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Mauritian tax law update

INTERNATIONAL TAX

Both the Kenyan and Mauritian Governments have now ratified the double taxation treaty document between the two countries, and same has been published in the Kenyan Gazette.

The date of entry in force of the treaty is yet to be confirmed.

The salient features of the Mauritius-Kenya treaty are listed below:

  • Treaty and non-treaty rates

  • Permanent Establish if Building site lasts more than 6 or 12 months in case of construction, site and furnishing of services.
  • Capital gains** will be taxable only in the contracting state of which the seller is a resident.*** 

*Lower rate applies to companies holding at least 10% of capital **There are no capital gains tax in Mauritius and Kenya at the moment however, the Kenyan Government has been looking to reintroduce Capital Gains Tax. Under the ratified Mauritius- Kenya tax treaty, the taxing rights on capital gains made in Kenya by a Mauritius-based company will remain in Mauritius.

***Except for gains specified in Article 13 of the treaty

INTERNATIONAL EXCHANGE OF INFORMATION FATCA

Foreign Account Tax Compliance Act (FATCA)

On 27 December 2013, Mauritius and the US signed a Tax Information Exchange Agreement (TIEA) and a Model 1 Intergovernmental Agreement (“IGA”) in relation to FATCA. The ‘Agreement for the Exchange of Information Relating to Taxes (United States of America – FATCA Implementation) Regulations 2014’ was published in the Government Gazette of 5 July 2014 and was made under section 76 of the Income Tax Act to facilitate the implementation of the IGA by the Mauritius Revenue Authority.

Hereunder is a brief overview of what FATCA implies:

Although FATCA is a piece of US legislation, it imposes on foreign financial institutions (“FFI”) established outside the US certain obligations to withhold tax on behalf of, and report and disclose information to, the US Internal Revenue Service. FFIs are non-US entities that take deposits in the ordinary course of banking or other similar business, hold financial assets for the account of others, engage primarily in the business of investing, reinvesting, or trading in securities, partnership interests or commodities, or conduct certain business as insurance companies.

The type of IGA signed is of capital importance since it will determine whether FFIs will be required to either directly report information to local revenue services, which will in turn supply the information received to the US Internal Revenue Service (Model 1 IGA), or to report such information directly to the US Internal Revenue Service (Model 2 IGA). FFIs within the scope of FATCA therefore need to report directly to the Mauritius Revenue Authority which will then transmit such information to the US Internal Revenue Service.

Banks, management companies and global business companies are now required to undergo a series of due diligence, reporting and withholding obligations. The TIEA provides a list of exempt beneficial owners, and deemed compliant entities, such as Governmental entities, international organisations, central bank, certain retirement funds, certain local banks with local client base, qualified credit card issuers, controlled foreign corporations, investment advisers and investment managers and certain collective investment schemes. The TIEA also provides for some exempt products, including certain retirement and pension accounts, term life insurance contracts, accounts held by an estate, certain escrow account in connection with a court order or judgment.

NEW GLOBAL BUSINESS PARAMETERS GBC 2

From now on, as long as GBC2s demonstrate that management, control and ownership are maintained outside Mauritius, Mauritian participation will be considered in a GBC2.

However, where a Mauritian resident proposes to hold shares in a GBC2, the latter shall be required to demonstrate to the Financial Services Commission, Mauritius (‘FSC’) that the Mauritian resident does not hold any ‘management and control’ in that GBC2.

In addition, the FSC Mauritius may also have regards to whether the group structure of the GBC2 is creating ‘economic substance’ in Mauritius. A GBC2 can be held by a GBC1 provided that, at any point in time, the shareholders of the GBC1 do not include a Mauritian resident which has ‘management and control’ in the GBC1.

A GBC2 will be considered as being managed and controlled in Mauritius, if decision- making takes place in Mauritius and the resident shareholder(s) of the GBC2 is/are a ‘controller’ in relation to the corporation.

For the purpose of increasing substance, a Mauritian resident may be allowed to hold shares in a GBC2 if it can demonstrate that the overall group structure has strong economic impact in Mauritius. For instance, the FSC Mauritius will consider, whether the proposal will generate revenue in Mauritius; whether the proposal is likely to create employment in Mauritius; or the impact of the proposal on the development of the country.

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