Mauritius is not leaving anything behind as it begins a major clampdown on foreign funds flowing into the country. Here is the latest on the new tax reform initiated by the Mauritian government: The country’s financial services regulator Financial Services Commission (FSC) has said it would process all applications submitted to it for the purposes of determining whether a business is qualified to benefit from any tax treaties entered into between Mauritius and other countries within two months, provided the applicants fulfill all legislative obligations that include meeting know-your-customer (KYC), anti-money laundering, counter-terrorist financing, and substance requirements, among other things.
“FSC is emboldening its commitment to be a progressive and transparent regulator by fixing a shorter time frame for its own internal processes,” said Neha Malviya, director, Wilson Financial Services.
Mauritius has always been faulted for operating a tax haven economy where foreign companies flock to in order to avoid tax in their home countries. But all that is about to stop, at least to a larger percentage. Going forward, Mauritius foreign businesses coming into Mauritius would be required to comply with the new tax reform.
‘‘If the authorities find that it is not in Mauritius, then the entity is not a tax resident at all, and if it’s not a tax resident, then the treaty benefits it gets with other countries will not be available to it,”experts said.
Many of the business structures currently in place for international companies may be reviewed by Mauritius itself following the tax reform. Other existing structures will be forced to increase the substance requirements within Mauritius for them to continue getting the tax benefits.
“It is a significant change and the way they look at it will be different and may have new test to figure out whether these companies are complying with the new norms. It needs to figured out what are the tests they are going to lay out,” Suresh Swamy, Partner, PwC told Asian Age.
This change would hit hundreds of offshore funds operating out of the island nation and investing in their countries to take advantage of the double taxation treaties between their countries and Mauritius.
As An Example
A South African company may have its board of directors in Mauritius while it is managed from South Africa. In this case, the authorities could say the company is not eligible for tax residency. They will now look at the substance on the ground in Mauritius.
In many cases, the board meetings happen in Mauritius, directors are in Mauritius but the control and management are actually not in Mauritius. This would no longer be the case under the new arrangement.
Also See: Inside Mauritius Where A Majority of South Africans Are Migrating To And Their Reasons
The Implication of This
The fallout of this move will be that many of the structures currently set up in Mauritius and claiming treaty benefits on the basis that they have tax residency certificates may now have to take a look at the structures again.
So, many of the Mauritius structures may get challenged in Mauritius itself and several existing structures will be forced to increase the substance requirements within Mauritius for them to continue getting the tax benefits, experts said.
In simple terms, the consequence of not being considered tax resident in Mauritius is that the company would not benefit from the numerous tax advantages that obtainable from running its business in Mauritius. So, it is not a case of claim benefit from Mauritius, but do business in your home country. You have to manage your business in Mauritius before you claim the benefits.
Mauritius is a tax treaty jurisdiction and has so far concluded more than 42 tax treaties which are in force with the countries listed above.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.