Highlights of the 2017-2018 Mauritian Budget
On 8th June 2017, The Prime Minister and Minister of Finance and Economic Development delivered this Government’s third and mid-term budget as a continuation of its roadmap, with little change to economic policy. The 2017/2018 budget contains various measures to boost the economy in the midst of major challenges facing Mauritius. The Minister has widely consulted with the key stakeholders and the budget proposal reflects some of their recommendations. There is clearly a greater sense of urgency to address the challenges as well as commitment to steer Mauritius back to a high performance economy.
The setting up of the Economic Development Board
To boost the possibility to achieve its objectives with regard to the creation of more and better jobs, the Honourable Prime Minister in his Budget Speech has emphasised on the importance of setting strong institutional capacity to support such bold initiatives. As such, an Economic Development Board (EDB) will be set up providing for an adequate body which will coordinate the implementation of the needed policies and actions.
The EDB will have three main directorates as set forth below:
- The EDB will be responsible for the national and sectorial economic development planning.
- The EDB will encompass the various functions of existing organisations namely, the Board of Investment, Enterprise Mauritius, the Financial Services Promotion on Agency and the Mauritius Africa Fund.
- The EDB will also be the main licensing agency in Mauritius thereby curbing office hopping to obtain a business licence.
Elaboration of a blueprint for the upcoming decade
Inasmuch as the financial industry is facing numerous challenges from the International Community, including the Organisation for Economic Co-operation and Development (OECD) and the EU, and in view to tap into the new global economic opportunities, the global business sector will be revamped such that the emphasis will be on quality of product offering rather than on non- sustainable fiscal advantages. Hence, the Government has announced the elaboration of a blueprint which will be worked out in collaboration with the new EDB, the Bank of Mauritius, the Financial Services Commission (FSC) and the relevant parties of the financial services sector. This plan will cast vision of the sector for the next 10 years while taking into consideration international requirements in terms of taxation and the competitiveness of our jurisdiction.
Change in substance requirements for GBC 1 companies
The present Budget has announced additional measures to promote Mauritius as a jurisdiction of substance.
In regards to the global business sector, while the Mauritius FSC has effectively specified a series of statutory obligations for the set-up of a Global Business Category 1 (“GBC 1”) company, it also required, prior to the budget, that at least one of the following criterion be met:
- The corporation has or shall have office premises in Mauritius; or
- The corporation employs or shall employ on a full time basis at administrative/technical level, at least one person who shall be resident in Mauritius; or
- The corporation’s constitution contains a clause whereby all disputes arising out of the constitution shall be resolved by way of arbitration in Mauritius; or
- The corporation holds or is expected to hold within the next 12 months, assets (excluding cash held in bank account or shares/interests in another corporation holding a Global Business Licence) which are worth at least USD 100,000 in Mauritius; or
- The corporation’s shares are listed on a securities exchange licensed by the Commission; or
- It has or is expected to have a yearly expenditure in Mauritius which can be reasonably expected from any similar corporation which is controlled and managed from Mauritius.
Henceforth, in order to be eligible for a GBC 1 licence, a company will be required to satisfy at least two of the above-mentioned criteria. This will definitely create a more stringent business environment while at the same me showcase Mauritius as a well regulated jurisdiction of substance. For instance, GBC 1 companies which previously satisfied the above-mentioned FSC requirement by having an arbitration clause in their constitution, would now need to determine ways for satisfying an additional criterion. One way of fulfilling the above requirement would be to seek a listing on the Stock Exchange of Mauritius Ltd (SEM) - not only would this enable the company to benefit from using Mauritius as a capital raising platform but also satisfying any Limitation of Benefit clause under Double Taxation Agreements (DTA) in force in Mauritius.
Also, with increasing pressure from international organiations, the prevailing tax regime for global business companies is likely to be subject to reforms, in guise of staying in line with new international standards. Currently, a GBC 1 company is subject to income tax in Mauritius on its net income at 15%. It is however entitled to a tax credit equivalent to the higher of the foreign tax suffered or 80% of the Mauritian tax payable on its foreign sourced income giving an effective tax rate of 3%.
