- Office 215, Block B, The Junction Business Hub, Calebasses, Mauritius
- +230 245 9773
Partial Exemption & CIGA
Partial Exemption (‘’PE’’)
The PE rule was introduced under the Finance Act 2018 and replaced the old Deemed Foreign Tax Credit rule. Under the PE rule, since 1 January 2019, 80% of certain specific income streams such as foreign dividend, interest income, income derived by collective investment scheme and its functionaries (CIS manager/administrator, investment adviser, asset manager), ship & aircraft leasing, reinsurance & reinsurance brokering activities etc) are exempt for tax purposes provided certain conditions prescribed under the legislation are met.
The resulting impact of the PE rule is that companies will have a maximum tax leakage of 3% on qualifying income streams.
Companies engaged in cross border transactions are often subject to tax by foreign tax authorities in one form or another, for example, taxes are often withheld on certain income streams, the rates of which largely depend on the Double Tax Avoidance Agreements (‘‘DTAA’’), if any, between Mauritius and the contracting countries.
The main objective of DTAAs between the government of Mauritius and various countries is to limit or fix the maximum rates of taxes that each government can withhold on certain income streams. In the absence of such DTAA, the tax authorities of foreign countries normally tend to apply higher rates of withholding taxes as prescribed in their domestic legislations. In these circumstances, depending on the exact effective rates of taxes suffered overseas, for certain companies, no additional taxes will be borne in Mauritius irrespective of the income streams.
Core Income Generating Activities (‘‘CIGA’’)
Following the introduction of the PE rule, the Mauritius Revenue Authority (‘‘MRA’’) issued a Statement of Practice (‘‘SOP’’) to guide taxpayers and practitioners on the practical application of the new rule. It is to be noted though that the SOP is not law and therefore not binding on taxpayers.
The SOP laid down the eligibility criteria for the 80% PE. For certain categories of income streams, PE will be granted provided that the company carries out its CIGA in Mauritius as well as employs, directly or indirectly, an adequate number suitably qualified persons to conduct its CIGA and incurs a minimum expenditure proportionate to its level of activities.
The SOP went on further to define the CIGA as ‘‘the essential activities carried out that generate income of the company’’ and stated that the core business activities are those that are central to the main operations of a business organisation and are strategic in nature.
The CIGA, along with the other conditions, is of paramount importance when making a claim for the PE. In the last quarter of last year, the Assessment Review Committee (‘‘ARC’’) issued a ruling in favour of the MRA by denying the PE to the taxpayer on the ground that the relevant income stream did not come from the CIGA. We understand that the taxpayer has appealed to the Supreme Court of Mauritius against the ARC’s unfavourable ruling, and in the event that the ARC’s ruling is ultimately quashed, it is likely to create a good precedent for taxpayers.
To conclude, if a company is contemplating to take full advantage of the 80% PE, from the outset, the core commercial affairs of the company must be structured in such a way that all the preconditions for the PE are fulfilled. Such proactive actions will certainly help in saving precious time and resources, including unnecessary professional fees, in responding to potential challenges from the MRA. As legislation and interpretations evolve, staying informed and adaptable will be crucial for companies aiming to leverage these benefits effectively. At Fortree, we can assist you in doing that.
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- Office 215, Block B, The Junction Business Hub, Calebasses, Mauritius
- (230) 245-9773