Finance Act 2018A changing tax landscape

for global businesses

In an increasingly global economy, the Mauritian government wishes to safeguard its position as a reputable jurisdiction for

doing local and international business. It has therefore committed to implementing some of the Base Erosion and Profit Shifting

(BEPS) recommendations set out by the Organisation for Economic Co-operation and Development (OECD). These measures are

set out in the Finance (Miscellaneous Provisions) Act 2018 (‘FA 2018’) and aim at harmonizing the existing provisions of business

licensing to conform to international standards.

Why is it changing?

c

Why

The changes

Impacts

Timeline

Appendix

1

The Category 1 Global Business Licence (‘GBL1’) will be deemed to be a type of entity called Global Business Licence (the ‘new

GBL’) at a set date ‘‘prescribed date’). The prescribed date will depend on the date of incorporation of the GBL1. We set out the

timeline on page 6.

Currently, GBL1 holders are subject to tax at a minimum rate of 3%, taking into consideration deemed foreign tax credit. Once it

is a new GBL holder, the deemed foreign tax credit will no longer apply. Instead, a partial income tax exemption of 80% will

apply on specific types of income including

a) foreign source dividends; and

b) foreign source interest.

It is to be noted that the partial exemption is subject to meeting the requirements of a substance test. Whilst the legislation

does not define what constitutes the substance test, we expect guidance to be published soon.

We set out at Appendix IV a table showing the tax consequences of a new GBL holder.

What is changing?

Category 1 Global Business Licence

Why

The changes

Impacts

Timeline

Appendix

GBL1

GBL2

Funds

2

Why

The changes

Impacts

Timeline

Appendix

GBL1

GBL2

Funds

The licence of a business with a Category 2 Business Licence (‘GBL2’) will not be renewed by the Financial Services Commission

(‘FSC’) after the prescribed date. Please refer to page 6 for the timeline. However the business will still need to comply with

section 96A of the Financial Services Act.

We expect that there will be a process to convert a GBL2 holder prior to the prescribed date. The type of entity will depend on

the tax residency of the structure. The rules governing tax residency have been amended such that a Mauritian tax resident

company will have to satisfy the following conditions in order to meet the residency requirement:

a) The company is incorporated in Mauritius or has its place of central management and control in Mauritius; AND

b) Its place of effective management is in Mauritius.

The legislation is as yet unclear regarding what constitutes a place of effective management. However, for indicative purposes,

we provide at Appendices I & II the guidelines set out by the OECD regarding the factors it would take into consideration when

determining the place of effective management.

Following the determination of the tax residency of the structure, it will either be classified as a:

a) A new GBL;

b) Domestic company; or

c) Authorized company.

We set out the tax consequences applicable to each type of entity at Appendix IV.

Category 2 Global Business Licence

3

What is changing?

The FA 2018 provides an exemption of 80% in respect of income derived from overseas by a Collective Investment Scheme

(‘CIS’), closed end fund, CIS manager, CIS administrator, investment advisor or asset manager. The exemption is subject to

satisfying the substance test as required by the FSC.

However, the FSC is yet to publish the conditions for satisfying substance test.

Collective Investment Funds and Investment Advisors

Why

The changes

Impacts

Timeline

Appendix

GBL1

GBL2

Funds

4

What is changing?

• The government recognizes that the changes set out above will impact the offshore investment sector. Therefore it has

allowed for transitional periods both for GBL1 and GBL2 holders.

• As a new GBL holder, a business must ensure that its core income generating activities are located in Mauritius. For example,

it must employ suitably qualified persons to carry out its core activity. It must also have a minimum level of expenditure in

Mauritius proportionate to its activities. In most cases, we would expect these criteria to be met already.

• The partial exemption regime only applies to certain types of income. Notably, it does not apply to overseas royalties.

Interestingly, it also does not apply to consultancy or advisory services unless derived by a CIS and Investment Advisor.

• Whilst the new regime will be less beneficial than the old one, there are still significant fiscal benefits to investing in Mauritius

as set out in Appendix IV.

How does it impact me?Why

The changes

Impacts

Timeline

Appendix

5

What is the timeline?

GBL1

Date of Incorporation Treatment of Business

Pre 16/10/2017 GBL1 treatment applies until 30/06/2021

17/10/17 to 31/12/2018 GBL1 treatment applies until 31/12/2018

01/01/2019 Onward New Global Business Licence

GBL2

Date of Incorporation Treatment of Business

Pre 16/10/2017 GBL2 treatment applies until 30/06/2021

17/10/17 to 31/12/2018 GBL2 treatment applies until 31/12/2018

01/01/2019 Onward Business will need to be converted into another entity

Why

The changes

Impacts

Timeline

Appendix

Source: Section 96A of the Financial Service Act

Source: Section 96A of the Financial Service Act

6

Tax Residency

Management & Control

Transitional provisions

Tax Consequences

The FA 2018 has replaced section 73A of the Income Tax Act to provide that a company which is incorporated in Mauritius shall

be treated as non-residents if its place of effective management is situated outside Mauritius. Accordingly, in order for a

company to be tax resident in Mauritius it should satisfy the following conditions:

I. Determining tax residency of a business

The Company is

incorporated in Mauritius

OR

The Company has its

central management and

control in Mauritius

ANDThe Company has its place

of effective management in

Mauritius

Why

The changes

Impacts

Timeline

Appendix

7

While the FA 2018 is unclear as to what would constitute a ‘place of effective management’, taxpayers may rely on the OECD

guidelines in this regard. We have outlined below, some of the factors to be considered while differentiating between ‘Central

Management & Control’ and ‘Place of Effective Management’:

II. ‘Central management & control’ vs ‘place of effective management’

Factors to be considered Central Management & Control Place of effective management