Mauritius as a capital raising platform
While Rights Issues are a common practice among listed entities worldwide, it is noted that, in Mauritius, in order to proceed with such a corporate action, the FSC requires the registration of a Prospectus as defined in the Securities Act 2005. This requirement was imposed by the FSC in a circular dated 24 September 2015, in line with Section 68 of the Securities Act 2005. Therefore, companies listed on the SEM or meeting the definition of a Reporting Issuer, were required to comply with the Securities Act 2005 and the Securities (Public Offer) Rules 2007, whenever they intend to pursue a Rights Issue. Until the announcement of the present budget, this was considered to be an onerous and lengthy requirement that posed a barrier to listed companies or Reporting Issuers seeking to raise fresh capital in a timely fashion. This was depicted as one of the weaknesses of the Mauritian capital market that wants to position itself as a major capital raising platform for Africa. The intricacies of applying this requirement when a company is also listed on a Securities Exchange other than the SEM further make the process complex and cumbersome without the addition of any value whatsoever to listed companies and their shareholders. The Prospectus that combined the requirements of more than one Securities Exchanges for dual listed companies also confused investors and defeated the very purpose of allowing flexibility to foreign companies to seek listing in our jurisdiction.
To rectify this situation and to position Mauritius as a capital raising platform, it has been proposed in the present Budget to do away with the requirement of registering a Prospectus with the Financial Services Commission in respect of a Rights Issue (as set forth under the Securities Act 2005 and Securities (Public Offer) Rules 2007) that is, the above requirement will no longer be applicable for companies holding a Global Business Category 1 License listed on the SEM and which are also listed in another jurisdiction. Only the requirements under the SEM Listing Rules will henceforth apply. Hence, such dual listed companies (holding a category 1 Global Business License) need to comply only with the requirements of the respective Securities Exchanges where they are listed. This important change aims to encourage more foreign companies to use Mauritius as a capital raising platform and thus helps to position the country as an International Financial Centre.
Broadening the product offering of the SEM
It has been announced that the SEM will engage with Euroclear to transform the local debt market in the country and set up an international capital market which would attract African Governments and corporates to issue and list multi-currency bonds in Mauritius. This will create the much needed impetus to enhance the visibility of the SEM as an international exchange while at the same me re-affirm its supremacy as one of the leading exchanges in Africa.
It is to be noted that Euroclear is a settlement of securities platform based in Belgium and founded in 1968. It facilitates the settlement of trades in the Eurobond market and also provides for the safekeeping and asset servicing of these securities. Currently securities issued by Mauritian companies cannot be se led on the Euroclear platform.
Special Purpose Funds
A Special Purpose Fund is set up as per Rule 3 of the Financial Services (Special Purpose Fund) Rules 2013. A Special Purpose Fund conducts investment solely in countries which do not have a tax arrangement with Mauritius and invests mainly in securities whose returns are exempted from taxation. Henceforth, the legal obligations of such Special Purpose Funds will be aligned to those of Category 1 Global Business License Companies. The Companies Act 2001 will be amended to that effect.
Mauritius- A FinTech Hub for Africa
FinTech, currently the buzzword in the area of innovative nance, is set to be empowered in the Mauritian jurisdiction in a grand scale. Alongside the Regulatory Sandbox Licence which was announced in the Budget 2016-17 to promote FinTech, the measures designed in the Budget 2017-18 are consistently aiming at promoting Mauritius as a FinTech hub for Africa. The principal measures in the budget include creating a regulatory framework for FinTech products such as peer-to-peer lending, mobile wallet and building a regional community who shall act as a benefactor, while advising on necessary regulatory and business climate amendments. The regional community shall also be engaged in enforcing the connection with international institutions such as Innovate Finance London and the FinTech circle. Moreover, to enforce the objective of making Mauritius a credible FinTech hub, relevant rules would be issued by the FSC.
An 8-year income tax holiday will be granted to:
- Companies engaged in the manufacturing of pharmaceutical products, medical devices and high tech products incorporated post 8 June 2017;
- Companies engaged in exploitation and use of Deep Ocean Water for providing air conditioning installations, facilities and services;
- New companies involved in innovation-driven activities based on the income derived from the totality of Intellectual Property Assets.
