income are exempt from tax;

• Income derived by a Freeport company.

• Income derived by the registered owner of a foreign vessel.

• Income derived by the registered owner of a local vessel registered in Mauritius (provided the income is derived from deep sea international trade only). Capital gains on speculative or investment gains.

• A resident société.

• Dividends received and paid by a tax incentive company.

• Interests payable on accounts held by qualified corporate (offshore).

• Interest payable on specific government securities.

• Royalties payable to a non-resident by a qualified company trust or bank.

Allowable deductions

In general, expenses are deductible if they are incurred exclusively in the production of gross income and they are not of a capital or private nature. Expenses are not deductible to the extent that they are incurred in the production of exempt income.

Allowable deductions comprise of:

• Annual and investment allowances on fixed assets.

• Additional investment allowance for manufacturing companies on capital.

• Expenditure incurred on the acquisition of states-of-art technology equipment.

• Marketing and promotional expenses.

• Losses incurred in the production of gross income.

• Bad debts and irrecoverable sums.

• Pre-operational expenses of tax incentive companies.

• Donations to charitable institutions.

• Contributions to superannuation fund and employees’ share scheme.

• Gains on profits derived from sale of units and securities.

• Expenses incurred in setting up social infrastructure.

• Contribution to the national ambulance services.

• Interest on bonds issued by statutory bodies and debentures issued by companies cultivating sugar cane or manufacturing sugar.

7. Corporate Income Tax Rates

The rate of corporate income tax in Mauritius is 25% on chargeable income. However varying rates apply to other companies depending on their status as follows:

Current Normal Rate	25%
Tax Incentive Companies	15%
Companies listed on the Stock Exchange (including a subsidiary of a listed company) other than a tax incentive company	15%
Non-resident société	15 or 25%
Resident Trust	15%
Distribution to resident beneficiaries:
Corporate	25%
Individual	28%

Concept of ‘Societe’

Mauritius tax law has the concept of Societe, which is defined as a Societe formed under any enactment in Mauritius and includes;

• A societe de fait or a societe en participation;

• A joint venture; or

A societe or partnership formed under the law of a foreign country.

9. Calculation of chargeable income

In 2002, Mauritius' progressive schedule of corporate tax rates 0% to 35% had been replaced by a flat tax of 25%. Companies that are awarded Tax Incentive Certificates by the government are eligible for a reduced tax rate of 15%. Effective 1 July 1998, offshore companies incorporated on or after this date were required to pay tax at a rate of 15%. In addition, mutual funds, unit trusts, and certain other types of companies pay a reduced rate of 15%. Companies granted a Global Business License are taxed at 15% and are eligible for other tax reductions and exemptions. List of tax incentive companies includes: companies holding categories 1 and 2 Business Licence, banks holding a Category 2 Banking Licence; companies involved in financial services such as investment trusts, mutual funds, venture capital fund, lease financing companies holding a Regional Development Certificate and so forth.

10. Losses

Losses incurred in the production of gross income in a specific income year may not be deducted from or set off against the gross income for that income year. However, the loss may be carried forward and set off against the gross income in the following income year and in the succeeding years. With regards to the quantum of losses available for set off or carry forward, the Commissioner of Income Tax determines the relevant quantum.

11. Annual & investment allowances

Capital allowances are based on expenditure actually incurred, i.e. after deducting any subsidies received or exchange gains on foreign loans to purchase plant and machinery – exchange losses on foreign loans are added to the capital cost of the plant and machinery. Annual allowances are allowed on capital expenditure relating to acquisition of plant and machinery, construction or extension of industrial premises including hotels, agricultural improvement on agricultural land and scientific research

12. Taxation of Mauritius branch or subsidiary

Branches and resident subsidiary companies pay tax in Mauritius on the same basis; dividends (for the subsidiary) and net profits (for the branch) can both be remitted abroad without deduction of withholding tax. In general, the taxable income of a branch of a foreign company is computed in the same way as that of a resident company however, taxable profits are calculated somewhat differently. A Mauritian subsidiary can deduct interest and royalties paid to its foreign parent, although the payments will constitute Mauritian source income subject to Mauritian income tax in the hands of the parent, but cannot make an allowance for head office expenses, whereas a branch can deduct reasonable head office expenses but cannot deduct interest and royalties paid to its foreign head office. A branch may deduct management expenses charged to it by a foreign head office provided the charge is reasonable having regard to the nature and extent of the management services rendered.

13. Computation of taxable income of a corporation

Expenditure and losses are generally allowable in the year in which they are incurred to the extent that they are incurred in the production of gross taxable income.

1. The following are some particular types of deduction that are permitted in addition:

• Capital and investment allowances based on actual cost at varying rates depending on the type of asset;

• Interest costs;

• Exchange losses from trading;

• Reasonable directors' remune-ration;

• Bad and irrecoverable debts;

• Approved pension contributions;

• Royalties;

• Past trading losses;

• Rent premiums;

• 200% of overseas marketing costs for tourist or export businesses;

• Local taxes.

