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Further, the other important purposes of taxation are such that it Increases effectiveness and productivity of the nation as well as the quantum of revenue collection, it Improves services of the government and employment at all industry verticals, it allows for the Induction of modern technology in to the system, last but not least, there is the Rationalization of terms and condition of the economic system and of employment terms and conditions
The kinds of taxes raised by government for revenue are numerous. The most common are: personal income taxes, corporate income taxes, property taxes, sales taxes, gift taxes, expenditure tax, interest tax and import-export duties.
In Mauritius, it is the MRA which is responsible for the administration of tax policy, and the collection and accounting of all revenues arising under the Revenue laws, with Income Tax, VAT, Customs, Excise and Gaming. Mauritius Revenue Authority is a body corporate and is administered and managed by a Revenue Board.
So far Mauritius has concluded 36 tax treaties and is party to a series of treaties under negotiation. These concerns the Double Taxation Agreements that Mauritius has with other countries.
Double taxation occurs when a taxpayer is taxed twice for the same asset, income stream, or transaction. This happens when taxing jurisdictions overlap and a transaction, asset, or income amount is subject to taxation in both jurisdictions. When an individual must deal with double taxation, he or she may lose a significant portion of income. In some cases, this may cause the double-taxed individual to experience a lowered standard of living. Corporations deal with double taxation too, as a corporation pays taxes on its earnings only to have its shareholders taxed once more.
Opponents of double taxation assert that it is damaging to the economy. They state that double taxation imposes unfortunate consequences for those who choose to save and invest. Opponents of double taxation often argue that eliminating it, in all its forms, will spur the economy on, leading to an increase in jobs, improved salaries, and much better living standards.
Some people argue that double taxation of corporations isn't really a problem at all. They hold that a corporation is a legally separate entity from its shareholders. They cite the fact that shareholders are afforded certain levels of protection from liability in terms of damages caused by a corporation. They assert that a corporation is an entirely separate taxpayer from its shareholders, concluding that the same taxpayer is not taxed twice on the same asset or earnings.
Sometimes double taxation occurs as the result of international activities. For example, an individual may have business dealings in one country while residing in another. In such a situation, the individual may be required to pay taxes on her business gains in her country of residence as well as in the country in which the business operates. As double taxation can require taxpayers to give up a significant portion of their incomes, some countries have double taxation agreements. These agreements allow taxpayers to pay taxes in their country of residence, enjoying exemption from taxation in the other country.
In other cases of international double taxation, a business or individual is taxed in the country in which a gain arises. The taxpayer then enjoys a tax credit in his country of residence, eliminating the double taxation issues. However, this situation does not offer taxpayers an easy way to avoid paying taxes. The taxing authorities in each country communicate to discover and investigate taxpayers who try to use these laws to evade taxes.
Double Taxation Agreements
Mauritius has an extensive double tax treaty network which includes treaties with the following countries: Belgium, Botswana, China, Cyprus, France, Germany, India, Italy, Kuwait, Luxembourg, Madagascar, Malaysia, Mozambique, Namibia, Nepal, Oman, Pakistan, Singapore, South Africa, Sri Lanka, Swaziland, Sweden, Thailand, UK and Zimbabwe.
In the case of Mauritius, this subject of double taxation is dealt with in the Income Tax Act which goes as follows:
PART V - INTERNATIONAL ASPECTS OF INCOME TAX
73. Definition of residence
73A. Residence in the case of company holding a Category 2 Global Business Licence
74. Income derived from Mauritius
75. Application of arm's length test
76. Arrangements for relief from double taxation
76A. Arrangements for assistance in the recovery of foreign tax
77. Credits in respect of foreign tax
Under our domestic tax law, a company is tax resident in Mauritius either if it is incorporated in Mauritius or it if is centrally managed and controlled in Mauritius.
Tax resident companies are taxable on their worldwide income.
