Mauritius: Investing In French Real Estate Through A Mauritius GBL1

We would like to examine the advantages of holding French real estate (either principal residence or secondary home) through a Mauritius company and to avoid the three percent yearly tax on assessed value. Additional estate planning opportunities are also open.

The French tax authorities cannot easily ascertain the identity of the shareholders of companies owning real estate in France. They suspect that these shareholders may sometimes be French residents, who are unwilling to pay taxes such as income tax, capital gains tax, tax on wealth and tax on transfer of ownership.

All real estate located in France and held through a corporate entity is subject to an annual tax of three percent, as of January 1st of any fiscal year. The tax is levied on the market value of the assets.

Under some very strict conditions, companies can be exempted from paying this tax of three percent. Any company, French or foreign, will be exempted, if it owns properties of a market value less than 50 percent of the market value of its total French assets, or if is listed on the stock exchange. International organisations, foreign states and government institutions, as well as pension funds and some non-profitable organisations, are similarly exempted.

In all other cases, companies owning French real estate must file the appropriate information. Companies and other entities located in a country or a territory with which France has signed a double taxation agreement (DTA) covering administrative assistance against tax evasion and fraud will be exempted if they submit each year to the French tax authority before May 16th, the following information:

• The address and market value of their properties in France, as at January 1st;
• The identity and addresses of their shareholders or partners; and
• The number of shares or interest held by each one of them.

Similarly, companies and other entities which have their effective head office in France or which, according to a treaty, are entitled to the same (non-discriminatory) treatment as French companies, if they either disclose to the French tax authority the information as aforesaid or if they commit to disclose such information to the tax authority, upon request.

Use of a Mauritius Structure

Any non-resident wishing to set up a company under the laws of Mauritius, but not active within the island’s territory, will incorporate a global business company. It will either hold a licence Category one (GBL1) or two (GBL2). A GBL2 is similar to what is traditionally referred to as an offshore company. It is not subject to any taxation. It is ideally suited for trading purposes, invoicing, international contracts and holding of assets, within the context of the EU directive on taxation of savings.

Only GBL1 can benefit from the DTA (33 in all) Mauritius has signed and ratified. As such, a GBL1 can provide the services of asset management, mutual funds/collective investment schemes, leasing, consultancy services, financial services, insurance, protected cell companies and any other activity as may be approved by the Financial Services Commission. It is frequently used as an investment vehicle or to receive royalties, through the DTA network.

GBL1 are taxed at the flat rate of 15 percent. Mauritius law allows an underlying foreign tax credit; the effective tax rate can thereby be reduced to between zero percent and three percent. There is no capital gains tax and no withholding tax on dividends and interest paid to non-residents.

French real estate can be held through a GBL1, which will then obtain tax residence in Mauritius and benefit from the DTA between France and Mauritius.

The DTA in force between France and Mauritius contains both a clause providing administrative assistance and a non-discriminatory clause. A Mauritius resident entity owning French real estate can thus avoid the tax of three percent and benefit from the option of either disclosing the identity of its shareholders or partners to the French tax authority or committing itself to transmit such information at the request of said authority.

However, the Mauritian structure does not help to avoid the three percent tax, if there would be a refusal to disclose the identity of the shareholders or partners in the case of a formal demand from the French authority. In addition, further protection and confidentiality could be achieved by having a Mauritius trust to own the shares of the GBL1 owning the French real estate. Trust law acknowledges the trustee as being the legal owner of the assets of the trust.

The author is Managing Director of AAMIL Ltd, corporate financial services provider. The Group is also providing trustee and asset management services. The offices are in Port-Louis (Mauritius), Geneva (Switzerland), Victoria (Seychelles), London (UK), Grand-Duchy (Luxembourg) and Mumbai (India).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.