Dateline: Tbilisi, Georgia
”Heaven was copied after Mauritius.”
One of the most satisfying realizations I have made over the years living, doing business, and investing abroad is that the freedom and financial success I have achieved is part of a mutually beneficial relationship with countries that understand the power of my five magic words.
I can choose to go where I am treated best because there are countries that know that their economy will grow and their nation develop by creating an environment conducive to the success of people just like you and me.
Take, for example, the island nation of Mauritius.
Like many African nations during the colonial period, Mauritius fell under the rule of European powers, beginning with the Dutch in 1638. Then, in 1715, the Dutch handed the Mauritius islands over to the French. Almost a century later, in 1810, the British took over until the island gained its independence in 1968.
When they gained their independence, Mauritius was a low-income agricultural economy just off the coast of the poorest continent on the planet. After over three centuries of colonial rule, the new Republic of Mauritius had a long road ahead toward obtaining economic prosperity.
Today, however, Mauritius has a diversified upper-middle-income economy based on tourism, sugar, textiles, and financial services, as well as the growing sectors of information and communication technology, web hosting, property development, healthcare, and renewable energy. Some have referred to the country’s growth as “the Mauritian Miracle”, but their formula is a simple one that has helped dozens of countries find economic success: they created favorable conditions for both local and foreign businesses and investors.
In 2016, Mauritius ranked 15th in the world for economic freedom, it has consistently ranked high on the Doing Business Index, and it has received high marks for democracy, freedom of the press, as well as political and investment freedom. As Africa develops in the coming years, Mauritius is in prime position to play the role of “Hong Kong” to Africa as the continent’s key offshore financial center.
In addition, Mauritius is a beautiful island nation that attracts over a million tourists each year. The country is multiethnic and multicultural with a population of over 1.2 million people from Chinese, Indian, African and European descent. The country is also multilingual, the main languages being English, French and Creole. And, while Mauritius is the only African country where the largest religion is Hinduism, the country is also multi-religious.
With its stable parliamentary democracy, favorable tax policies, diverse population, and unbeatable climate, it is no wonder that Mauritius has been an investment haven for Africans and Asians for decades. The country’s flexible regulatory framework also means that Mauritius is an attractive destination for offshore company formation. If your clients won’t be suspicious of bank transfers coming from a Mauritius bank, the country is actually a reliable, credible and secure jurisdiction for your offshore company.
The government of Mauritius vigorously promotes foreign investment and offshore activity through its Board of Investment, introducing a broad range of incentives and creating user-friendly legislation for foreign investors. This, of course, has much to do with the country’s corporate tax system.
The maximum tax rate in Mauritius is 15%. However, this rate can be lowered dramatically depending on business structure and residence status. Individuals and companies who qualify as “tax-resident” in Mauritius are taxed on all income accrued in or derived from Mauritius, as well as their world-wide income. Non-residents are only taxed on income accrued in or derived from the Republic of Mauritius.
While we’ll get into greater detail when we discuss each company structure, the main rule is that a company is resident if it is incorporated in Mauritius or the company’s control and central management is located in the country.
Taxable corporate income includes a company’s profits — both its business/trading profits as well as its passive income. However, if a Mauritian branch were to remit its profit to a foreign head office, that profit would not be taxed. Furthermore, a company can deduct normal business expenses from its taxable income and any losses can be carried forward for five years. Losses arising from annual allowances on capital expenditure can be carried forward indefinitely.
There are no capital gains taxes in Mauritius and resident companies can also exempt dividends paid by the local company. There is no withholding tax on dividends, either. Foreign dividends, however, are taxable, but the effective rate can go as low as 3% if a company claims the available credits.
Employers are required to pay social security contributions of 6% to the National Pension Fund (NPF), 2.5% to the National Solidarity Fund (NSF), and 1.5% to the HRDC Levy. This, of course, only applies to resident companies with Mauritian employees.
All businesses are required to file annual tax returns and pay quarterly taxes. The balance of all tax payable is due within six months of a business’s year end.
Finally, the withholding tax on royalties paid to non-residents is 15%, but this tax can be eliminated altogether for specified nonresidents and a rate of 10% applies to royalties paid to residents. The Mauritius government is also working toward strengthening the protection of IP rights in the country.
Personal Income Taxation
While you may not plan to live in Mauritius long enough to qualify as an individual tax resident, it is important to know what will qualify you for personal income taxation in the country.
You are considered a tax resident of Mauritius if you are domiciled in the country, spend more than six months there during one tax year, or have a combined presence of at least 270 days in the country in the current tax year plus the two tax years prior.
