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Mauritius proposes changes to tax regime for corporations with global business licenses and banking institutions

Executive summary

The Mauritian Prime Minister,1 the Honorable Pravind Kumar Jugnauth, delivered the 2018/19 Budget Speech on 14 June 2018. The budget, among other measures, proposes changes to the tax regime for corporations holding Category 1 Global Business Licenses (GBL1), Category 2 Global Business Licenses (GBL2) and banking institutions.

This Alert summarizes the key changes.

Detailed discussion

Tax regime for corporations holding global business license

Category 2 Global Business Licenses regime

The Financial Services Commission (FSC) will cease to issue GBL2 as from 1 January 2019 so that a single Global Business License (GBL) will be provided as from that date. Companies holding a GBL2 granted by the FSC prior to 16 October 2017 will be exempt from income tax until 30 June 2021. The other corresponding incentives, like exemptions on outgoing royalties, will also be reviewed.

Under the current legislation, companies holding a GBL2 are exempt from tax, including Corporate Social Responsibility (CSR). GBL2 companies are not allowed to transact within the Mauritian territory and are not considered to be resident in Mauritius for treaty purposes.

Category 1 Global Business Licenses with domestic companies

Companies currently holding a GBL1 would no longer be able to compute their foreign tax on the basis of the presumed foreign tax amount. This measure would be effective as from 31 December 2018. A partial exemption regime would be introduced whereby 80% of the specified income of Mauritian resident companies would be exempt from tax. The specified income for this purpose would apply to the following income streams:

  • Foreign dividends
  • Profits attributable to foreign permanent establishments
  • Interest and royalties
  • Income from specified financial services

Where the company is licensed by the FSC, it will be required to comply with a set of pre-defined substantial activities requirement to be able to benefit from the partial exemption. The credit system would continue to apply, in the event the partial exemption does not apply.

The Financial Services Act (FSA) will also be amended so that a company that wishes to conduct business outside of Mauritius is obliged to register with the FSC.

This measure seeks to tax all foreign income in the same manner for all resident companies, irrespective of the residence status of their shareholder.

The proposed partial exemption would also apply to companies that are not licensed with the FSC.

The effective date of 31 December 2018 implies that an apportionment may be required where the company does not have a calendar year end as its basis year. A commencement date that relates to a year of assessment is desired.

Other incentives that are specific to GBL1 companies are not specifically addressed: for example, a GBL1 company is currently exempt from CSR. It is not known whether all the incentives will be reviewed and the extent of any potential changes.

Clarity is required on the interaction of the partial exemption with the credit system. Specifically, it would be useful to know if the partial exemption and credit system may be applied in the same year. Moreover, a company should be able to apply the credit system if this is to its advantage. For example, in the context of Indian-sourced dividend income, the Indian Dividend Distribution Tax is enough to eliminate the Mauritian tax arising on the Indian dividends.

The potential limitations of the partial exemption system should be addressed so that it does not have unintended consequences especially in cases where companies have tax losses. It is important that the proposed examples should be discussed and agreed with all stakeholders to achieve certainty regarding the implementation of this measure.

The additional substance requirement for companies holding a GBL has not been published yet it is anticipated that any such additional requirement will be consistent with the Action 5 (Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance) of the G20/OECD BEPS2 Project. Currently, companies holding a GBL1 are mandatorily required to comply with all the substance requirements in the FSA. In addition, they can elect to comply with one of the requirements specified in the guidelines (the guidelines) issued by the FSC on 4 September 2013. These conditions are summarized below:

  • Mandatory requirements under the FSA
    • The company shall have or has at least two directors, resident in Mauritius, able to exercise independence of mind and judgment
    • The company shall maintain or maintains at all times its principal bank account in Mauritius
    • The company shall keep and maintain or keeps and maintains, at all times, its accounting records at its registered office in Mauritius
    • The company shall prepare or proposes to prepare its statutory financial statements and causes or proposes to have such financial statements to be audited in Mauritius
    • The company provides for meetings of directors to include at least two directors from Mauritius
  • Additional substance requirement as per the guidelines
    • Office premises should be available in Mauritius
    • Mauritian resident employees of an administrative or technical level should be employed on a full-time basis
    • The constitution should contain a clause whereby all disputes arising out of the constitution shall be resolved by way of arbitration in Mauritius
    • The company should have Mauritian based assets of at least US$100,000
    • The shares of the company are listed on a securities exchange licensed by the FSC
    • The yearly expenditure of the company in Mauritius is of the same level as a similar corporation which is controlled and managed from Mauritius

Fiscal regime for banks

Special levy

The current basis of computing the bank levy will be extended to the income year ending 30 June 2019. As from 1 July 2019, the levy will be dealt with in the Value Added Tax Act (VATA). The levy under the VATA will still be computed on the net operating income of the domestic operations of commercial banks.

Although the special levy would continue to be computed on the net operating income of the bank, it will be governed by the VATA. The levy is not of the same nature as VAT and to the extent that it is based on the net operating income, the current legislative framework appears justified. The timing of the payment and the return should be clarified especially for banks having a year-end other than 30 June. The rate applicable for the computation of the special levy has not been specified. The book profit appears to be no longer relevant with this measure.

It also appears that banks would not be able to claim any foreign tax credit against their special levy charge. The amending legislation should also specify whether the special levy would be deductible for corporate tax purposes.

Corporate tax rates for banks

As from 1 July 2019, banks will no longer be able to compute their foreign tax credit on the basis of the presumed foreign tax. Moreover, banks will not be required to compute their taxable income for each segment separately. The tax liability would be computed on the basis of the total chargeable income at the following rates:

  • 5% for the first Rs1.5 billion
  • 15% on the remaining amount

However, in the event that banks having chargeable income exceeding Rs1.5 billion and satisfy certain pre-defined conditions, the tax liability would still be computed at the rate of 5%. The methodology and the conditions to be satisfied have not yet been prescribed.

This measure would ensure that profits made by banks from transactions with nonresidents and corporations holding global business licenses are treated on an equal basis with profits made from transactions with resident persons. However, the amending laws should provide clarification on the methodology for relieving any foreign tax suffered.

It would be useful if the draft pre-defined conditions are discussed with all the relevant stakeholders.

It does not appear that subsequent to the proposed amendments, banks would be required to make any CSR contributions. Moreover, these measures do not appear to have any VAT implications for banks.


1. In addition to serving as Prime Minister, the Honorable Pravind Kumar Jugnauth serves as Minister of Home Affairs, External Communications and National Development Unit and Minister of Finance and Economic Development.

2. Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) project.

EYG no. 010175-18Gbl

Download this Tax Alert as a PDF file.

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