MAURITIUS FINANCE ACT 2020: KEY AMENDMENTS

The Finance (Miscellaneous Provisions) Bill 2020 (Bill) was introduced to the parliament on 7 July 2020. After being subject to parliamentary debates, The Finance (Miscellaneous Provisions) Act 2020 (“the Act”) was voted with amendments on 4 August 2020 and received the President’s assent on 7 August 2020. The Act provides to amend a number of legislations to provide for implementation of measures announced in the Budget Speech delivered on 4 June 2020. This article covers the key fiscal amendments provided by the Act.

  1. INCOME TAX

The following are the main amendments made to the Income Tax Act 1995 (ITA):

PERSONAL INCOME TAX

Solidarity levy

The Act has increased the rate of solidarity levy applicable to individuals from 5% to 25% and has reduced the threshold of the leviable income from MUR 3.5 million (approx. USD 87 500) to MUR 3 million (approx. USD 75 000).

A cap has been introduced on the solidarity levy at the rate of 10% of the sum of an individual’s:

  • Net income (excluding any lump sum by way of commutation of pension, death gratuity or as consolidated compensation for death or injury payable pursuant to any enactment, from a superannuation fund or under an approved personal pension scheme);
  • Dividend income received from tax- resident companies and cooperative societies; and
  • Share of dividend as a partner of a Mauritian resident partnership or heir in a succession had any dividend received by the partnership or succession been wholly distributed among the partners or heir

Further, the Pay As You Earn (PAYE) system will now apply to the Solidarity Levy. Where the emoluments of an employee exceeds MUR 230 769 (approx. USD 5 770) in a month, the employer is required to withhold, in addition to the 15% income tax, an additional tax on the amount exceeding MUR 230 769 at the rate of 25%, provided that the additional tax withheld does not exceed 10% of total emoluments.

Income exemption threshold for

tax-resident individuals

The amount of income exemption threshold that tax-resident individuals may deduct from their net income has been increased as follows:

  • Category A (individual having no dependants): From MUR 310 000 (approx. USD 7 750) to MUR 325 000 (approx. USD 8125);
  • Category B (individual having one dependant): From MUR 420 000 to (approx. USD 10 500) MUR 435 000 (approx. USD 10 875);
  • Category C (individual having two dependants): From MUR 500 000 (approx. USD 12 500) to MUR 515 000 (approx. USD 12 875);
  • Category D (individual having three dependants): From MUR 550 000 (approx. USD 13 750) to MUR 600 000 (approx. USD 15 000); and
  • Category E (individual having four or more dependants): From MUR 600 000 (approx. USD 15 000) to MUR 680 000 (approx. USD 17 000).

CORPORATE INCOME TAX

Extension of reduced income tax rate of 3%

The benefit of the reduced income tax rate of 3% has been extended to freeport operators and private freeport developers engaged in the retreading of used tyres and recycling of waste meant for the local market.

Solidarity levy applicable to telephony

The solidarity levy on telephone service providers charged at the rate of 5% of accounting profit and 1.5% of turnover, which currently applies until the year of assessment commencing on 01 July 2019, has been extended to the subsequent year of assessment and is now permanent.

Tax holidays

An eight-year income tax exemption has been introduced on the following income:

  • Income derived from inland aquaculture in Mauritius by a company which has started its operations on or after 04 June 2020;
  • Income derived by a company which has started its operations on or after 04 June 2020 and approved by the Higher Education Commission as a branch campus of an institution which ranks among the first 500 tertiary institutions worldwide; and
  • Income derived from the manufacturing of nutraceutical products by a company which has started its operations on or after 04 June 2020.

The tax holidays start from the income year in which the company has started its operations

Allowance for capital expenditures

Electronic, high-precision or automated machinery or equipment

  • A person who has incurred capital expenditure on electronic, high-precision or automated machinery or equipment on or after 01 July 2020, can now claim a 100% annual allowance in that income year, provided the person does not also claim an annual allowance under the normal annual allowance rules.

