Mauritius as Low Tax Haven

At present, there are two main fiscally advantageous companies in Mauritius: "Ordinary offshore Companies" (Governed by the General Companies Act, 1984 as amended by the Mauritius Offshore Business Activities Act, 1992) and "International Companies" (Governed by the International Companies Act, 1994). In synopsis, the former can avail of the Mauritian double taxation treaty network whilst the latter are directly analogous to West Indian 'Tax Free' IBC Companies and do not enjoy tax treaty benefits. To enjoy the substantial benefits afforded by the Mauritian/Indian Double Taxation Treaty, which interestingly was signed in 1983 and hence before much of the Mauritian tax planning legislation, it is necessary to prove that the recipient is resident. Under Article 4 of the Treaty a company, including an ordinary offshore company, will be deemed so resident if:

(i) The undertaking is liable to indigenous tax, and

(ii) there is genuine proof of local management and control.

Mauritius has a significant number of local lawyers and accountants who can provide resident directors, maintain local bank accounts, record official "minutes", hold board meetings and submit the annul audited accounts. In respect to the liability to local tax there would of course be no benefits if fiscal liability was merely extrapolated from India to Mauritius. The full normal corporate tax rate for the latter being a very non Tax Haven" 35%. However, under S.59D of the Income Tax Act the proscribed rate of tax for an Ordinary Offshore Company is 0% unless otherwise elected up to a maximum rate of 35%. This provision existing for tax planning and anti-avoidance reasons. In other words, it is quite possible for a Mauritian Ordinary Offshore Company to have no indigenous tax consequences. The question therefore becomes at what level will India impose withholding taxes on investments. Under the Treaty, once a Mauritian company holds an investment stake of 10% or more in an Indian company - known as a participation exemption - India will only impose a withholding tax rate of 5% on dividend distributions. In addition, tax on realised capital gains from the disposition of shares are fully exempted from Indian taxes. Of course, it would be wrong to give the impression that Mauritius is the ubiquitous solution for investments into India. Cyprus may provide a more successful catalyst especially where a Cypriot company wishes to grant a loan to an Indian subsidiary. The withholding tax on interest payments merely being 10% as opposed to the 20% rate levied in the case of Mauritius. Cyprus can also provide protection against the imposition of capital gains taxes.

Mauritius permits the incorporation of companies under the International Companies Act of 1994 and exempts them from all taxes except for a $100 annual fee. Bearer and no par value shares are permitted. No information need be given to the authorities prior to incorporation or prior to exempt tax status being granted. There is no information open to the public about exempt companies and there is no restriction on where meetings may be held. A registered office and a representative is required and certain documents must be kept at the agent's office. Exempt companies can not however take advantage of double taxation treaties, the most important of which is with India.

As can be seen from the above, Mauritius offers substantial advantages for investors who are active in India. In addition, exempt companies, which may not avail themselves of the double tax treaty, are nevertheless private and inexpensive and may be appropriate in may other situations.

Mauritius (Low Tax Haven in the Indian Ocean)

Mauritius, in the Indian Ocean 500 miles east of Madagascar, is a little island democracy about 2/3rds the size of Rhode Island. Mauritius has a topography and subtropical climate much like the Hawaiian Islands. Oval shaped, only 38 miles long and 28 miles wide, Mauritius is almost completely surrounded by a coral reef. Average temperatures of 740 on the coast and 67o on the misty central plateau make Mauritius a land of enchantment.

The first Westerners to visit Mauritius were the Portuguese in the 16th century, and they found the island totally uninhabited. Since then much of the original plant and animal life has been displaced, including the flightless dodo bird. After the Portuguese came the Dutch, who gave up establishing a settlement there in 1710. The French took possession next, introducing sugar, spices, coffee, tea and other crops to the island.

During the Anglo-French wars of the 1700s the French made the mistake of attacking British shipping from their I’le de France (Mauritius’ French name). In 1810 the British captured the island and renamed it Mauritius. Today, Mauritius is an independent nation and member of the British Commonwealth of Nations. A governor general is appointed by Great Britain representing the Crown.

Political Stability


Mauritius is politically stable, although the government is run by former leftists who balked at carrying out radical socialistic policies in 1983 to redistribute the sugar cane fields owned mainly by French-Mauritian families. As Minister of Finance V. Seethanah Lutchmeenariaidoo said… “Either we had to nationalize the land and distribute it to co-operatives in a Mexican style agrarian revolution, or we had to use consensus and dialog. We chose the second route.”

Ministry official Emmanuel Arouff insists that the “spirit of democracy and free enterprise are deeply ingrained in Mauritius. We are only too happy that our socialist experiment lasted only 9 months. We value our little bit of prosperity and independence.”

Mauritius maintains ties with the government of South Africa yet openly opposing apartheid. The Mauritian government believes there should be a negotiated settlement. Tourists that visit Mauritius are struck by the island’s lack of racial friction and a 94% literacy rate.

Currently, trade (mainly food and machinery) with South Africa account for 10% of Mauritius imports. With its one economy crop Mauritius must import foodstuff heavily.

Territorial System of Taxation


Mauritius is not a no-tax haven like the Bahamas. Its tax system can best be described as territorial, somewhat like Singapore’s but with lower rates. All companies in Mauritius, whether resident or nonresident, are taxed only on their net profits earned in Mauritius. There are no capital gains taxes, and stocks and bonds in publicly traded companies and private companies can be sold tax-free. There is a land development tax, called Capital Gains Morcellement tax, which is levied on real estate developers who parcel out land for development (resale) purposes. Mauritius tax system is designed to make it a regional warehouse and re-export center to Africa.

Corporate Tax Rates


There are two brackets for the corporate taxpayer. Special Certificate Companies pay a flat rate of 15% and Non-Certificate Companies pay at a 35% rate. Generous allowances can often reduce the effective tax rate to a much lower level. For example, investment tax credits for industrial, manufacturing, shipping or tourist activities permit a deduction from income tax equal to 30% of the cash actually paid up as share capital. The credit is spread out over three years, but limited to R$30,000 for individuals and R$100,000 for companies.

Individual Tax Rates


Resident individuals are taxed on their gross personal income on a sliding scale from 5% to 35%. Personal income consists of earned income (salary, wages, bonus, commissions, fees, pensions and benefits in kind) and unearned income (dividends, trade profits, rents, interest partnership profits). Capital gains are not taxed. Dividends paid on shares of Special Certificate Companies are exempt from tax during the first 10 years starting from the company’s production date. Dividends that accrue to foreign investors who get approved status may be repatriated without tax being levied.
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