If you do qualify as a tax resident, you will be taxed at a rate of 15% on all income accrued in or derived from Mauritius and all foreign income remitted to the country. Non-residents are only taxed on their Mauritius-sourced income.
Employees pay social security contributions of 3% of their monthly basic salary to the NPF and 1% to the NSF. However, there is no property tax, inheritance or estate tax, and no capital gains tax for tax residents of Mauritius.
Unlike the business tax year that runs from January 1 to December 31, the personal income tax year runs from July 1 to June 30. Employment income tax is withheld from each paycheck, but all income derived in Mauritius outside of regular employment must be reported and payment made in an annual tax return due by September 30 of each tax year.
There are certain allowances and deductions for residents of Mauritius. These exemptions include income derived from a Freeport company (unless the goods or services are provided to the local market), the registered owner of a foreign vessel, deep sea international trade of the registered owner of a local vessel, a resident Société, interest payable on certain government securities, and royalties payable to a non-resident by a qualified bank or company trust.
Last of all, Mauritius has a value added tax (VAT) of 15%. However, certain goods and services such as rice, butter, and bread, and medical, hospital, dental and banking services are exempt from the Mauritian VAT.
There are several different structures available to foreign investors looking to incorporate a business in Mauritius. Each structure involves different requirements and benefits. Let’s take a look at each one in more detail.
The GBC1, or Global Business Category 1, is designed to create a company that is treated as a tax resident in Mauritius. This means that the company will pay taxes on their earnings, but it also means that they are granted access to the extensive Mauritian Double Tax Treaties. The tax treaty is notably advantageous with India and the country has become a popular jurisdiction for holding companies for businesses trading or investing in India.
However, India is only one of over 43 different countries that have signed tax treaties with Mauritius. As of 2017, these countries include Australia, Barbados, Belgium, Botswana, Congo, Croatia, Cyprus, Egypt, France, Germany, Guernsey, India, Italy, Kuwait, Lesotho, Luxembourg, Madagascar, Malaysia, Malta, Monaco, Mozambique, Namibia, Nepal, Oman, Pakistan, Bangladesh, China, Rwanda, Senegal, Seychelles, Singapore, Sri Lanka, South Africa, Qatar, Swaziland, Sweden, Thailand, Tunisia, Uganda, United Arab Emirates, United Kingdom, Zambia, and Zimbabwe.
And there are more countries with treaties awaiting ratification, signature, or are currently being negotiated. These countries include Canada, Hong Kong, Iran, Saudi Arabia, St. Kitts & Nevis, Russia, Montenegro, Czech Republic, Greece, Vietnam, Portugal, Spain, and many other African nations. You can find a full list of the countries and a chart of the Mauritian tax rates applicable in the state of source here.
The tax treaties make it extremely attractive to invest in one of these countries through a GBC1 company incorporated in Mauritius because the profits can be withdrawn from the tax treaty country void of a withholding tax or with a heavily reduced rate. For example, while GBC1 companies are taxed at the normal 15% rate, they can utilize foreign tax credits equivalent to 80% of the Mauritius tax payable, reducing the maximum effective tax rate to 3%.
If a resident company derives income from a foreign country that does not already have a tax treaty with Mauritius and foreign income tax is paid on the income, the tax can still be credited against Mauritian income tax. However, this is limited to a source-by-source basis.
All tax treaty benefits are reserved for resident entities or persons. Furthermore, locally incorporated businesses or branches of a foreign company must conduct business in a foreign currency and decline from engaging in business in Mauritius in order to qualify for the tax credits as a GCB1 company.
There are other requirements for those wishing to set up a GBC1 Mauritius offshore company. The main requirement to become tax resident in Mauritius is to demonstrate that management and control is centered in Mauritius. To prove this, a business must have the following:
- Shareholders: Mauritius offshore company must have at least one shareholder. There can be no bearer shares, but corporate shareholders are allowed. The shareholder(s) can be of any nationality and does not need to reside in Mauritius in order to qualify.
- Directors: A company must have at least one director who is a resident of Mauritius and who files as a director with the Registrar of Companies. If the GBC1 company desires access to the Mauritian taxation treaties, it must have at least two resident directors who have been approved by the Financial Services Commission. Corporate directors are not permitted.
- Bank Account: Offshore company set up in Mauritius must maintain a principal bank account in Mauritius at all times. Mauritius banks have successfully weathered their own domestic economic downturn and have since expanded overseas and kept their loan books in good condition. As investment in Africa increases, Mauritius banks will play a vital role in offshore finance in the years to come.
