Archive for : September, 2014

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Global Tax Review – Mauritius

Almost all commercial transactions have tax implications, and the severity of these tax issues can have major influence on the success of these transactions. Tax regulation is constantly evolving and is more vital than ever as governments try to reduce considerable deficits. The enactment of FATCA (US Foreign Account Tax Compliance Act) is just one of the major reforms coming into force soon that will affect a considerable number of organizations. FATCA will fundamentally change the processes and operating systems that are currently used within the tax industry, requiring both non-US foreign financial institutions and non-US non-financial entities to identify and disclose their US account holders. To find out more about the taxation issues companies currently have to face, Lawyer Monthly speaks to Dev R. Erriah, Managing Partner of Erriah Chambers, based in Mauritius.

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Please introduce yourself and your firm.

Erriah Chambers is the only Chambers which specializes in International Tax Law, International Trusts Law, International Business Law and all aspect of offshore business activities. I am the head of Chambers, having graduated in the UK and I hold LLB and LLM in International Tax Law, Company Law, Law of International Finance and International Trusts Law from the prestigious University of London. I was called to the Bar of England and Wales in 1995 and am a member of Gray’s Inn. I was the first Chairman of STEP Mauritius (Society of Trust and Estate Practitioners) and I am also a member of the International Bar Association and forms part of Committees N (TAX) and E (Banking).

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What are the constitutional limitations to taxation in your jurisdiction?

Mauritius has no constitutional limitations to taxation. Government has the power to tax but it shouldn’t be arbitrary, unjust and it must not deny the taxpayers a fair opportunity to assert their rights.

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What are the main legal implications when dealing with tax issues in business?

All companies resident in Mauritius are liable to a tax of 15 per cent. A GBC1 is a resident company with its main office in Mauritius but it can only conduct business outside Mauritius. GBC1 are subject to low tax rates of 3 per cent or lower, there is no withholding tax on remittance of branch profits, interest, royalties and dividends and no capital gains tax. A GBC1 can also benefit from Double Taxation Agreement that Mauritius has with other countries. A GBC2 is a non-resident company and therefore is not subject to tax in Mauritius. Such company is not covered by any Double Taxation Agreement concluded by Mauritius. A GBC2 does not have to pay any Mauritian registration, capital, stamp or other duty or similar charge.

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Tax regulation is under the spotlight in many countries as numerous governments contend with large deficits. How could tax legislation be altered for the better in your opinion?

The tax system could be reformed to make it simple, just, equitable and fair, and all those with similar incomes should be made to pay the same taxes and those with more income pay more taxes. Also, we should ensure that taxpayers comply with the tax system.

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The fast approaching enactment of the FATCA (US Foreign Account Tax Compliance Act) will pose major challenges for many organizations globally. What do you think will be the main challenges for your jurisdiction?

FATCA will take effect from 2013 and one of its main objectives will be to clamp down on tax havens. Many investors who are US individuals will be required to report their foreign investments or face penalties for failure to disclose.
In my opinion it will hugely affect the financial institutions and the banking community as they will be obliged to report individuals with undeclared offshore bank accounts and this will cost the banks a huge amount of money. Mauritius, although is not a favourite jurisdiction for US people, will be negatively affected in respect of US investments in Asia which used to be structured in and through Mauritius.

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Has there been an increase in tax litigation due to the economic climate? What main types of litigation do you experience?

Yes, there has been an increase in tax litigation namely in relation of fraudulently and false accounting, late or non-filing of tax return. We handle numerous disputes in relation to all types of taxation and have litigated often through cases involving tax evasion, tax frauds, VAT frauds and custom duty.

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Please expand upon tax compliance and regulation in your jurisdiction.

The Income Tax Act 1995 as amended, applies to taxation of authorised funds, CIS, Investment Clubs and other entities carrying out fund business. Any collective investment scheme or closed-end fund wishing to be registered or licensed by the Commission under the Securities Act must apply to the Commission for authorisation as a collective investment scheme or closed-end fund under the Securities Act as set out in the Securities Regulations 2008 and it must also obtain a Category 1 Global Business Licence as required by the FSA 2007. Under Mauritius Law, collective investment schemes are either a company limited by shares, a trust, or any other legal entity approved by the Commission. A GBL 1 is a company incorporated in Mauritius and it is regulated by the Companies act 2001 and Financial Services Act 2007. A domestic company is taxed at the rate of 15 per cent and can only be entitled to foreign tax credit only if it has actually paid foreign tax elsewhere. A GBC2 is a non-resident company and is therefore exempted from tax and it cannot benefit from the Double Taxation Agreements of Mauritius. The FSA provides certain restrictions on the business that may be conducted by a GBC 2 for example they cannot provide banking or financial services; holding or managing investment funds etc.

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Erriah Chambers offers international business law expertise in Mauritius

A recent law enables foreign legal firms to establish local offices or joint ventures in the island nation, providing a good base for international legal prominence

As a former French and British colony, the legal system in Mauritius has been influenced to a large extent by the legal systems of both countries. The hybrid legal system is governed by the French Civil Code and English common law. Company law, trust law, criminal procedure, and the law of evidence are mostly imported from the English legal system, while the Code Civil, Code de Procedure Civile and Code de Commerce follow French laws – with some changes brought in over the years to suit the Mauritian context and accommodate local conditions.