Plant and machinery

  • A manufacturing company that incurs capital expenditure on new plant and machinery (excluding motor cars) during the period from 1 July 2020 to 30 June 2023, can now claim, in the year of acquisition and in each of the two subsequent income years, a tax credit equivalent to 15% of the cost of such new plant and machinery (excluding motor cars).
  • A company that has incurred capital expenditure on the acquisition of new plant and machinery (excluding motor cars) during the period 01 March 2020 to 30 June 2020 and which has been adversely affected by COVID-19, can claim a deduction of 100% of such capital expenditure by way of investment allowance in that income year, in addition to any other annual allowance that it may be entitled.

Double deduction

Expenditure on medical research and development

  • A person engaged in medical research and development that incurs expenditure on medical research and development carried out in Mauritius, shall be allowed a double deduction of that expenditure from his or her gross income.

Expenditure incurred on patents and franchises

  • A company that incurs expenditure for the acquisition of patents and franchises and costs to comply with international quality standards and norms, may deduct from its gross income, twice the amount of the expenditure incurred in that income year. A company that claims such a double deduction, will not be entitled to any other annual allowance in respect of such expenditures.

Extension of time for payment of income tax for companies operating in the tourism industry

Companies engaged in specified activities in the tourism industry and (a) having accounting period ending on any date during the period September 2019 to June 2020 or (b) having due date for payment of tax under the advance payment system (APS) during the calendar year 2020, will be allowed the following extension of time for payment of annual income tax or tax payable under the APS system:

  • half of the tax must be paid by 29 December 2020; and
  • the remainder must be paid by 28 June 2021.

Measure targeted to companies carrying on life insurance business

Companies carrying out life insurance business can opt to be liable to tax on the higher of the actual basis of tax or 10% of the profit attributable to shareholders, adjusted for capital gains and losses (Alternative Minimum Tax).

  1. VALUE ADDED TAX

The key amendments to the Value Added Tax Act 1998 (VAT Act) are as follows:

Introduction of arm’s length principle to VAT

Where a supply is not made in the course of an arm’s length transaction, the value of the supply would now be the open market value of the supply or such other amount as the MRA may determine.

Reverse charge

The reverse charge provision on supply of services received from abroad has been amended such that it is now applicable only if (a) the taxable supply performed or utilised in Mauritius is made by a person who does not belong in Mauritius and is not VAT registered; and (b) the recipient of the supply is a VAT registered person.

VAT on digital or electronic services supply by a foreign supplier

The supply of digital or electronic services by a foreign supplier to a person in Mauritius will be subject to VAT. A foreign supplier is defined as a person who has no permanent establishment in Mauritius, has his or her place of abode outside Mauritius and supplies, in the course of business digital or electronic services in Mauritius. Digital or electronic services is defined as such services as may be prescribed which is supplied by (a) by a foreign supplier over the internet or an electronic network which is reliant on the internet; or (b) by a foreign supplier who is dependent on information technology for its supply

Apportionment of supplies for input tax claims

Where a VAT registered person is engaged in a project spanning over several years and the MRA is of the opinion that the apportionment of input tax between taxable supplies and exempt supplies on a pro-rated basis is not appropriate, it may require the registered person to apply an alternative basis of apportionment for input tax.

  1. PROPERTY TAX

Land (Duties and Taxes) Act 1984

The Land (Duties and Taxes) Act has been amended to extend the list of exemption from land transfer tax to include the transfer of a portion of freehold land during the period from 01 July 2020 to 31 December 2020, to a company undertaking construction of housing estates of at least five residential units provided that the construction is completed by 31 December 2021. The transfer of shares, assets, or property to a subsidiary of the Bank of Mauritius is now exempted from registration duty and land transfer tax

Registration Duty Act 1984

Exemption from registration duty The following are now exempted from registration duty:

  • The transfer of a portion of freehold land during the period from 01 July 2020 to 31 December 2020, to a company undertaking construction of housing estates of at least five residential units provided that the construction is completed by 31 December 2021;
  • The acquisition of immovable property for use as a Life Science Research Centre certified by the Economic Development Board; and
  • The issue or transfer of shares in companies trading on the venture market operated by the Stock Exchange of Mauritius

Extension of exemption

The exemption from registration duty on the acquisition by a Mauritian citizen of a house having a value not exceeding MUR 6 million (including under vente en état futur d’achèvement (VEFA) during the period. 01 September 2016 to 30 June 2020 has been extended to cover an acquisition period of up to 30 June 2022 and the threshold for the value of the property has been increased from MUR 6 million (approx. USD 150 000) to MUR 7 million (approx. USD 175 00).