- Audit: In order to maintain their good standing with the Mauritius government, GBC1 companies must file audited accounts within six months of the close of each financial year. If they fail to do so, their global business license may be revoked. To qualify for access to the tax treaties, the auditor must be from Mauritius.
- Presence: The corporation must have office premises in Mauritius and employ at least one Mauritius resident full-time on the administrative/technical level. Business can be conducted internationally, but the corporation’s constitution must include a clause that indicates that all disputes shall be resolved via arbitration in Mauritius.
GBC1 companies are not allowed to engage in transactions with Mauritian residents or in the Mauritian currency. However, GBC1 companies can be involved in activities including aircraft financing and leasing, assets management, consultancy services, employment services, financial services, fund management, information and communication technologies, insurance, licensing and franchising, logistics, marketing, operations, pension funds, ship and ship management, trading, and any other activities approved by the Financial Services Commission (FSC).
GBC1 companies must pay an annual license fee of $1,750 and a one-time application fee of $500 to the FSC. There is an additional $250 fee due upon incorporation and an annual $250 fee due to the Registrar of Companies. Best of all, a GBC1 company can be incorporated in Mauritius in just 10 working days.
Protected Cell Company (PCC)
A GBC1 can also be structured as a protected cell company (PCC), which allows the business to be separated into cellular and non-cellular assets. This allows for legal segregation of assets belonging to different cells of the company, whether they are owned individually or by a corporate body. This can be a useful structure for insurance and collective investment schemes.
The PCC is incorporated and licensed in much the same manner as a GBC1 company. The registration and application must be submitted to the FSC through a licensed Management Company with the applicable fees and certified supporting documents.
In contrast to the GBC1 company structure that creates a company that is tax resident in Mauritius, the GBC2 structure creates a non-resident company for tax purposes. Like GBC1 companies, GBC2 companies can be locally incorporated or registered as a branch of a foreign company, but they are both required to conduct their business outside of Mauritius.
The difference is that GBC2 companies are not taxed in Mauritius. The downside to this is that they are also excluded from any Mauritian tax treaties.
The main draw of structuring a company as a Global Business Category 2 is that it provides for more confidentiality since the identity of the beneficial owner can remain private through the use of nominee Directors and shareholders. This is a good structure for those holding and managing private assets.
Another draw is that the GBC2 allows for full foreign ownership and eliminates the need for local directors. The minimum requirement for directors and shareholders is also reduced to one and there are no accounting or reporting requirements.
A GBC2 company is also granted limited liability status and can convert to the GBC1 structure at any time, if desired. However, there are many tax benefits to maintaining the GBC2 structure, including no withholding tax on dividends, no capital gains tax, no stamp duty on transfer of shares, and the free repatriation of earnings.
While there is greater flexibility for GCB2 companies — for example, shareholders and directors can meet anywhere — they are still required to have a registered office and agent in Mauritius. There are also a few activities in which GCB2 companies cannot participate, including banking, financial services, trusteeship services, services for corporations such as nominee, directorship or secretarial services, or holding, managing, or dealing with a collective investment fund as a professional functionary.
GBC2 applicants must submit an application form and all certified supporting documents to the FSC through a management company. They must also pay the applicable fees. It is $1,750 for the initial license and $235 annually after that. The processing fee upon application is $500 and then $100 each for all the following years. Finally, there is no requirement to file tax returns under the GBC2 business structure.
There is another structural option available to those interested in setting up a Maurutius offshore company — the limited partnership. Partnerships are tax transparent which means they are not taxable entities. Instead, the profits are passed on to the partners according to their share in the business and taxed directly in the hands of each partner.
The limited partnership is largely a private agreement and can be drafted without legal personnel, allowing for greater confidentiality. However, all accounts and financial documents must be kept for at least seven years in both French and English. Limited partnerships are best used for different fund types such as hedge funds or other investment funds.
Does Mauritius Work For You?
It is encouraging to see a country like Mauritius make headway as a financial center in a rapidly growing region of the world. Mauritius is the hassle-free, foreigner friendly counterpart of many other small island countries found across the globe who understand that creating a business-friendly environment is a step in the right direction.
But is Mauritius the right choice for you? The tax incentives are clearly there, but you also need to take into consideration your clients and how your business operates. As I mentioned earlier, some banks may still be suspicious of a wire transfer being sent from the island of Mauritius. That is one reason I argue that onshore is the new offshore. However, there are many businesses that could benefit from setting up their offshore company in the Republic of Mauritius.
It’s just a matter of knowing your end goals and making the right decision for your business. Don’t chase after Mauritius offshore company setup because it sounds exotic and the taxes are low; instead, make the choice once you know how it fits into your overall plan for offshore success.