Non resident Mauritius entities (Branches of foreign corporations) are taxable on income derived from Mauritius.
International tax law
Each country follows its own tax rules and defines "residence" differently. Therefore, a taxpayer may find itself resident in two countries.
According to Article 4 of most tax treaties actually in force, a company resident in both Contracting States under their domestic law is deemed to be resident in the country in which it has its place of effective management.
Tax ruling (TR4) illustrates the above fact- a Mauritius resident company proposed to undertake services of a foreign company foe general overseas information sourcing, inspection of goods before shipment, consultancy services, etc. These services were provided from outside Mauritius and the local Mauritius resident company did not envisage recruiting personnel to come to Mauritius in connection with those services.
One of the points at issue was whether the fees received by the non-resident company would attract tax in Mauritius.
The ruling read as follows: "fees received by a non-resident for services performed outside Mauritius to a resident of Mauritius are not taxable in Mauritius." Where a contract is performed wholly or partly in Mauritius, it is clear that the income arising there from would normally constitute income derived from Mauritius.
Income derived from a contract wholly performed outside Mauritius does not constitute income derived from Mauritius. This is confirmed by TR14 that concerned the case of a foreign company which proposed to form a Mauritius company holding a Category One Global Business Licence to provide access to a satellite based digital telecommunication system to service providers in other countries pursuant to a contract. To enable it to fulfil its contractual obligations towards its clients, the Mauritius Company had to contractually obtain access to the corresponding telecom networks in return for payment of access fees.
The point at issue was whether the payments would be subject to tax in Mauritius. The ruling was that the foreign telecom company would not be liable to tax in Mauritius on the access fees since the services provided to the Mauritian company were performed from overseas, i.e. "not wholly or partly in Mauritius".
In the above case, even though there was a contract between the Mauritius Company and the foreign company, the contract was not performed "partly or wholly" in Mauritius. The services were provided from abroad.
Therefore, all income derived from overseas by an individual resident in Mauritius is taxable to the extent it is remitted to Mauritius or dealt with in his interest or on his behalf.
Mauritius taxes income under both the source and residence rules.
Under Section 5 "Derivation of Income" of the Income Tax Act 1995 ('The Act'), income shall be deemed to be derived by a person when the income is derived from Mauritius, whether that person is resident in Mauritius or elsewhere. This constitutes the source rule. Income is also deemed to be derived by a person at the time the person is resident in Mauritius, whether the income is received from Mauritius or elsewhere. This is the residence rule.
Section 74 "Income derived from Mauritius" of the Act provides a list of income derived from Mauritius. This should be read in conjunction with section 5 when deciding whether a particular income is taxable in Mauritius or not.
Exempt Income in Mauritius
Various type of income is exempt from income tax, including:
Income derived by a Freeport company.
Income derived by the registered owner of a foreign vessel.
Income derived by the registered owner of a local vessel registered in Mauritius
(provided the income is derived from deep sea international trade only).
Capital gains on speculative or investment gains.
A resident société.
Dividends received and paid by a tax incentive company.
Interest payable on accounts held by qualified corporate (offshore).
Interest payable on specific government securities.
Royalties payable to a non-resident by a qualified company trust or bank.
Any person deriving income from an office or employment, the duties of which are performed wholly or mainly in Mauritius, whether such emoluments are received in Mauritius or not, is considered as income derived from Mauritius. Where the tax authority is satisfied that the job is performed wholly or mainly in Mauritius, then Mauritius will claim its taxing right over that income. Where a treaty exists between Mauritius and a country in which the employee is resident, then Article 15 of the treaty between the two countries is applicable.
The said Article 15 stipulates that if a resident of a treaty partner of Mauritius derived emoluments from Mauritius, that person will not be taxed in Mauritius if the following conditions apply:
The recipient has not spent more than 183 days in Mauritius; and
The remuneration is borne by an employer who is not resident in Mauritius; and
The remuneration is not borne by a permanent establishment which the employer has in Mauritius.
