Several tax changes for companies and individuals in Mauritius

Leaving South Africa permanently is neither easy nor cheap. Many jurisdictions have been offering several options to attract foreigners by way of investments, business development or property.

Mauritius has recently been heavily punted as an emigration destination for South Africans who are eager to leave the political and economic instability of home behind.

According to Caoilfhionn van der Walt, international tax partner at Regan van Rooy in Mauritius, recent changes to the permit regime have all been positive.

“The Mauritian government has tried to make the country more attractive for people to live and work on the island.”

Enticements

People are now able to obtain a work permit for 10 years instead of the previous three years, renewable for another three years. Van der Walt notes that the monetary requirements for certain permits have also been reduced.

Foreigners wishing to invest in Mauritius by setting up their own business will require $50 000 (around R750 000) instead of $100 000.

Read: Financial markets in Africa still underdeveloped

The country also offers the right to residency to a foreigner and their family for the purchase of residential property at around $375 000 (around R5.6 million), compared with the previous purchase price of $500 000.

There is also a new permit, focusing on remote workers. This allows foreigners to stay in Mauritius for one year, provided they can show a monthly income of $1 500 (around R22 500) and do not enter the Mauritian workforce.

Ernie Lai King, MD of 1 Road Consulting, says individuals who spend 183 days or more during an income year in Mauritius, or who have a combined presence in Mauritius of at least 270 days in the tax year and the two preceding tax years, become island residents.

Mauritius residents are taxed on Mauritius-source income and foreign income remitted to Mauritius. The standard rate for individuals is 15%, but a reduced rate of 10% applies to individuals whose annual net income does not exceed MUR650 000 (around R247 000).

Bad developments

However, there have been some “bad developments” in terms of personal income tax, says Van der Walt.

The big change is the increase of the Solidarity Levy from 5% to 25%. This change will have the most impact on mid-income earners. People who earn between MUR3 million and MUR5 million annually (around R1.14 million – R1.9 million) will now pay 15% personal income tax plus the 25%.

The levy will be capped at 10% for people earning more than MUR5 million annually.

In a worst-case situation, a working individual in this income band will now pay 40% personal income tax compared with 20% previously.

And the bad news for workers does not end there. The Mauritian government has introduced a new social security regime known as Contribution Sociale Généralisée, applicable from September this year. This new system of social contributions replaces the National Pensions Fund.

For employees earning more than MUR50 000 (around R19 000), the contribution will be 3% and that of their employers 6%. Contributions will no longer be capped against a ceiling of MUR18 740 as had been the case under the National Pensions Act.

The main reason for these drastic changes is political pressure for more revenue generation.

Global pressure

Mauritius was removed from the Organisation for Economic Development and Cooperation (OECD) and the European Union Commission’s greylist for uncooperative tax jurisdictions by introducing some far-reaching changes to its corporate tax regime.

Read: Companies in low- or no-tax jurisdictions must show ‘economic substance’

This included the scrapping of the Category 2 Global Business Company (GBC2) regime. This allowed businesses to remain tax non-resident in Mauritius, exempting them from tax on the island, despite maintaining a bank account in Mauritius or entering into a business relationship with a management company or even a qualified auditor in Mauritius.

The regime will remain in place until June next year.

The deemed foreign credit system has also been scrapped and grandfathered until June next year. This system enabled companies to reduce their effective tax rate to 3%.

Transfer pricing is also becoming an issue in Mauritius.

According to Keith Engel, CEO of the South African Institute of Tax Professionals, the Mauritius Revenue Authority is now challenging back-to-back management fees or loans, requesting a transfer pricing mark-up. This challenge has caught many companies off-guard, especially given that the challenge goes back many years.

Not all is lost

Mauritius has now ended up on the EU’s revised list of high-risk countries, allegedly having “strategic deficiencies” in its anti-money laundering and counter-terrorist financing frameworks.

But according to Van der Walt, not all is lost. She explains that there are currently around 20 different tax holidays available for businesses – some with very general requirements and others with quite specific criteria for qualification.

“Many see the partial exemption regime as the new answer,” she says. “The regime works on the principle that 80% of certain types of income is tax exempt.”

Any foreign tax that has been suffered on income taxable in Mauritius can be offset against the Mauritian tax. This includes withholding taxes, which can be quite substantial in Africa.

Engel says the Mauritius system is in transition, seeking to maintain its historic advantages while satisfying the new OECD and other global mandates.

Mixed view

A mixed view is emerging from day-to-day practitioners, notes Engel.

“The historic camp believes that Mauritius remains a good proposition, especially for South Africans given their geographically proximity.

“Others say it may be time to reconsider other options, such as Dubai, given all the uncertainty.”