  1. TAX ADMINISTRATION

During the lockdown period the MRA had put in place temporary facilities for the electronic submission of tax returns and electronic payment of tax dues. This has proved to be very effective and the MRA is now embracing greater reliance on electronic systems. A series of measures that have been introduced to that effect are set out below:

The MRA may give any correspondence, notice of assessment, determination or other notice or document electronically.

  • The MRA may approve or set up such system as it considers appropriate for the secure electronic service of notices and documents and payment of taxes.
  • Every person who is required to submit a return or statement will be allocated an e-tax account. A tax representative will, in addition to his or her e-tax account, be allocated a tax representative e-tax account. The e-tax account or the tax representative e-tax account will be used to file a return, statement of income or other document to the MRA and make payment of any tax to the MRA.

It is now mandatory to submit and effect payment (where applicable) electronically in respect of the following:

  • quarterly return under the advance payment system (in respect of companies);
  • statement under the current payment system (in respect of individuals deriving rental income or income from business);
  • amended return;
  • return in respect of a trust or a resident société;
  • return in respect of the estate of a deceased person.
  • Registration for VAT purposes can now be made through the Companies and Business Registration integrated System operated by the Registrar of Companies.
  • Where output tax exceeds input tax, the difference must now be paid electronically to the MRA at the time the VAT return is submitted.
  1. COMPANIES ACT

The following are the key amendments to the Companies Act 2001 (CA):

Independent directors in public companies

The CA introduces the requirement of the Board of directors of a public company to include, at all times, at least two independent directors. Independent director has been defined as a director who is a non-executive director and who:

  • is not an employee;
  • does not have material business relationship with the company either directly or as a partner, shareholder, director or senior employee of an organisation that has such relationship with the company;
  • does not receive remuneration from the company except remuneration or any other benefit given to him as a director in accordance with section 159;
  • is not a nominated director representing a substantial shareholder;
  • does not have close family ties with any of the advisers, directors or senior employees of the company;
  • does not have cross directorships or significant link with other directors through involvement in other companies or other organisations; and
  • has not served on the Board for more than nine continuous years from the date of his or her first election.

Duty of directors

The list of duties owed by directors of companies has been extended to include a duty to act in a manner which is not oppressive, unfairly discriminatory, or unfairly prejudicial to shareholders of the company. The failure by a director to comply with his or her fiduciary duties set out in the CA is now specifically listed as an offence which, on conviction, is subject to a fine not exceeding MUR 100 000, and to imprisonment for a term not exceeding 12 months.

  1. FINANCIAL SERVICES

The following are the main amendments to the Financial Services Act 2007 (FSA):

Moneylending

Moneylending activities will now be regulated by the Financial Services Commission (FSC) under the FSA and a new section 14A has been included in the FSA which, inter alia, provides that subject to certain exemptions as provided under the FSA, any person, other than a bank or a non-bank deposit taking institution, whose business is that of moneylending or who provides, advertises or holds himself out in any way as providing that business, whether or not he possesses or owns property or money derived from sources other than the lending of money, and whether or not he carries on the business as a principal or as an agent is required to apply for a licence. Only a company is entitled to apply for a moneylending licence.

Introduction of leniency for filings of audited financial statements

A new section 30A has been introduced to empower the FSC to extend the prescribed period during an emergency period for filing of its yearly audited financial statements. An emergency period includes a period during which a curfew order, or similar restriction on the movement of persons is in force under any enactment on the ground of public order, public health or public safety or a period where Mauritius has been affected by a natural disaster. The FSC may also exempt a person from complying with the obligation to apply from the requirement to file yearly financial statements.

New duty of auditor

The Finance Act also introduced a duty on an auditor to report to the FSC any matter which gives the auditor reasonable grounds to believe that (a) there has been a material adverse change in the risks inherent in the business of the licensee with the potential to jeopardise the ability of the licensee to continue as a going concern, (b) the licensee may be in contravention of the FSA or any regulations made under the FSA, FSC Rules or any directions issued by the FSC, (c) a financial crime has been, is being or is likely to be committed, (d) serious irregularities have occurred, or (e) there has been noncompliance with the laws of Mauritius.

