South Africa and Mauritius renegotiated their treaty in 2013. That treaty was ratified by the Mauritius Government in May 2015. The New DTA is to be effective from 1 January 2016.
The most important aspect of this is that Mauritius Revenue Authority (MRA) and the South African Revenue Service (SARS) have agreed in an MOU as to how to apply the Residence Article governing companies. This has introduced some key changes to the new treaty and under the MOU. We have summarised these changed below.
Tie breaker clause for dual resident companies
Perhaps the most unusual feature of the new arrangement applies to so called dual resident companies. This is, for example, a company that is tax resident in Mauritius by virtue of being incorporated in there, but also in South Africa by virtue of being effectively managed from South Africa. Historically under the old treaty, a company was treated as being tax resident where the place of effective management was located.
In a very unusual manner the new treaty contains a new tie breaker clause. In future the relevant authorities of the Contracting States will by mutual agreement settle the question
As to where the company will be taxed. If they are unable to reach agreement then the company will fall outside of the scope of the DTA. This is other than for the provisions of Article 25 which relates to exchange of information
The MRA have indicated that they will continue to look to “place of effective management test”. The question remains as to how SARS would apply the test.
The implications of the amendment really imply that greater care is taken in showing the effective management is actually in Mauritius if reliance is to be placed on the treaty.
Taxes covered by the treaty
Somewhat strangely the new dividend and interest withholding taxes are not included.
SARS has recently published a statement confirming that they will apply South Africa’s DTA network to the dividend and interest withholding tax.
However, the position remains uncertain which is odd in a new treaty.
Profits derived from construction, assembly or installation projects lasting more than 9 months are normally taxed in the source state under the new treaty this is extended to projects lasting more than 12 months.
Under the existing DTA, a dividend paid to the beneficial owner of the dividend, that is a
company, that holds at least 10% of the capital of the company distributing the dividend can
be taxed at 5% of the gross amount of the dividend. In all other cases, a 15% rate would
apply. The new treaty retains the 5% rule but in all other cases the rate is now 10%.
Taxation of interest
Under the new treaty, the Mauritius recipient of interest will be subject to tax in South Africa at a rate of up to 10 per cent of the gross amount of the interest. The treaty also exempts certain interest amounts from tax. This includes interest paid on debt instruments listed on the JSE or the Mauritius Stock Exchange. This is in line with South Africa’s domestic WHT law.
Taxation of royalty income
The treaty allows for a withholding tax of 5% of royalties paid.
Taxation of capital gains tax
With regards to CGT non-residents are subject to tax in SA where:
immovable property situated in the Republic is held by that person or any interest or right of whatever nature of that person to or in immovable property situated in South Africa; or
any asset which is attributable to a permanent establishment of that person in South Africa.
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