Tax Incentives for Research and Development
- An accelerated capital allowance of 50% will be applicable on capital expenditure incurred on research and development.
- A 200% tax deduction will be introduced in relation to:
– Qualifying expenditures on research and development, applicable for 5 income years from 2017/2018 to 2021/2022 where such expenditures are related to a corporation’s existing trade or business;
– Expenses in relation to deep ocean water air conditioning for a period of 5 consecutive years;
– Acquisition and setting up of a water desalination plants.
Reduced corporate tax rate on export of goods
- Profits from exports of goods derived by the domestic businesses will be subject to a lower tax rate at 3%, instead of 15%.
- Tax credit on investments in qualifying new assets shall be pro-rated accordingly.
Transfer of unrelieved tax losses
Similar to transfer of loss upon takeover or mergers, accumulated unrelieved income tax losses shall be available to offset against future taxable income upon a change in shareholding of a manufacturing company of more than 50% provided such conditions pertaining to public interest such as safeguard of employment are met.
Green Economy Incentives
- All interest income derived from debentures issued to finance renewable energy projects, previously taxed at 15%, will be exempted from tax provided that the projects have been approved by the MRA.
- Investment in solar energy units can be deducted in the form of investment allowance.
Corporate Social Responsibility (CSR)
- For CSR fund set up in the year starting 1 January 2017, companies were required to contribute 50% of their CSR fund to the National CSR Foundation and 75% was required in the subsequent year.
- It is now being proposed that the 50% contribution is maintained for another year.
- The remaining 50% will have to be remitted to the National CSR Foundation unless the company spends the CSR fund in an approved CSR framework.
Anti Avoidance Provisions
Previously repealed in 2007, the provisions to disallow expenditures relating to unreasonable contributions to a superannuation fund for the benefits of selected employees will be re-introduced.
Statement of Assets and Liabilities by High Net Worth Individuals
- The Finance Act 2016 introduced the requirement whereby an individual who derives net income and exempt income exceeding MUR15 Million or owns assets whose cost exceeds MUR50 Million in an income year is required to submit a statement of assets and liabilities.
- Additional guidelines in respect of the above requirement have been issued as follows:
– The statement of assets and liabilities will only be required to be filed by Mauritian citizens who are tax residents in Mauritius;
– Disclosure of the assets of spouse and dependent children of the taxpayer will be required;
– Disclosure will not be required for assets costing less that MUR200,000;
– Disclosure of wrong information will constitute an offence under the law; and
– Submission of statement of assets and liabilities will not be required every year but major additions to net assets of the taxpayer, spouse and dependent children of taxpayer exceeding a specific threshold will need to be reported.
Income in excess of MUR3.5 Million per annum derived by a resident individual will be subject to 5% solidarity levy. The income shall include chargeable income and dividends but shall exclude interest income.
Negative Income Tax
- Effective as from 1 January 2018, negative income tax ranging between MUR100 to MUR1,000 will apply on full time employment on monthly earnings not exceeding MUR9,900 subject to certain conditions.
- The first payment will be made by the MRA on or before 30 August 2018 in respect of the six month period from January to June 2018.
Tax Residency of individuals for income year 30 June 2016 and 30 June 2017
- One of the criteria of tax residency of an individual in Mauritius is that he has to be present in Mauritius in an income year and the 2 preceding income years for an aggregate period of 270 days or more.
- Further to change in income year from December to June, the 270 days criterion used to determine tax residence is being reduced to 225 days for income years ending 30 June 2016 and 2017.
Income Exemption Threshold (IET)
The annual IET for each category has been increased by amounts ranging between MUR5,000 to MUR15,000 and is effective as from 1 July 2017 as per table below.
|Individual with no dependent
|Individual with one dependent
|Individual with two dependents
|Individual with three dependents
|Individual with four or more dependents (NEW)
|Re red/disabled person with no dependent
|Re red/disabled person with dependents
• A new IET of MUR550,000 has been introduced for taxpayers having four or more dependents.
