Mauritius Overhauls Tax Regime In 2019-20 Budget
Lorys Charalambous, Tax-News.com, Cyprus
21 June, 2019
Mauritius announced a multitude of changes to all areas of its tax regime in its 2019-2020 Budget, including international tax reforms; value-added tax changes; new corporate tax relief measures, including a new patent box regime; a regime for peer-to-peer lending; individual tax breaks; and a tax amnesty scheme.
Company tax measures
The Budget includes a proposal for a generous patent box regime. A newly set-up company involved in innovation-driven activities will benefit from a tax holiday for eight years on income derived from its intellectual property assets developed in Mauritius. Existing companies may benefit from the eight-year income tax holiday on income derived from intellectual property assets developed in Mauritius after June 10, 2019.
Further, a five-year tax holiday will be introduced for a company setting up an e-commerce platform provided the company is incorporated in Mauritius before June 30, 2025.
The Budget also improves tax relief for expensing of capital goods. Presently, capital expenditure incurred on plant or machinery may be fully expensed in the year incurred if the amount does not exceed MUR30,000 (USD835). The threshold will be raised to MUR60,000.
The Budget also announces a five-year tax holiday for peer-to-peer lending operators, provided the company starts its operation prior to December 31, 2020.
Interest income received by an individual from peer-to-peer lending will be subject to income tax at the rate of three percent. Any bad debt and fees payable to the peer-to-peer operator will be deductible from taxable interest income. No tax deduction at source will be applied to peer-to-peer interest income.
Finally, a four-year tax holiday will be granted on income derived from bunkering of low Sulphur Heavy Fuel Oil.
The Budget also makes changes concerning loss carryforwards. The accumulated losses of a company presently lapse if there is a change in the ownership of the company. However, in the case of a manufacturing company, the Minister may allow the carry forward of the losses if he is satisfied that it is in the public interest to do so and provided conditions relating to safeguard of employment are complied with. This derogation will be extended to any company facing financial difficulty that is taken over by another shareholder provided conditions imposed by the minister are met. This amendment will be deemed to be effective as from July 1, 2018.
The Budget includes numerous measures to foster the development of new international financial services niches, and to alter the tax rules for banks.
The Budget announces proposals for new rules and an attractive tax regime to promote the development of Real Estate Investment Trusts (REITs); an "umbrella licence" for wealth management activities; and a scheme for headquartering of "e-commerce" activities.
Further, the Budget sets out measures the territory will take to establish Mauritius as a hub for Fintech in the region. Accordingly, the Financial Services Commission will:
- establish a regime for Robotics and AI enabled financial advisory services;
- introduce a new licence for Fintech Service providers;
- encourage self-regulation for Fintech activities in consultation with the United Nations Office on Drugs and Crime;
- introduce the use of e-signatures and e-licences on a pilot basis; and
- create crowd funding as a new licensable activity.
The new taxation system of banks will be fine-tuned as follows:
- income derived by banks from Global Business Companies will be exempted from the levy under the Value Added Tax Act;
- The rate of the levy will be increased from four percent to 4.5 percent of operating income for banks having operating income exceeding MUR1.2bn in a year;
- a cap will apply on the increase in levy payable by a bank in order to ensure that no bank is burdened by an excessive levy amount;
- it will be clarified that the levy is not a deductible expense under corporate tax; and
- no foreign tax credit will be allowed.
A reduced tax rate of five percent is applicable on the chargeable income of a bank in excess of its chargeable income in the base year (year of assessment 2017/2018) if the bank grants at least five percent of its new banking facilities to any of the following categories of businesses: SMEs in Mauritius; enterprises engaged in agriculture, manufacturing, or production of renewable energy in Mauritius; or operators in African or Asian countries.
International tax changes
The Budget announces that the Income Tax Act will be amended to implement the recommendation of industry stakeholders regarding the determination of tax residency for companies so that a company will not be considered as tax resident in Mauritius if it is centrally managed and controlled outside Mauritius.
To address the deficiencies identified by the EU in the territory's partial exemption regimes, the following reforms will be implemented:
The Income Tax Regulations 1996 will be amended to:
- define the detailed substance requirements that must be met in order for a taxpayer to enjoy the partial exemption benefit; and
- lay down the conditions that must be satisfied where a company outsources its core income generating activities – namely:
- the company must be able to demonstrate adequate monitoring of the outsourced activities;
- the outsourced activities must be conducted in Mauritius; and
- the economic substance of service providers must not be counted multiple times by multiple companies when evidencing their own substance in Mauritius.
Mauritius also intends to introduce controlled foreign company rules, and the legal provisions relating to the arm's length test for transfer pricing purposes will be fine-tuned, the Budget says, "to remove any doubt or uncertainty about its application."
Tax perks for marinas
The Government has announced incentives for the development of marina, including new regulations for marinas and a yacht code; an eight-year income tax holiday for a newly set-up company developing a marina; and a VAT exemption will be provided on the construction of marinas.
Gaming tax enforcement
The Budget says appropriate amendments will be made to the Income Tax Act to reduce the possibility for a casino or a gaming house to split payment to winners in order to avoid the 10 percent tax on winnings exceeding MUR100,000.
Mauritius has announced that cooking gas for domestic use by households in cylinders of up to 12 kg is being made zero-rated for VAT, and certain foodstuffs, including bread, will be newly exempt.
Further, the Budget announces that a wholesale dealer in liquor and alcoholic products will have to be registered with the MRA as a VAT-registered person. It further provides that where there is a splitting of a business entity into different entities to avoid registration for VAT purposes, each entity will be required to be compulsorily registered for VAT.
Presently, a VAT-registered person may claim repayment of input tax in respect of capital goods such as building, plant, machinery, or equipment. Provision will be made to allow repayment of VAT paid also on: goodwill on acquisition of a business; and the acquisition of intangible assets such as software, patents, or franchise agreements.
With a view to expediting the processing of VAT refunds, all VAT-registered persons will have to file their VAT return and pay VAT electronically as from March 1, 2020.
Under the proposed tax amnesty scheme, a person making a voluntary disclosure on or before March 31, 2020, will be subject to tax on the disclosed chargeable income at a rate of 15 percent, free from any penalty and interest. Criminal proceeds are excluded.
Small and medium enterprises (with a turnover not exceeding MUR50m) will be given the opportunity to regularize any undeclared or underdeclared income with the MRA free from penalty and interest, provided payment is made on or before March 31, 2020.
Personal income tax reliefs were announced in the Budget, including increases to tax-exempt allowances and relief for carers for persons with disabilities.
On inheritance tax, the Budget provides that lump-sum income received by a person by way of commutation of pension, death gratuity, or as compensation for death or injury will be excluded from the computation of the solidarity levy. This change will be backdated to take effect as from July 1, 2017, the date the solidarity levy was introduced.
The law will be amended to clarify that an individual's share of income in a societe or succession will be taken into account in the computation of the solidarity levy.
Finally, the Budget includes improvements to tax breaks for electric vehicles, including a double deduction for businesses investing in a fleet of eco-friendly cars.
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