Mauritius: The Use Of Mauritius In International Tax Planning

The choice of an international financial services centre ("IFC") should not be restricted to tax advantages only. Among the various other factors to be considered are: the choice, quality and comparative costs of the services offered, the policy of those in power towards the sustained development of the financial services sector, the applicable laws, the powers of the regulator and the number of double taxation agreements ("DTAs") in force.

In considering the above factors, the Republic of Mauritius has positioned itself as one of the most attractive IFCs worldwide. In this article, we shall overview the international tax planning opportunities available to non-residents in Mauritius.

Global Business Licence Companies and Trusts

Various entities can be created under the laws of Mauritius so as to fit the different needs and tax planning opportunities of non-residents. These can be "Global Business Licence" companies, category 1 and 2, and trusts.

"Global Business Licence" companies are governed by the Companies Act 2001 and by the Financial Services Act 2007, while trusts in Mauritius are governed by the Trusts Act 2001.

1) Global Business Licence Company, Category 1 ("GBL1")

A GBL1 can qualify as tax resident in Mauritius and thus benefit from the 33 DTAs Mauritius has established. It is ideally suited for investments in DTA-related countries, which are likely to generate a flow of income in future years, be it as dividends, interests, royalties or capital gains.

Over the years, the GBL1 has proved to be a vehicle of choice for investment in countries such as China, India, Luxembourg or South Africa and all those with whom Mauritius has favourable DTAs. The DTA between India and Mauritius is by far the mostly used by non-residents, due to the unique advantages that it offers, as compared to the DTA between India and Singapore or between India and the United Arab Emirates.

A GBL1 can be active in the fields of insurance, fund management, asset management and other "businesses of substance". It can be structured as a company limited by shares, a company limited by guarantee, a company limited by both shares and guarantee (a hybrid company) or a protected cell company. A GBL1 can also take the form of a Civil law "sociéte" or partnership.

A GBL1 is governed by the Income Tax Act 1995, under which it is taxed at the flat rate of 15%. Mauritius laws allow an underlying foreign tax credit, equal to the amount of foreign taxes paid, up to the amount of tax due in Mauritius.

In the absence of proof, the amount of foreign tax paid is presumed to be 80% of the Mauritius tax, the effective tax rate for a GBL1 can thereby be reduced to a maximum of 3%. There is no capital gains tax, nor withholding tax on dividends and interests paid to non-residents.

2) Global Business Licence Company, Category 2 ("GBL2")

A GBL2 is a 'cheap and cheerful' vehicle to do business internationally. It can be set up very easily and quickly and its subsequent administration is simple; there are few statutory and filing requirements.

It is ideally suited for asset holding, trading and invoicing, international investment, e-commerce, aircraft leasing and shipping, among others. It also presents unique advantages when it is structured as a private trust company ("PTC"), i.e., a company formed by an individual and whose purpose is to act as trustee to one or to a limited number of trusts, for the benefit of a single family or of different branches of a family or for distinct (but related) family groups.

A GBL2 is not subject to any tax. In addition, there is no withholding tax on dividends or interest paid to non-residents.

3) Trusts

Different types of trusts can be set up in Mauritius by non-residents. These can be trusts with interest in possession, charitable trusts, purpose trusts, accumulation and maintenance trusts, bare trusts, protective trusts, discretionary trusts, employee benefit trusts and trusts for the disabled, among others.

Discretionary trusts have proved to be very popular with non-residents, due to the optimum flexibility if offers in the organisation of the trust property and for the distribution of income to beneficiaries. A discretionary trust is basically a settlement where both capital and income may be paid or applied, at the sole discretion of the trustees, to any one or more of a class of beneficiaries, as the trustees deem fit.

Trusts in Mauritius are usually used for tax and estate planning, protecting assets from creditors, to postpone the time of vesting of property, to pass on to trustees the decision of who receives the trust income or the trust capital and to enable the settlor to choose professional persons to administer and pass on assets according to his wishes, among others.

Mauritius resident trusts are taxed at 15 % on their chargeable income, meaning the gross income less expenses, but before any distribution. They are also eligible for a 80% presumed foreign tax credit on foreign source income and entitled to tax treaty benefits, under the various double taxation agreements between Mauritius and some 33 countries.

A trust, of which the settlor is a non-resident and of which all the beneficiaries are also non-residents, shall be exempt from income tax in Mauritius, where it has deposited a declaration of non-residence with the local tax authority. Non-resident beneficiaries of a trust are exempt from tax on income in respect of income under the terms of the trust, as well as from value added tax, whereas resident beneficiaries having received such income will be taxed at a flat rate of 15%.

Other advantages of trusts in Mauritius, include the following:

• The settlor can also be a beneficiary, but he cannot be the sole beneficiary of the trust of which he is the settlor;

• No mandatory registration requirement of the trust deed;

• Avoidance of forced heirship rules;

• Provision of the office of the protector of the trust in order to cater for clients from Civil law countries and who might not be comfortable with the trust concept of 'giving away' ownership rights over their properties to third parties;

• Provision of the offices custodian and managing trustee in order to facilitate the migration of trusts; managing trustees can be replaced without the need for the trust property, held with the custodian trustee, and which may be substantial or complexly arranged, to be vested in new trustees; and

• The duration of a trust, other than a purpose trust, shall not exceed 99 years.

Advantages of Mauritius

The advantages offered by Mauritius, some unique, explain the rapid expansion of this IFC, amongst which:

• Never been on the OECD blacklist;
• Anti-money laundering legislation;

• Precise and permanent legal, judicial and administrative framework; the rule of law is well-established and respected, in line with Anglo-Saxon tradition;
• Political stability;
• Located in a strategic time zone, making it possible to deal with the Far East and mainland Europe during normal working hours (09 00 to 16 00 hours);
• Highly qualified and bilingual (English and French) workforce;
• Long term commitment and strong governmental support to the development of the financial services sector;
• Excellent telecommunications facilities;
• No exchange controls;
• Growing number of DTAs;
• Investment Protection and Promotion Agreements signed so as to safeguard investor's businesses and assets; and
• Mauritius is a member of regional blocks such as the Common Market for Eastern and Southern Africa (COMESA), the Southern African Development Community (SADC), the Indian Ocean Rim Association for Regional Cooperation and the Indian Ocean Commission (IOC), which provides it with preferential access to a market of over 450 million consumers.

Conclusion

We have gone through, in this article, some of the possibilities available for non-residents to manage their affairs by setting up proper structures in Mauritius. Other opportunities are available for non-residents, for example: to acquire immovable properties, to become permanent residents, to trade in the Mauritius Freeport Zone, to register branches of foreign companies and to relocate their businesses on the island.

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.