In absence of a tax treaty, generally, the determining factor regarding the source of income in the case of an employee remains the country in which the employment is exercised.
Annuity and Pensions
Annuity and pensions, including pension in respect of past services performed in Mauritius, are taxed in Mauritius whether received in Mauritius or elsewhere. However pensions under double taxation agreements are not always taxed in the country in which they arise.
As regards business income, Section 74 of the Act considers any income derived from any business carried on wholly or partly in Mauritius as derived from Mauritius.
Tax treaty benefits are only available to resident entities or persons. Accordingly, a resident entity must be liable to tax in Mauritius under its laws by reason of its domicile, residence or criterion of a similar nature. Mauritius provides a wide range of resident entities and hybrid structures including the Global Business Company, the Trust and the Société. A foreign company including the Global Business Company may benefit from the tax treaty network. It is also possible for Mauritian branch of a foreign company to access the tax treaties by satisfying the conditions of residence. These entities if wishing to avail of the benefits of a tax treaty must obtain a Tax Residence Certificate issued by the Commissioner of Income Tax in Mauritius.
Scope of Double Taxation avoidance Treaties
All Mauritian double taxation avoidance treaties are based on the OECD Model Treaty of 1977. Under the post-independence treaties concluded so far, tax sparing is available. This implies that where Mauritian source dividends are exempt from tax under the tax incentive provisions, the foreign investor is entitled to credit a notional amount of Mauritian tax against the tax payable (if any) in his country, thus reducing his domestic tax liability.
If a resident of Mauritius derives income from a foreign country that has not concluded a tax treaty with Mauritius and foreign income tax is paid on the income, that tax may be credited against Mauritian income tax. The credit is limited on a source-by-source basis to the lesser of the foreign tax paid on the income concerned and the Mauritian income tax payable on the same income. In the case of foreign source dividends, no credit relief if granted for foreign corporate income tax borne on the profits out of which the dividends are paid (underlying tax).
Taxation of Expatriates on work permit
Expatriates employed in Mauritius are subject to the same regulations as local taxpayers and are assessed for income tax on income earned in Mauritius. Certain allowances and deductions cannot be claimed by expatriates in an income year during which they are not considered to be residents of Mauritius.
Residence in respect of an income year means an individual who has:
his domicile in Mauritius unless his permanent place of abode is outside Mauritius;
been present in Mauritius in that income year for a period of, or an aggregate period of 183 days or more;
been present in Mauritius in that income year and the 2 preceding income years, for an aggregate period of 270 days or more
Mauritius Tax Treaty Network
Mauritius has focused the development of its global business sector on its continuously expanding double taxation treaty network. With a widespread treaty network, Mauritius offers investors greater opportunities to plan their investments abroad through the use of the Mauritian global business vehicles (mainly Category 1 Global Business Companies - GBC1).
The network provides for interesting tax planning opportunities thereby enhancing the image of the jurisdiction as a tax planning centre.
The attractive concessions provided by those treaties include:
Elimination of double taxation through tax credit equivalent to Mauritian tax.
Reduction in withholding taxes on dividends, interest and royalties.
Exemption from capital gains.
Possible exemption on interest payments on loans.
Mauritius income tax law
â€¢ In general, companies carrying on business in Mauritius are subject to tax on local and foreign source income. The rate applicable to those companies is 25%.
â€¢ There are no capital gains taxes in Mauritius.
â€¢ There are no withholding taxes: on dividends paid to a resident or a non-resident; on interests paid by an offshore company to non-residents or by a Mauritius bank to a non-resident bank (other companies to non-resident companies: 25%); on royalties paid by an offshore company to non-residents (other companies to non-resident companies: 25%). on capital gains;
â€¢ There are tax incentive companies, which enjoy a tax rate of 15%. These are called
Category 1 Global Business license (hereafter "GBL1").