In terms of the judiciary, the Privy Council serves as the final appellate court for both civil and criminal cases, while the Supreme Court heads the judicial system as a court of higher jurisdiction and as an appellate court.
The Mauritius legal system and judiciary are currently undergoing major reforms with a view to modernising the system. One notable addition to the judiciary is the Mediation Division of the Supreme Court, inaugurated in June 2011. Mediation aims to provide a prompt dispute resolution mechanism to parties, and in so doing reduce the costs involved in a case, and avoid undue delays.

Recently, the Law Practitioners Act 1984 was amended to provide for the establishment of a Council for Vocational Legal Education, and allow a Mauritian citizen who has obtained a professional qualification equivalent to that of barrister in another Commonwealth country or in America to practise as a barrister in Mauritius. In the near future, Mauritius will see the establishment of an Institute for Judicial and Legal Studies, which will manage the training of prospective magistrates and the ongoing training of judicial and legal officers.
The liberalisation of the legal services market with the adoption of the Law Practitioners (Amendment) Act 2008, enables foreign law firms to establish local offices or joint ventures in Mauritius alongside Mauritian lawyers. This makes Mauritius an attractive jurisdiction. The country is also positioning itself as a regional centre for international dispute resolution, and is actively promoting for international legal practitioners to represent parties and to act as arbitrators in international commercial arbitrations in Mauritius. This will create more opportunities for the Mauritian legal sector and provide a better framework for Mauritius to establish itself in the international legal arena. 

Recent business legislation
The global business sector in Mauritius commenced operations in 1992, offering services to both the local and offshore sectors. The Financial Services Commission is the authority responsible for the licensing and regulation of non-banking financial services, including the insurance sector. The Financial Services Act 2007, the Insurance Act 2005, the Securities Act 2005 and the Trust Act 2001 are the governing legislations for global businesses in Mauritius.

The Financial Services Commission of Mauritius issued its codes on the Prevention of Money Laundering and Terrorist Financing, which were subsequently revised and reissued in July 2005, to meet new national and international initiatives. The codes build upon the provisions of the Financial Intelligence and Anti-Money Laundering Act 2002, and set out the preventive measures that financial institutions, trusts and corporate service providers must put in place to counteract money laundering and terrorist financing. These codes also take into account the 40 recommendations and nine special recommendations of the Financial Action Task Force, and various other international standards. 

Mauritius is progressively paving its way to establishing a solid investment fund industry in the offshore sector. The banking sector alone is worth over $1bn. About 90 percent of the active funds invest in Indian securities and shares, and more than half of the registered offshore funds are listed on international stock markets. South Africa, the US, India and non-resident Indians represent the major sources of offshore investment.

The Mauritian government took the initiative to amend key legislations, to bring them in line with international business expectations and compete across the markets:
• Offshore companies have been replaced by Category 1 Global Business Companies;
• The concept of ‘offshore trusts’ has also been abolished as a result of the repeal of the Offshore Trusts Act 1992 (now replaced by the Trust Act 2001), which has fused the law relating to domestic trusts and offshore trusts;
• The Banking Act 2004 allows offshore banks in Mauritius to conduct all types of banking business activities with non-residents of Mauritius;
• The Financial Services Act 2007 now provides for the legal framework governing the financial service sector.

World Finance recommends
Erriah Chambers is a law firm specialising in international tax law, international trusts law, international business law and all aspects of offshore business activities. The chambers was set up in response to the demand for Mauritius-based lawyers with international exposure and specialised expertise in the fields of international trusts, international finance, corporate and cross-border insolvency, tracing, and debts recovery.

Erriah Chambers consists of a team of seven barristers, led by managing partner Dev Erriah, and has associateship with many foreign law firms. Dev Erriah is listed as Band I and II individually in Chambers and Partners Global for the years 2008, 2009 and 2010.

Erriah graduated in the UK and holds an LLM in international tax law, company law, and law of international finance and international trusts from the University of London. He undertook his pupillage with Philip Baker QC at Gray’s Inn Tax Chambers.

He was the first Chairman of STEP Mauritius (the Society of Trust and Estate Practitioners), and is a member of the International Bar Association, part of Committee N (for tax) and Committee E (for banking). 

More than 80 percent of the chambers’ practice involves advising international clients – including multinational enterprises, international law firms, the top 10 international accountancy firms, management companies, and domestic and international banks. The chambers is also involved in setting up various types of investment funds with very complex structures in jurisdictions in Africa and Asia, and undertakes international litigation such as international bankruptcy, enforcement of international creditors’ claims, money laundering and due diligence in Mauritius and at an international level.
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Dev Erriah on Mauritius law | Erriah Chambers | Video

World Finance interviews Dev Erriah, Head of Erriah Chambers, on the Vodafone case and how it affirms Mauritius tax laws

Mauritius’ complex legal system – a post-colonial hybrid of French civil and English common law – is shifting more towards the latter as it aligns itself with OECD standards and ensures its fiscal statutes comply with international regulations. Dev Erriah discusses the reforms being made to make the country more accessible to international businesses, and what the recent Indian Vodafone tax ruling means for the Mauritian jurisdiction.