2. The following are some particular types of deduction that are not permitted:

• Depreciation;

• Exchange losses on capital assets (added to cost base);

• Debenture interest, when the debentures are issued in proportion to shareholdings (treated as distributions);

• Excessive fees paid to directors or their families (treated as distributions);

• Corporate income and capital gains (morcellement) taxes; land transfer tax;

• Provisions;

• Entertainment expenses;

• Carried back losses.

There is group relief available only to the extent that an 'incentive' company can transfer losses to its parent; and there are some special arrangements in the sugar industry.

14. Corporate assessment system

The tax year for companies also runs from 1st July to 30th June. There is a self-assessment system, on a previous year basis. The due date for filing returns under the Income Tax Act is called the Return Date, which is 31st January in Mauritius. A company must submit its tax return by the following 31st January along with full payment of tax due. Companies with an accounting reference date other than 30th June must file and pay their taxes by the 30th September following the end of their year. On receipt of the tax returns the Commissioner of Income Tax may issue an assessment of his own if he disagrees with the company's assessment. There is an appeal process, winding up eventually at the Supreme Court.

1. Assessment, Objection and Appeal

2. Assessment

Tax claimed in a notice of assessment should be paid within 28 days of the date of the notice of assessment, unless the taxpayer objects against the assessment. There is a time limit of four years to raise an assessment, except where the taxpayer has failed to submit a return or in case of fraud or willful neglect

2. Appeal

Representation to Assessment Review Committee (ARC)

Where the taxpayer is not satisfied with the determination of tax through an assessment, an objection or a written representation may be lodged with the Assessment Review Committee within 28 days of the date of the determination

3. Appeal to Supreme Court

Where the taxpayer is not satisfied with the determination of the Assessment Review Committee, he may appeal to the Supreme Court within 28 days of the date of the determination

4. Appeal to Privy Council

Where the taxpayer is not satisfied with the judgment of the Supreme Court, he may appeal to the Privy Council within 28 days of the date of the judgment.

5. Objection

In case of dissatisfaction with a notice of assessment, the taxpayer may object to the tax claimed within a delay of 28 days specifying, in the letter of objection, the grounds of the objection and at the same time pay 30% of the amount of income tax claimed. If the taxpayer objects exclusively to income assessed as emoluments or to the amount of personal reliefs and deductions allowed to him/her, the payment of the 30% mentioned above does not apply

10. Recovery of tax

Where tax remains in arrear, the Commissioner may enforce payment of the tax by the following measures:

1. Deduction from emoluments

Issue a notice to the employer requiring him to deduct the tax outstanding from the emoluments of the employee owing the tax.

2. Attachment order

Attach in the hands of a third party any money owed or payable by him to the taxpayer

3. Distress warrant

Issue a warrant to an Usher of the Supreme Court to recover tax by distress and sale of goods, chattels and effects of the taxpayer.

4. Inscription

Inscribe a privilege on all immovable properties of the taxpayer so as to secure the recovery of tax due.

5. Contrainte

Apply to a Judge in Chambers for an order to sell the immovable properties of the taxpayer

6. Temporary closure of business

Apply to a District Magistrate for an order to close down part or the whole of the business of the taxpayer for a period not exceeding 14 days

7. Objection to leave the country

Issue a direction to the Commissioner of Police to prevent the taxpayer from leaving the country without paying the tax due

11. Mauritius withholding tax

There are no formal withholding taxes as such in Mauritius. Dividends, royalties and interest are chargeable to tax in the hands of resident companies and individuals. Recipients of dividends that have been paid out of 35%-taxed income will not be taxed again. However, anyone making payments outside Mauritius is deemed to be the agent of the recipient, and is responsible for paying over tax that would be due on the payment, which has the effect of a withholding tax Dividends from certain types of company ('incentive' companies, listed companies, offshore or international companies, and freeport companies) have various degrees of freedom from taxation Interest payments to non-residents are subject to preferential rates of tax under Double Tax Treaties. In practice, tax is generally withheld on interest payments to non-residents, although not to residents.

Other Taxes

2. Mauritius Social Security Taxes

Employers and employees make pension contributions in Mauritius; there are no social security taxes as such. The employee pays 3% of earnings up to a ceiling of MR 7,990, and the employer pays 6% of earnings. The employer deducts the social security (sorry, pension) contribution along with income tax. The self-employed also make contributions.

3. Mauritius Stamp Duty

Stamp Duty is levied at a rate of MR 15 per sheet on documents connected with property and mortgage transactions. More importantly, there is a Registration Duty on deeds transferring ownership of property, payable by the transferee at between 8% and 12% (plus a 10% surcharge) depending on the type of property. Land Transfer Tax is payable by the transferor at the rate of 10% for a transfer made within 5 years of acquisition, and 5% thereafter

4. Mauritius Capital Gains (Morcellement) Tax

Capital Gains Tax applies to gains realised by the owner of immovable property who divides it into five or more lots for sale, and is charged at between 20% and 30% depending on the dates of purchase and sale. This 'parceling out' of land is also subject to Land Development Tax at MR 2.50 per square metre of land parceled out, except when it takes place between co-heirs.

5. Mauritius Value Added Tax

Value Added Tax replaced sales taxes in 1998 and is charged on most goods and services at 10%. Exports and supplies to non-residents are zero-rated.