By Johanne Hague, Senior Partner, Juristconsult Chambers, Ebene, Mauritius
The Mauritius budget for 2019—2020, delivered by the Prime Minister and Minister of Finance and Economic Development on 10 June, includes new tax incentives, changes to the partial exemption regime, and new substance requirements. Overall, there are no big surprises in terms of fiscal measures, which itself is not surprising given coming general elections later this year.
The budget is built around ten main avenues, centered mainly on consolidating socio-economic growth, infrastructural development, and environmental protection. The fiscal measures announced are aimed at strengthening the existing legislative tax framework addressing certain stakeholders’ concerns and further aligning the tax regime with international standards.
Last year, one of the most significant Mauritius changes was the reform of tax laws which may be considered harmful tax practices. The deemed foreign tax credit was abolished and instead a partial tax regime was established. This year’s budget purports to address other areas which may be regarded as harmful, such as any perceived ring-fencing in the Freeport sector.
New tax incentives
A number of tax incentives are proposed so as to position Mauritius as a Fintech hub.
Tax holidays are to be granted for an innovation box regime (8 years), e-commerce platform (5 years), and peer-to-peer lending (5 years).
Companies claiming such tax incentives will be expected to satisfy substance requirements in line with OECD and EU tax standards and, in particular, BEPS Action 5. For instance, companies claiming the innovation box regime will need to demonstrate that the IP was created in Mauritius. This complements the regulatory requirement for global businesses to have their core income generating activities located in Mauritius.
Partial exemption regime
The application of the partial exemption regime (currently only applicable to foreign dividends, interest, income from shipping activities, and investment fund-related activities) is further extended to include international fibre capacity activities, reinsurance and reinsurance brokering, and aviation-related activities, although it is somewhat disappointing that the extension is not more extensive.
Substance requirements
To address certain concerns raised by the EU earlier this year, the substance requirements attached to the partial exemption regime will be further fortified in particular in relation to the outsourcing of activities within the jurisdiction.
Other EU-driven changes include the introduction of controlled foreign company (CFC) rules.
As an incentive to encourage disclosure of previously undeclared assets, voluntary schemes will be implemented for the payment of taxes without interest and penalties. Such schemes have proven to be very successful in other jurisdictions following the implementation of the common reporting standard.
— Johanne Hague is a Senior Partner at Juristconsult Chambers, Ebene, Mauritius
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