Highlights from the Mauritian Budget Speech 2018
The Mauritian Prime Minister (and Minister of Economic Development) delivered the 2018-2019 Budget Speech titled "Pursuing our Transformative Journey" on 14 June 2018 (Budget).
The Budget identified seven key action areas which include: innovation and accelerating the adoption of digitisation, creating a strategic and modern infrastructure, focusing on sustainable development and creating an inclusive and caring society.
This is the fourth budget of the current Mauritian Government and continues the theme of addressing key social and economic concerns facing Mauritius, whilst seeking to place more money in the pockets of low and middle-income earners.
Two proposals made in the Budget stand-out from an economic perspective. The first proposal concerns the revision to the taxation of Category 1 Global Business Licence (GBC 1) companies and the second proposal concerns the abolition of the Category 2 Global Business Licence (GBC 2) regime.
Regarding the revision to the taxation of GBC 1 companies, the Budget proposes a new harmonised fiscal regime for domestic and Global Business companies. The Deemed Foreign Tax Credit regime currently available to companies holding a GBC 1 Licence will be abolished from 31 December 2018. Consequently, GBC 1 companies will cease to benefit from an automatic effective tax rate of 3% on their foreign sourced income.
The abolition of the Deemed Foreign Tax Credit regime will coincide with the introduction of a partial exemption regime available to all companies in Mauritius (except banks). In terms of the new regime, 80% of the following income will be exempt from income tax:
- foreign-sourced dividends and profits attributable to a foreign permanent establishment;
- interest and royalties; and
- income from the provision of certain financial services.
The availability of the partial exemption regime is subject to a company being able to demonstrate enhanced substance in Mauritius on criteria yet to be determined by the Financial Services Commission (FSC). The existing credit system for relief of double taxation will continue to apply where the partial exemption is not available. Other income will be subject to tax at a rate of 15%. The overall effective tax rate applicable to GBC 1 companies will therefore depend on the nature of the income and the substance of the company. Typical GBC 1 investment holding companies are unlikely to be affected by the changes, provided the additional substance requirements are met.
By contrast, the abolition of the GBC 2 regime is aimed at building credibility for the financial services sector by addressing concerns raised by the Organisation for Economic Co-operation and Development (OECD). The FSC will no longer issue GBC 2 licenses from 1 January 2019. A grand-fathering provision has been proposed and the current regime will continue to apply until 30 June 2021 for companies in possession of a GBC 2 licence issued prior to 16 October 2017.
The reforms are aimed at harmonising the fiscal regime for domestic and Global Business companies as well as introducing enhanced substance requirements. Mauritius hopes that these measures will assist it with adhering to the best practices and standards in tax matters in line with OECD requirements, whilst retaining a competitive fiscal regime.
It is important to bear in mind that the above proposals must still be legislated by the Mauritian Parliament. As in South Africa, the mere fact that new fiscal measures are announced in a particular budget does not automatically mean that such measures will become law.
As we act for numerous South African and international clients in relation to investments, disposals and fund formations throughout Sub-Saharan Africa (including in Mauritius), we are monitoring developments concerning the Budget closely.