Further to the budgetary speech of 2017/2018 on 14 June 2018, the Finance (Miscellaneous Provision) Bill 2018 (“the Bill”) has been released for consultation. The bill incorporates the various measures announced by the Minister of Finance and this newsletter covers the key amendments to be brought to the Global Business Sector.
These measures are aimed to boost the sector by aligning it to global standards while ensuring Mauritius’ competitiveness as an International Financial Center. However, they also contain provisions which will critically alter planning that people have entered into in the past and may well require some careful thought and planning going forward.
The main aspects of these are to make Mauritius a jurisdiction of substance, adherence to international tax practices and harmonization of the global business and domestic sectors.
Note: The provisions of the bill will only be effective once it is approved by the Parliament and by the president of the Republic of Mauritius.
Amendments to the Financial Services Act
Category 1 Business licences (“GBC1s”)
GBC1s shall continue to be governed under the provisions of the Financial Services Act 2007 (“FSA”) depending on the dates on which they were licenced by the FSC.
The transitional period available are as follows:
|Licence Issue Date||Grandfathering|
|On or before 16 October 2017||Grandfathered up to 30 June 2021|
|After 16 October 2017||Grandfathered up to 31 December 2018|
After these Grandfather dates, a GBC1 licence shall be deemed to be a Global Business Licence (“GBL”).
Conditions attached to the GBL under the amendments
A corporation (other than a licensed bank) where the majority of shares or voting rights or the legal or beneficial interest in a resident corporation are held or controlled, as the case may be, by a person who is not a citizen of Mauritius and such corporation proposes to conduct or conducts business principally outside Mauritius or with such category of persons as may be specified in Financial Services Commission (“FSC”) Rules, it shall apply to the FSC for a Global Business Licence.
A holder of a Global Business Licence shall, at all times –
- Carry out its core income-generating activities in, or from, Mauritius;
- Employ, either directly or indirectly, a reasonable number of suitably qualified persons to carry out the core activities; and
- Have a minimum level of expenditure, which is proportionate to its level of activities;
- Be managed and controlled from Mauritius*; and
- Be administered by a management company.
*Managed and Controlled:
In determining whether GBL is managed and controlled from Mauritius, the FSC shall have regard to such matters as it deems necessary in the circumstances and in particular but
without limitation to whether that corporation –
- has at least 2 directors, resident in Mauritius, of sufficient calibre to exercise independence of mind and judgement;
- maintains, at all times, its principal bank account in Mauritius;
- keeps and maintains, at all times, its accounting records at its registered office in Mauritius;
- prepares its statutory financial statements and causes such financial statements to be audited in Mauritius; and
- provides for meetings of directors to include at least 2 directors from Mauritius.
Amendments to the Financial Services Act (Continued):
Effective from January 2019, GBC2s shall be abolished.
GBC2 licences shall lapse on either 31 December 2018 or 30 June 2021 depending on the licensing dates and shall subsequently need to comply with the prescribed requirements of a GBL.
•Transitional period available to GBC2 companies as follows:
|Licence issue date||Grandfathering|
|On or before 16 October 2017||Grandfathered up to 30 June 2021|
|After 16 October 2017
(however, please note that the
|Grandfathered up to 31 December 2018|
After the Grandfather dates, the GBCS shall continue to:
- comply with the FSA;
- remain subject to the obligations of a licensee; and
- comply with the directions of FSA for the orderly dissolution of its business and the discharge of its liabilities
In circumstances where a GBC2 wishes to continue its business activity as a registered corporate in Mauritius with its effective place outside of Mauritius, it shall need to apply to the FSC for an authorisation to operate as an ‘Authorised Company’.
Conditions attached to an ‘Authorised Company’ under the amendments
A corporate (other than a licensed bank) where the majority of shares or voting rights or the legal or beneficial interest are held or controlled, as the case may be, by a person who is not a citizen of Mauritius and such company –
- Proposes to conduct or conducts business principally outside Mauritius or with such category of persons as may be specified in FSC Rules; and
- Has its place of effective management outside Mauritius,it shall apply to the FSC for an authorisation.
