Doing business in Mauritius
Mauritius is an island with a surface area of 1,865 square kilometres. It is situated in the centre of the Indian Ocean located at 2,000 kilometres off the South East coast of Africa. Mauritius has a population of around 1.2 million inhabitants from Chinese, Indian, African and European descent.
Mauritius obtained its independence from Britain in 1968 and became a Republic within the Commonwealth in 1992.
The country is a parliamentary democracy with elections held every five years and an independent judiciary. The legal system can be considered as a mix of French civil law and British common law.
Language and climate
English is the official language in Mauritius while French is widely used both in conversations and the written communications. Creole, the local dialect, is also spoken by all Mauritians. Mauritius has a sub-tropical climate with average temperatures varying from between 17 – 32°C in the summer (November to April) and between 15 – 27°C in the winter (May to October).
Corporate income tax
Mauritius applies a basic corporate income tax rate of 15%.
All income accruing in or derived from Mauritius by a resident company is chargeable to corporation tax. Non-residents are subject to tax on income accruing in or derived from Mauritius.
Income tax is charged on the taxable income of resident companies which accrues in or is derived from Mauritius and elsewhere. Income tax is also charged on the taxable income of non-residents accruing in or derived from Mauritius.
Dividends and interest payments are not subject to any withholding tax in Mauritius.
Royalty payments and other payments are subject to Mauritian withholding tax.
Types of companies
Category 1 Global Business Companies (GBC 1s)
GBC 1 companies cannot engage in transactions with Mauritian residents or in Mauritian currency. No minimum capital requirements apply and shareholder(s) cannot be resident in Mauritius.
Activities of a GBC 1 company can include:
- Aircraft financing and leasing;
- Assets management;
- Consultancy services;
- Employment services;
- Financial services;
- Fund management;
- Information and communication technologies;
- Licensing and franchising;
- Logistics and or marketing;
- Operational headquarters;
- Pension funds;
- Ship and ship management;
- Any other activity approved by the FSC.
GBC 1 companies are regarded as tax resident in Mauritius if they can demonstrate that their management and control is situated in Mauritius. If treated as Mauritian tax residents, GBC 1 companies can take advantage of double tax treaties concluded between Mauritius and other countries, which provide for a preferential rate of withholding tax on payments.
GBC 1 companies are taxed at the standard corporate income tax rate of 15%. The special thing about these GBC 1 companies is they can utilise a generous unilateral foreign tax credit. More specifically, at the surface it looks like GBC I companies have a tax liability of 15% on their taxable income. But when you look closer, you should realise it isn’t the case.
GBC 1 companies deriving foreign source income are eligible to a tax credit which is 80% of the Mauritian corporate income tax rate. To put it differently, GBC 1 companies have a residual tax liability of only 20% of the original 15%, meaning they’re suffering a maximum effective tax rate of 3%. GBC 1 companies can always claim this unilateral foreign tax credit, even in the absence of evidence of tax paid on its overseas income. Additionally, GBC 1 companies are not subject to Capital Gains Tax (CGT), as there is no CGT in Mauritius. A GBC 1 company is the perfect vehicle for international businesspeople who want to minimise their taxes while doing business with an internationally accepted Mauritian company.
Indicative criteria to be fulfilled by GBC 1 companies to prove that their management and control is in Mauritius, include:
- Having at least two Mauritian-resident directors with the capacities to act as an independent and capable director;
- Providing for meetings of directors to include at least two directors from Mauritius;
- Maintaining, at all times, principal bank accounts in Mauritius;
- Maintaining, at all times, accounting records at its registered office in Mauritius;
- Making arrangements for the preparation and audit of statutory financial statements in Mauritius.
Category 2 Global Business Companies (GBC 2s)
GBC 2 companies are not resident in Mauritius and are therefore not liable to tax in Mauritius. Consequently, they cannot take advantage of the double tax treaties concluded by Mauritius and other countries.
Some of the other characteristics of GBC 2 companies are the following:
- No minimum capital requirement;
- Minimum number of shareholder(s): one;
- Minimum number of directors: one;
- Shareholders must not be resident in Mauritius;
- There is no obligation to prepare financial statements or to have an audit, but accounting records must be maintained in Mauritius or elsewhere;
- Shareholders’ and Board meetings need not be held in Mauritius;
- Bank accounts can be held in Mauritius or elsewhere;
- The names of the beneficial owners of a GBC 2 are known only to the MC and the FSC. Both have a duty of confidentiality, but the veil can be lifted if there are suspicions of fraud, money laundering or drugs and arms trafficking.
Protected Cell Company (PCC)
A GBC 1 may be structured as a PCC, which is a special legal structure made up of cellular and non-cellular assets. It provides legal segregation of assets attributable to each cell of the company whether owned by individuals or body corporate. The PCC offers a wide range of applications namely insurance (general, long term, reinsurance, captive) and collective investment schemes. The incorporation and licensing procedures of a PCC are similar to those which apply for a GBC 1.
Limited partnerships are tax transparent and, therefore, not taxable entities. Instead, profits accrue to the partners according to their share in the capital. There is no prescribed minimum capital.
Apart from tax transparency, another advantage is that the limited partnership is largely a matter of private agreement. Indeed, a limited partnership agreement can be drafted with or without legal personality. This offers confidentiality. The partnership is binding on all partners, general or limited, and their assignees. The agreement can be amended by an instrument in writing.
The accounts, financial documents and other records have to be maintained both in English and in French, and they must be kept for at least 7 years. The limited partnership may be used for various types of funds (for example hedge funds).
Foreign investment incentives
The Foreign Exchange Control Act was suspended in 1994 in order to enable the free repatriation of capital. The Mauritius Investment Promotion and Protection Agreements also provide for the free repatriation of capital.
Mauritius has the necessary framework to protect the interests of foreign investor. Mauritius is a member of the International Court of Justice, the International Centre for the Settlement of Investment Disputes and the Multilateral Investment Guarantee Agency.
Mauritius offers an attractive corporate income tax rate of only 15% (which can be lowered to only 3%), Mauritius does not levy capital gains tax and does not levy withholding tax on dividends and interest payments.
Mauritius does not apply stringent minimum capital requirements to set up a company and Mauritius offers an extensive tax treaty network with several countries.