  1. INSOLVENCY ACT

The following are the main amendments to the Insolvency Act 2009 (IA):

Power of Court to ‘cram down’

The IA has been amended to provide for the powers of the Court to impose a restructuring of debt in a bankruptcy arrangement despite objections from creditors where (a) a deed of company arrangement between a company and its creditors or any class of its creditors has been voted on at the watershed meeting; (b) the creditors meant to be bound by the deed of company arrangement are placed in two or more classes of creditors for the purpose of voting on the deed of company arrangement at the relevant meeting; (c) at least one class of creditors resolves that the company executes the deed of company arrangement; and (d) at least one class of creditors does not resolve that the company executes the deed of company arrangement.

The Court may, on the application of an administrator or, with leave of the Court, on the application of a company or creditor, approve the deed of company arrangement and order that the deed of company arrangement be binding on the company and all classes of creditors intended to be bound Insolvency Act by the deed of company arrangement.

Such an order can be made by the Court where the creditors representing at least 75% in value of all creditors who are intended to be bound by the deed of company arrangement have voted in favour of the deed of company arrangement; and the Court is satisfied that no provision of the deed of company arrangement would be (a) oppressive or unfairly prejudicial to, or unfairly discriminatory against, one or more of the creditors; or (b) contrary to the interests of the company as a whole.

  1. BANKING

The main amendments to the Banking Act 2004 (BA) are as follows:

Introduction of digital banking business and a digital banking licence

The definition of ‘Bank’ is amended to cater for the digital banking business and the definition of ‘banking licence’ now includes a digital banking licence.

  • The BA is amended to cater for any banking business carried on exclusively through digital means or electronically, thereby providing for a new definition of ‘digital banking business’. This particular amendment to the BA is brought, especially, to cater for the introduction of digital currency which the Bank of Mauritius is now empowered to issue and it is likely that with the introduction of the new digital currency framework, guidelines from the Bank of Mauritius will be forthcoming.
  • A new subsection to cater for a bank which has been granted a banking licence by the central bank to carry on exclusively digital banking business is now included in section 7 relating to the grant or refusal to grant banking licence, of the BA.

Amendment to the provisions relating to Conservatorship

The powers and duties of a conservator appointed by the central bank are widened in scope in that the conservator now has, inter alia, all the powers of the shareholders, directors and officers of the financial institution concerned and may operate the financial institution in its own name unless otherwise specified by the central bank. With a time limit now imposed unless the board of directors of the central bank determines otherwise, a financial institution must not be placed under conservatorship for more than 180 days.

The provisions of the BA relating to the rehabilitation or reorganisation of a financial institution are amended to now enable the conservator to propose, subject to the other provisions of the BA, another reorganisation plan to all depositors and other creditors who will not receive full payment under the plan.

Other amendments

Moneylending is no longer within the purview of the Bank of Mauritius. The definition of ’moneylender’ in the BA is accordingly deleted and the provisions in respect of licensing of moneylenders are repealed. Moneylending now falls under the purview of the FSC (please refer to Section F (Financial Services and Reporting) above).

The BA is amended to provide for directives in addition to guidelines and instructions.

The BA now makes reference to the Credit Scoring Services Agency which is established under the new section 52B of the Bank of Mauritius Act (dealt with further below)

  1. BANK OF MAURITIUS ACT 2004 (BOM ACT)

The following changes have been made to the BoM Act:

Introduction of digital currency

With the introduction of the digital banking business and a digital banking licence under the BA, digital currency is now introduced in the BoM Act and the Bank of Mauritius (BoM) is empowered to issue digital currency

Green and Blue Bonds

The BoM Act is amended to cater for the ability of the BoM to raise loans by itself or through its subsidiary, or acting as agent of Government, by the issue of securities for investment in projects or companies promoting the sustainable economic development of Mauritius, including the blue economy and green economy. This amendment is in line with the proposal made during this year’s Budget Speech regarding the introduction of new products in line with the recommendations of the 10-year blueprint to diversify our financial services sector.

Establishment of Credit Scoring Services Agency

The BoM may now by itself, through a subsidiary or any other legal entity, establish a credit scoring services agency for the purpose of providing credit scores on an applicant for credit on such terms and conditions as it may determine. ‘Credit score’ is defined as an assessment of the creditworthiness of an applicant for credit. The BoM may make use of information available in the Credit Information Bureau and may request any person to provide it with such information as it may consider necessary for the establishment of the Credit Scoring Services Agency. Such person and the Credit Information Bureau are required notwithstanding any confidentiality provisions under the BoM or any other enactment, to extend assistance to, and comply with the request of, the Credit Scoring Services Agency.