The application must be made through a management company.
Amendments to the Income Tax Act
- Category 1 Global Business Licence(“GBC1”) renamed Global Business Licence(“GBL”)
- Effective from January 2019, deemed Foreign Tax Credit (“FTC”) regime available to GBC1 companies will be abolished
- Under the new tax regime, an income tax exemption of 80% shall apply on the following:
- Foreign dividend, subject to amount not allowed as deduction in source country
- Foreign source interest income
- Profit attributable to a permanent establishment of a resident company in a foreign country
- Foreign source income derived by a Collective Investment Scheme (“CIS”), Closed End Funds, CIS manager, CIS administrator, investment adviser or asset manager licensed or approved by the Financial Services Commission (“FSC”). Income derived by a CIS Manager from investment management services to a Mauritius Fund may therefore not qualify for the partial exemption.
- Income derived by companies engaged in ship and aircraft leasing
- No actual credit shall be allowed on foreign source income if the GBL company has claimed the 80% exemption
- The 80% exemption is available upon meeting pre-defined substance requirements issued by the FSC
- The FSC has not yet issued any guideline on the pre-defined substance conditions to qualify for the 80% exemption. However, the Financial Services Act (“FSA”) has been amended to include the additional conditions that should be satisfied by a GBL company at all times.
The definition of foreign source income shall be changed to “income which is not derived from Mauritius”. In this new definition of foreign source income, it appears that income derived from transactions between two GBCs would not qualify as foreign source income.
Up to 30 June 2021, the current definition of foreign source income, i.e. income from transactions with non-residents and other GBL companies, shall continue to apply to corporations issued with Category 1 Global Business Licence (“GBC 1”) on or before 16 October 2017
- Tax exemption repealed for corporations holding an investment banking licence. However, exemption continues to apply for licences issued on or after 1 September 2016 for a period of 5 income years.
Corporate tax rate of 3% for companies engaged in export of goods to include international buying and selling of goods where the goods are being shipped directly from the exporting country to the importing country.
Amendments to the income tax act (Continued)
Companies which have been issued with a Category 2 Global Business Licence (“GBL2”) on or before 16 October 2017 shall be exempted from income tax until 30 June 2021.
An Authorised Company shall not be resident in Mauritius for tax purposes but it will be required to file a return of income to the Mauritius Revenue Authority (“MRA”) within 6 months of its year-end.
The first point to note is that any company incorporated after October 2017 needs to urgently consider their position whether they are a GBC2 or 1 as the grandfathering expires in December 2018.
Secondly any GBC2 can consider either becoming an authorized company or migrating out to another jurisdiction where the filing of a tax return is not required. In theory becoming non-Mauritius resident does offer some relief from the changes, however, the following needs to be considered:
If an “authorized company” is not managed and controlled in Mauritius where then is it managed? It is likely that will need to be offshore to avoid being taxable onshore somewhere which will require a doubling of costs relating to the administration of the company in Mauritius as well as its management and control elsewhere. It is also possible that tax returns will have to be filed in that jurisdiction as well as in Mauritius. Given that the GBC2 was the cheaper option, the filing of a tax return and management elsewhere will likely make it fairly expensive.
For any GBC1 conducting one of the stated forms of activity life can continue as normal albeit the substance requirements might prove to be a bit of a challenge for smaller companies or those early in their life cycle.
For any companies engaging in activities not listed, however, the 15% tax rate is likely to prove a bit of a shock, and some significant planning might be required to ensure that the original objectives are achieved.
We believe it is likely that this will prove to be the case, but it does mean that the Mauritius base rate is now fairly high compared to its major mid- shore competitors. For example, Ireland is on 12.5% as is Cyprus, Singapore is on 10% and Hong Kong on 16.5% but only for Hong Kong source income.
The UK is indeed on 19% reducing to 17% which might prove a real competitor given that there is a superb double tax treaty network, no withholding taxes and no substance requirement!
We invite clients to contact us to discuss their requirements in the light of the new changes.