VALUE ADDED TAX
VAT exemption applicable to specific construction
- VAT exemption is extended to:
– The construction of a building purposely and exclusively for lease to the provider of tertiary education; and
- – The construction of a purpose-built building for a charitable institution
- Where the building has been put to another use other than agreed, claw-back of VAT will apply.
Removal of VAT on goods and services
- The VAT Act currently provides that burglar alarm systems and sensors are zero-rated items. Amendment will be brought to clarify that security patrolling and monitoring systems that are integral part of an overall burglar alarm system will also be zero-rated.
- No VAT and other taxes will be applicable on the purchase of articles from duty-free shops across Mauritius by Mauritians provided that those articles are not consumed locally and would be made available to them upon their departure at the airport/seaport.
- Vehicle examination fees (fitness) under the Road Traffic Act will continue to be considered as a zero-rated supply for another year up to 30 June 2018
- No VAT will be charged on the first MUR3,000 (currently MUR2,000) of the value of an article imported by post and courier services.
- The following items will no more be subject to VAT. Their classification as ‘exempt goods’ or ‘zero rated goods’ remain to be clarified by the Finance Bill:
– Sterile water used for pre-operative, per-operative or post-operative cleaning of wound.
– Sanitary pads and tampons.
All wholesalers of alcoholic drinks will have to compulsorily register for VAT, irrespective of their turnover.
VAT Refund Scheme
- VAT refund on specific equipment applicable to planter, breeder, apiculturist, fisherman or baker will also be applicable to tea cultivators. The list of qualifying equipment is being extended to include the following:
– Hand-held plucking shear
– Hand-held pruning machine
– Motorised tea harvester
– Sharlon shade, green house and shade screen – Fertigation pump
– Irrigation equipment
– Hydroponic filter
– Water tank
– Farrowing/gestation /nursery crate
– Heat lamp/ hot blast
– Pig feeder/drinker
– Cooling fan
– Feed grinder
– Ventilation fan
– Chicken crate
– Cages and coops
- VAT refund will be provided for the replacement of old lorries which are used for carrying harvested canes
- The VAT Act will be amended to be in line with the Income Tax Act on the following:
– An aggrieved taxpayer would be able to lodge an objection in respect of a VAT assessment through electronic means.
– The maximum penalty for failure to submit tax return and pay tax will be increased from MUR50,000 to MUR100,000.
– Adjustment for bad debt should be made when the debt is actually written off
– The period to be able to raise assessment by the MRA without the approval of the Independent tax panel will be increased from 3 to 4 years.
- Penalties will be introduced to sanction the failure to use or for tampering with an Electronic Fiscal Device.
Tax Arrears Payment Scheme (“TAPS”)
- The tax arrears payment scheme will be re-introduced for another final year with new terms and conditions.
- However, this scheme will apply to assessments raised or tax returns submitted before 1 July 2015.
- Up to 100% of interests and penalties will be waived if the taxpayer agree to settle the outstanding tax liability by 31 May 2018.
- Consequently, any ongoing prosecution will be withdrawn by the MRA.
Expeditious Dispute Resolution of Tax Scheme
This measure will be re-introduced for an additional year to settle disputes of less than MUR10 Million. This will allow the MRA to review the amount assessed, from a taxpayer who could not lodge an objection, mainly due to a failure to pay the 30% or 10% payable on objection.
Alternative Tax Dispute Resolution Panel
The newly-introduced panel set up earlier this year will be allowed to review amounts exceeding MUR10 Million under the following:
- assessments raised by the MRA under the Gambling Regulatory Authority Act;
- assessments raised by MRA in respect of PAYE and TDS; and
- decisions taken by MRA.
Assessment Review Committee (“ARC”)
The panel of ARC will try to fix a case for hearing within 2 months from the date a written representation is lodged. The panel will endeavour to give its decision within 4 weeks from the end of the hearing.
Payment of 10% of the amount assessed on objection
An objection will be considered as valid if the taxpayer appealing to the ARC decides to effect the payment of 10% of the amount assessed on an objection prior to the case being called pro-forma.
Powers of the Director-General of the MRA
The MRA could refuse to give a ruling regarding cases under objection or appeal.
