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.

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).

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.

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.

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.

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.

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.

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.