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Several tax changes for companies and individuals in Mauritius

Causing uncertainty for South Africans.
Political pressure for more revenue generation is the main reason behind the drastic changes. Image: Shutterstock

Leaving South Africa permanently is neither easy nor cheap. Many jurisdictions have been offering several options to attract foreigners by way of investments, business development or property.

Mauritius has recently been heavily punted as an emigration destination for South Africans who are eager to leave the political and economic instability of home behind.

According to Caoilfhionn van der Walt, international tax partner at Regan van Rooy in Mauritius, recent changes to the permit regime have all been positive.

“The Mauritian government has tried to make the country more attractive for people to live and work on the island.”

Enticements

People are now able to obtain a work permit for 10 years instead of the previous three years, renewable for another three years. Van der Walt notes that the monetary requirements for certain permits have also been reduced.

Foreigners wishing to invest in Mauritius by setting up their own business will require $50 000 (around R750 000) instead of $100 000.

Read: Financial markets in Africa still underdeveloped

The country also offers the right to residency to a foreigner and their family for the purchase of residential property at around $375 000 (around R5.6 million), compared with the previous purchase price of $500 000.

There is also a new permit, focusing on remote workers. This allows foreigners to stay in Mauritius for one year, provided they can show a monthly income of $1 500 (around R22 500) and do not enter the Mauritian workforce.

Ernie Lai King, MD of 1 Road Consulting, says individuals who spend 183 days or more during an income year in Mauritius, or who have a combined presence in Mauritius of at least 270 days in the tax year and the two preceding tax years, become island residents.

Mauritius residents are taxed on Mauritius-source income and foreign income remitted to Mauritius. The standard rate for individuals is 15%, but a reduced rate of 10% applies to individuals whose annual net income does not exceed MUR650 000 (around R247 000).

Bad developments

However, there have been some “bad developments” in terms of personal income tax, says Van der Walt.

The big change is the increase of the Solidarity Levy from 5% to 25%. This change will have the most impact on mid-income earners. People who earn between MUR3 million and MUR5 million annually (around R1.14 million – R1.9 million) will now pay 15% personal income tax plus the 25%.

The levy will be capped at 10% for people earning more than MUR5 million annually.

In a worst-case situation, a working individual in this income band will now pay 40% personal income tax compared with 20% previously.

And the bad news for workers does not end there. The Mauritian government has introduced a new social security regime known as Contribution Sociale Généralisée, applicable from September this year. This new system of social contributions replaces the National Pensions Fund.

For employees earning more than MUR50 000 (around R19 000), the contribution will be 3% and that of their employers 6%. Contributions will no longer be capped against a ceiling of MUR18 740 as had been the case under the National Pensions Act.

The main reason for these drastic changes is political pressure for more revenue generation.

Global pressure

Mauritius was removed from the Organisation for Economic Development and Cooperation (OECD) and the European Union Commission’s greylist for uncooperative tax jurisdictions by introducing some far-reaching changes to its corporate tax regime.

Read: Companies in low- or no-tax jurisdictions must show ‘economic substance’

This included the scrapping of the Category 2 Global Business Company (GBC2) regime. This allowed businesses to remain tax non-resident in Mauritius, exempting them from tax on the island, despite maintaining a bank account in Mauritius or entering into a business relationship with a management company or even a qualified auditor in Mauritius.

The regime will remain in place until June next year.

The deemed foreign credit system has also been scrapped and grandfathered until June next year. This system enabled companies to reduce their effective tax rate to 3%.

Transfer pricing is also becoming an issue in Mauritius.

According to Keith Engel, CEO of the South African Institute of Tax Professionals, the Mauritius Revenue Authority is now challenging back-to-back management fees or loans, requesting a transfer pricing mark-up. This challenge has caught many companies off-guard, especially given that the challenge goes back many years.

Not all is lost

Mauritius has now ended up on the EU’s revised list of high-risk countries, allegedly having “strategic deficiencies” in its anti-money laundering and counter-terrorist financing frameworks.

But according to Van der Walt, not all is lost. She explains that there are currently around 20 different tax holidays available for businesses – some with very general requirements and others with quite specific criteria for qualification.