Receivership and Liquidation of a Company
The Insolvency Act will be amended to enable the MRA to collect PAYE,TDS and VAT in priority prior to any distribution of assets.
Registration of Tax Agents
- In order to be considered as a registered tax agent, a person should be registered with the MRA and should meet the following criteria:
– A member of the Mauritius Institute of Professional Accountants (“MIPA”); or
– A member of the Bar Council.
- An individual who is not an accountant or a lawyer and wishes to act as a tax agent must have a minimum of ten years’ experience:
– in the employment of a person who is a member of the MIPA;
– in the employment of a registered tax agent; or
– as a past officer of the MRA .
Annual Statement of Financial Transactions
- Presently, the DG of the MRA is authorised to request, on a case-to-case basis, a bank, or other deposit taking institution to provide detailed information in order to prevent tax evasion or fraud on public revenue.
- The budget proposes amendments to empower the MRA to request from banks, insurance companies and non-bank deposit taking institutions, an Annual Statement of Financial Transactions in cases, where a transaction by any person exceeds MUR500,000 or if the aggregate amount of deposit in an income year exceeds MUR4 Million including money changers and foreign exchange dealers to provide a Statement of Financial Transactions to the MRA.
Annual Statement of Dividends paid by companies
Companies which paid dividends to individuals exceeding MUR100,000 should submit a list of such payment to the MRA.
Tax Deduction at Source (“TDS”)
- Société/succession whose annual turnover do not exceed MUR6 Million will not be required to operate TDS.
- Irrespective of the level of turnover, companies awarding contracts for construction works will have to withhold TDS.
- TDS of 15% will be applied instead of PAYE if the director fees are paid to a company instead of the director himself. TDS will not be applicable on royalty income received by a Mauritian from an artistic or literary work.
Electronic filing of tax returns
- Previously, companies having a turnover exceeding MUR10 Million were required to file their income tax returns electronically.
- The budget now proposes that every company has the obligation to file their income tax return and pay taxes arising thereon electronically.
Filing of income tax return on purchase of immovable property, motor vehicle or pleasure craft
A person will no longer require to file an income tax return if he has acquired a high value immovable property, motor vehicle or pleasure craft.
Employees to provide National Identity Card Number
It has been proposed that instead of applying for a Tax Account Number to the MRA, a individual will be required to provide his / her National Identity Card Number or Non-Citizen’s Identification Number to his employer.
OTHER BUDGETARY MEASURES
Occupation and Work Permit
- For the purpose of obtaining occupation permit (investor route), the cost of Hi-tech machines and equipment brought by investors will be considered as part of the minimum investment of USD100,000.
- An Innovator Occupation Permit will be introduced for innovative start-ups with a minimum operational expenditure of 20% for R&D purposes.
- The 8-year work permit policy applicable to expatriates in export-oriented enterprise is being extended to all manufacturing activities. Timeframe for issuance and renewal of working permit is reduced from 40 to 15 working days.
Integrated Resort Scheme (IRS)
The IRS allows foreigners to purchase freehold property for residential purposes in developments built to interna onal standards with world class amenities and facilities.
Currently, the amount invested on purchase of an IRS residence in Mauritius must exceed USD 500,000 (excluding taxes) for a maximum surface area of 0.5276 hectares (1.32 acres), for foreigners to benefit of the scheme.
To attract more visitors, a non-citizen who acquires a residential property for an amount below USD 500, 000 will be entitled to a Multi-Entry Visa for a maximum of 180 days per year for a consecutive period of 5 years and renewable every 5 years depending on the status of ownership.
Amendments to the Companies Act
The following changes will be brought to the Companies Act to:
- allow Islamic Financial Institutions and Islamic banks to adopt accounting standards issued by the Accounting and Auditing Organisation for Islamic Financial Institution;
- allow the Registrar to keep a register of beneficial owner/ultimate beneficial owner;
- allow companies using Extensible Business Reporting Language (XBRL) to pay a fee to the Registrar;
- allow companies to include a Corporate Governance Report in their Annual Report;
The minimum capital requirement for banks has been increased from MUR200 Million to MUR400 Million, with a transition period of 2 years for existing banks.