Place of residency of directors Should be in Mauritius Should be in Mauritius

Place of residency of key management Not necessarily in Mauritius Should be in Mauritius

Place of decision making:

• By the shareholders Should be in Mauritius Should be in Mauritius

• By the board of directors Not necessarily in Mauritius Should be in Mauritius

• By the key management Not necessarily in Mauritius Should be in Mauritius

Place of maintaining the books of accounts Should be in Mauritius Should be in Mauritius

Place of habitually concluding contracts Not necessarily in Mauritius Should be in Mauritius

Tax Residency

Management & Control

Transitional provisions

Tax Consequences

Why

The changes

Impacts

Timeline

Appendix

Source: OECD Model Tax Convention and Discussion Paper

8

In order to ensure a smooth transitioning from the existing to the new tax regime, the FA 2018 provides the below transitional

provisions:

III. Transitional provisions

Legislative

Reference

Category 1 Global Business licence Category 2 Global Business licence

Date of

incorporation

Section 96A of

the Financial

Service Act

Before 16 October 2017 After 16 October 2017 Before 16 October 2017 After 16 October 2017

Transitional

Period

Section 96A of

the Financial

Service Act

Up to 30 June 2021 Up to 31 December 2018 Up to 30 June 2021 Up to 31 December 2018

Taxes up to

Transition Date

Section 161A of

the Income Tax

Act

3% 3% Exempt Exempt

Treatment after

Transition Date

Section 96A of

the Income Tax

Act

Deemed to be new GBL Deemed to be new GBL Licences will lapse but

companies will still need to

comply with the

obligations of a licencee

issued by the FSC

Licences will lapse but

companies will still need to

comply with the

obligations of a licencee

issued by the FSC

Tax Position after

Transition Date

Second

Schedule to the

Income Tax Act

15% subject to an 80%

exemption regime on

specific income.Please see Appendix IV for more

details

15% subject to an 80%

exemption regime on

specific income.Please see Appendix IV for more

details

It will depend on the

status of the entity which

will be determined

according to the place of

effective management.Please see Appendix IV for more

details

It will depend on the

status of the entity which

will be determined

according to the place of

effective management. Please see Appendix IV for more

details

Tax treatment of

unrelieved losses

carried forward

Section 59A of

the Income Tax

Act

Should be allowed to carry

unrelieved losses because

no change in ultimate

shareholding

Should be allowed to carry

unrelieved losses because

no change in ultimate

shareholding

Unrelieved losses will

lapse with the dissolution

of a business

Unrelieved losses will

lapse with the dissolution

of a business

Tax Residency

Management & Control

Transitional provisions

Tax Consequences

Why

The changes

Impacts

Timeline

Appendix

Source: Finance (Miscellaneous Provisions) Act 2018

9

IV. Tax consequences under the new regimeType of entity Legislative Reference Domestic Company New Global Business licence Authorized Company

Tax Residency Section 73 of the

Income Tax Act

Resident Resident Non Resident

Taxation of gross income

Foreign Source

Dividend

Second Schedule to

Income Tax Act

80% partial tax exemption on

fulfillment of substance test

provided dividend has not been

allowed as deduction in country

of source

80% partial tax exemption on

fulfillment of substance test2

provided dividend has not been

allowed as deduction in country of

source

Non-taxable

Foreign Source1

Interest

Second Schedule to

Income Tax Act

80% partial tax exemption on

fulfillment of substance test2

80% partial tax exemption on

fulfillment of substance test2

Non-taxable

Income from

permanent

establishment

outside

Mauritius

Second Schedule to

Income Tax Act

80% of profits attributable to

permanent establishment3

situated outside Mauritius

80% of profits attributable to

permanent establishment3 situated

outside Mauritius

Non-taxable

Income from

leasing of ship

and aircraft

Second Schedule to

Income Tax Act

80% partial tax exemption on

fulfillment of substance test2

80% partial tax exemption on

fulfillment of substance test2

Not Applicable

Other foreign

source income1

Taxable Taxable Non-taxable

Mauritius

source income

Taxable Taxable Taxable, subject to tax treaty

provisions

Deductible

expenses

Expenses attributable to exempt

income shall not be allowed as a

deduction

Expenses attributable to exempt

income shall not be allowed as a

deduction

Expenses attributable to exempt

income shall not be allowed as a

deduction

Tax Rate 15%+2% = 17% 15% 15%

Foreign Tax Credit On Actual basis if partial

exemption is not availed

On Actual basis if partial exemption

is not availed

Not Applicable

[1] Foreign Source Income is defined as income which is not derived from Mauritius and accordingly, income from other global business licencees shall not be eligible for partial tax exemption[2] MRA is yet to publish regulations pertaining to the substance test [3] ‘Permanent Establishment’ is not defined under the Income Tax Act and taxpayers would have to rely on tax treaties or other jurisdictional domestic laws

Tax Residency

Management & Control

Transitional provisions

Tax Consequences

Why

The changes

Impacts

Timeline

Appendix

Source: Finance (Miscellaneous Provisions) Act 2018

10

The information presented does not constitute and should not be construed as accounting, legal or

tax advice. It is intended to provide an overview. We recommend that your accounting, legal or tax

expert be consulted for any specific advice which you may require in light thereof.

The source of information is based primarily on the announcements made by the Minister of Finance

and Economic Development in his budget speech. The measures announced may however change

upon enactment of the Finance Act in due course.

© 2018 SAFYR UTILIS – Regulated by the Financial Services Commission of Mauritius and accredited

with the Chartered Institute of Taxation (UK) as Chartered Tax Adviser

Disclaimer

7th Floor, Tower 1 NeXteracom,

Cybercity

Ebene 72201

Republic of Mauritius

+230 403 4250 +230 468 1178

contact@syul.mu

Contact Us