“Many see the partial exemption regime as the new answer,” she says. “The regime works on the principle that 80% of certain types of income is tax exempt.”

Any foreign tax that has been suffered on income taxable in Mauritius can be offset against the Mauritian tax. This includes withholding taxes, which can be quite substantial in Africa.

Engel says the Mauritius system is in transition, seeking to maintain its historic advantages while satisfying the new OECD and other global mandates.

Mixed view

A mixed view is emerging from day-to-day practitioners, notes Engel.

“The historic camp believes that Mauritius remains a good proposition, especially for South Africans given their geographically proximity.

“Others say it may be time to reconsider other options, such as Dubai, given all the uncertainty.”

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COMMENTS   19

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25% Solidarity Levy will be a killer. Sad.

These foreign investors made lots of money betting against Rand, 25% is nothing for rich people.

Are you saying that they must pack their sun umbrellas and come back to the motherland?

No. They are not Dumb. They stay there but shift the money elsewhere. So the end result is Africa is the looser. AGAIN.

Capisce???

Just earn less than MUR3 Mil in Mauritius and you are ok.

When the trend is against you, you start making other plans.

Ag shame man. Where to now?

How many islands are there in the Indian Ocean? pick one

Or get a yacht big enough for the money bags

Interesting developments. Just pure speculation on my part, but did the Mauritius government not implement favorable tax systems to lure many investors and companies where after now they will simply increase taxes and try and get as much revenue possible before investors and companies start to leave again?

Unfortunately, Mauritius is just another “African” country where rules can change as often as it suits the governments pockets! It’s a pity as it was quite comforting to know that there was a tax haven close by…. rather like the Bahamas is to the United States…however reality strikes home.
Mauritius tourism has been hard hit by Covid and the Japanese oil spill – this tax reform is one way of helping to balance the books I suppose.

Your comment is not entirely fair. The OECD forces all “tax-havens” to comply with the directives of the OECD otherwise they will shut those countries out of the banking system. These changes were not initiated by the Mauritian authorities. It was implemented and enforced by the socialist governments that need taxes to buy votes.

@Sensei

Exactly, this was not initiated by Mauritius but rather organisations like the UN and IMF types that threaten to isolate and shut them out of the network of being able to do business with the rest of the world and the larger banks and investors.

Just another power game by the big socialists to get more power through more regulation.

Disaster. Guess you will have to pull an Elon Musk and come to Texas or Tennessee, with its no income tax. Property markets booming cause everyone flooding the deep south. Funny how you hate rightwing racist white trump supporters but damn its awesome to live with them.

Texas has no income tax? The IRS might argue with you about that one.

But where you are right : living in the red(neck) states is great since they are the real “socialists”. They receive FAR more in federal spend than they pay in federal taxes.

Texas doesn’t have an additional state tax on income, but you still pay federal income tax.

Yikes, Magnus ?

Tax hikes in Mauritius and the Zar strength. Is there a correlation between the two?

“Leaving South Africa permanently is neither easy nor cheap”

“…neither easy” Yes, never easy.

“…nor cheap”. Wrong. Unless you go to places like Georgia (requires no visa). And off the radar from SARS, as Mauritius is one of the most obvious places to look for with Saffas hiding money & not declare interest/dividends to SARS (assuming you’re a tax resident in SA)

Heck, with SA’s homicide crime stats (on Numbeo) hovering around the TOP 5 worst position on the globe’s 144 countries….I think even Mexico is a safer place to retire (and cheaper than most 1st world countries). Even Brazil & war-town Syria have less crime than in SA. Iran even safer than parts of Europe.

Never mind crime, the other question is: what would private healthcare be like (if still in existence), when I retire one day?

Yes on a single axis like crime, the world is ypur oyster compared to SA it seems.

90% of the professional companies involved in the property development and mining profession or developers all have accounts in Mauritius but not a single one is actually ‘domicilled’ there.

The tax man just needs to go through the list of Architects, Project Managers and engineering professions and would have a field day.

The SA fiscus is missing out all those dollars earned in all the African jurisdictions

End of comments.

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