  1. IMMIGRATION

The following changes have been made to the Immigration Act 1970:

Changes as per the Act

Commentary

Non-citizen holding immovable property under the Integrated Resort Scheme, Invest Hotel Scheme, property Development Scheme or Smart City Scheme whose value is not less than USD 375 000 will have the status of resident.

The threshold for the value of the property has been reduced from USD 500 000.

Parents of, non-citizens stated above, holders of a valid residence or occupation permit and having granted the status of permanent resident and non-citizens coming to serve the Government under the Service to Mauritius Programme for a period not exceeding three years, will have the status of resident. This is a new addition to the laws.

Previously only spouses and dependents of these specified persons were granted the status of resident in Mauritius.

A person who invests at least USD 375 000 or an equivalent amount in the specified activities of the Schedule of the IA which include agro-based industry, education, initial public offering will now be able to apply for the status of permanent resident.

The threshold for the minimum investment has been reduced from USD 500 000.

Any investor or self-employed non-citizen who is a holder of an occupation permit or any retired noncitizen who is a holder of a residence permit may apply for the status of permanent resident within the 10-year occupation or resident permit period

Previously the timeline for making such application was at the expiry of three years of the occupation or residence permit.

The validity of a permanent residence permit has been extended to 20 years.

The validity was for period of 10 years prior to this change.

The holder of an occupation permit under category professional may hold shares in a business where he is employed provided that he is not a majority shareholder.

Previously, holders of such category of occupation permit were not allowed to hold shares in the companies where they were employed.

Economic Development Board Act

The Finance Act has also amended the Economic Development Board Act 2017 (EDBA) and one of the key changes is the repealing of the First Schedule of the EDBA in its entirety and replacing it with a new schedule which provides for the new criteria for registration with the Economic Development Board and for eligibility of permanent residence permit. The main changes to the First Schedule of the EDBA are as follows:

  • In relation to occupation permit under category investor, the threshold for initial investment has been reduced from USD 100 000 to USD 50 000.
  • In order to be eligible for an occupation permit, the minimum monthly basis salary for professionals in pharmaceutical manufacturing and food processing sectors is MUR 30 000 (reduced from MUR 60 000). For renewal of an occupation permit of a self-employed person, his or her minimum business income must be MUR 800 000 per year as from the third year of registration. The criteria of cumulative business income of at least MUR 2.4 million during the three years preceding the application for occupation permit and with a business income of at least MUR 600 000 per year is no longer applicable.
  • In relation to permanent resident permit, the following changes have been made to the criteria of eligibility for investors:

Eligibility criteria prior to the Act

Eligibility criteria after the Act

For any investor:

  • Holder of an occupation permit as investor; and
  • An aggregate turnover of at least MUR 45 million for any consecutive period of three years.

For an investor with a minimum investment of USD 500 000:

  • Investment of at least USD 500 000 in a qualifying business activity.

For any investor:

  • Holder of an occupation permit as investor for at least three years; and
  • A minimum annual gross income of at least MUR 15 million for three years preceding application or its aggregate.

For an investor with a minimum investment of USD 375 000:

  • Minimum investment of USD 375 000 in a qualifying business activity.

The First Schedule also now provides for a new part III which sets out the following criteria for eligibility for permanent residence permit for different categories of persons who have been a holder of an occupation permit or residence permit for at least three years immediately before 1 September 2020;

Investor

Cumulative turnover of at least MUR 12 million during the three years preceding the application

Self-employed

Cumulative business income of at least MUR 2.4 million during the three years preceding the application.

Professional in the information and communication technologies (ICT) sector and business process outsourcing (BPO) sector

Monthly basic salary of at least MUR 30 000 during the three years preceding the application.

Professional in any other sector

Monthly basic salary of at least MUR 60 000 during the three years preceding the application.

Retired non-citizen

Monthly transfer of at least USD 1 500 or its equivalent in freely convertible foreign currency, during the period of three years or cumulative transfer of at least USD 54 000 or its equivalent in freely convertible foreign currency, during the period of three years.