Bobby Yerkiah, our Tax Partner, wrote an article about "Mauritius Partial Exemption Regime" in the September 2020 newsletter of CKLB International Management Ltd.
Mauritius Partial Exemption Regime
A GBC 1 company (“GBC 1”) is a company registered in Mauritius with its central management and control in Mauritius which holds a Category 1 Global Business Licence. It is licensed by the Financial Services Commission (FSC). The GBC 1 was entitled to claim credit for foreign tax suffered on foreign income, being either the amount actually suffered or an 80% Deemed Foreign Tax Credit (“DFTC”) whichever was the higher. The tax credit was limited to the Mauritius tax liability.
Prior to December 2018, GBC 1 and GBC 2 could be set up. The Finance Act 2018 had set out new rules regarding Global Business in Mauritius. As from 01 Jan 2019, only GBC companies or Authorised Companies can be set up. GBC1 which were licensed on or before16.10.2017 are grandfathered up to 30.06.2021. Therefore, they are entitled to claim DFTC up to 30 June 2021. After 30 June 2021, the GBCs may claim an 80% partial exemption. This exemption is applicable on specific types of income and subject to substance conditions being met.
The following sources of income may currently avail of the 80% partial exemption:
- Foreign dividends;
- Interest income (excl. interest income derived by a banking institution);
- Profits attributable to a foreign permanent establishment of a resident company;
- Income derived by CIS, closed end fund, CIS manager, CIS administrator, investment adviser or asset manager;
- Income from ship and aircraft leasing;
- Income from reinsurance and reinsurance brokering activities;
- Income from leasing and provision of international fibre capacity; and
- Income from sale, financing arrangement, asset management of aircraft and its spare parts and aviation advisory services related thereto.
Conditions for eligibility to partial exemption
Foreign dividends
- The taxpayer should comply with its filing obligations under the Companies Act or the Financial Services Act (“FSA”); and
- It should have adequate resources for holding and managing share participations.
For the other types of income, except profits from Permanent Establishment (“PE”)
- The taxpayer should carry out its core income generating activities (“CIGA”) in Mauritius;
- It should employ, directly or indirectly, an adequate number of suitably qualified persons to conduct its core income generating activities;
- It should incur a minimum expenditure proportionate to its level of activities.
A company may, for the purpose of the Income Tax Regulations, outsource any relevant activities to third party service providers, provided that:
- the company is able to demonstrate adequate monitoring of the outsourced activities;
- the outsourced activities are conducted in Mauritius; and
- the economic substance of service providers is not counted multiple times by multiple companies when evidencing their own substance in Mauritius.
80% of foreign source dividend derived by a company will be exempt from income tax provided:
- the dividend has not been allowed as a deduction in the country of source; and
- the company satisfies the conditions relating to the substance of its activities.
80% of income derived by a collective investment scheme (CIS), closed end fund, CIS manager, CIS administrator, investment adviser or asset manager licensed or approved by the FSC established under the FSA will be exempt.
As regards interest, for 80% of the interest derived by a Company to be exempt from income tax the CIGA should include agreeing funding terms, setting the terms and duration of any financing, monitoring and revising any agreements, and managing any risks.
If the income stream of a GBC is different from what is prescribed by the Income Tax Act (“ITA”) for the partial exemption and the CIGA is not complied with, the GBC might be subject to income tax at 15%.
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