“No matter how bad a child is, he is still good for a tax deduction!”
In an effort to render the Mauritius tax system better understood by the taxpayer, we endeavour to present select case studies where rulings have been passed, thus providing our interpretation of such sections of the relevant taxation law of the land.
Under section 159 of the Income Tax Act, any person who derives or may derive any income, may apply to the Director General for a ruling as to the application of the Act to that income.
Case Study 22: PAYE Exemptions
Facts
A company is engaged in Segment B banking activities (previously Category 2 banking).It received its banking licence on 3 June 2002 and started its operation as from July 2002 .When calculating PAYE in respect of its expatriate employees, employed since the beginning, the company has been applying 50% exemption available under item 14 (a) (iv) of Part II of the Second Schedule.
Point at issue
Whether it can be confirmed that
a. there is no limit on the number of expatriate employees who are entitled to claim 50% exemption
b. each expatriate employee is entitled to the 50% exemption of income tax on his emoluments up to 30 June 2006.
c. that further to the introduction of the Banking Act 2004, the 50% exemption up to 30 June 2006 will apply only to existing expatriate employees already benefiting from this exemption, and not to newly employed expatriates.
Ruling (given in September 2005)
It is confirmed that
a. There is no limit on the number of expatriate employees who are entitled to the 50% exemption provided under Item 14(a)(iv), Part II of the Second Schedule to the Income Tax Act 1995.
b. Each expatriate employee is entitled to the 50% exemption of income tax on his emoluments up to 30 June 2006.
c. As the law presently stands, the 50% exemption will apply not only to expatriates employed prior to the coming into force of the Banking Act 2004 but also to newly employed expatriates up to 30 June 2006 on the condition that they satisfy the requirements (as amended) laid down in Item 14(a)(iv), Part II of the Second Schedule to the Income Tax Act.
In business terms, expatriates are employees sent to work abroad for long periods of time. This may include employees sent to populate a new office or senior managers sent abroad to manage or set up a new location
Expatriates often congregate in expat communities, which are self-contained groups that meet, socialise and live in either a formal or informal environment
Extract of item 14 of income tax act (Condition that should be satisfied for exemption relief)
That portion of the emoluments of an expatriate employee or of a specified Mauritian employee of a company
(i) operating in the freeport zone;
(ii) duly authorised by the Financial Services Commission established under the Financial Services Act 2007, to conduct any of the business activities referred to in item 25 of Part IV of the First Schedule;
(iii) holding a Global Business Licence under the Financial Services Act 2007;
(iv) holding a banking licence under the Banking Act 2004 and who is employed by that company to carry out banking transactions with non-residents and corporations holding a Global Business Licence under the Financial Services Development Act 2001;
(v) managing an equity fund;
(vi) engaged in spinning activities,
that will, in respect of an income year, reduce the tax liability of the employee otherwise arising from the emoluments derived by him from the company to 50%, provided that the period of exemption granted to the employee does not exceed, in the aggregate, four income years for each company.
