“It is a paradoxical truth that tax rates are too high today and tax revenues are too low, and the soundest way to raise the revenues in the long run is to cut the tax rates.” John F. Kennedy
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 23: Place of Effective Management (POEM) and Tax Residency (TR)
Facts
The company is incorporated in UK and intends to seek a listing on the London Stock Exchange. It will become the new holding company of a multinational conglomerate having interest across the globe. It has already obtained confirmation from the HMRC that by reason of its incorporation, it is tax resident in UK.
The group is undergoing management restructure and will have its Head Office in Mauritius, its board meetings will be held in Mauritius and all its key business decisions will be taken in Mauritius.
Point of Issue
a) Whether the company will be tax resident in Mauritius
b) Whether a Tax Residence Certificate (TRC) will be issued to the company on an annual basis?
Ruling
a) The company will be tax resident in Mauritius in accordance with Section 73 (b) of the Income Tax Act 1995 on condition that it has its central management and control in Mauritius.
b) Concerning TRC the company will be required to apply to this office on an annual basis and TRC will be issued provided the company shows that its central management and control is in Mauritius and gives an undertaking that all conditions necessary for it to be treated as having its place of effective management in Mauritius are at all times complied with.
Benefit of Tax Residence Certificate
The most important factor for setting up an entity in Mauritius is its concessional tax rate. In Mauritius, the corporate tax rate is 15%, but its effective tax rate on foreign income is reduced to a maximum of 3% after allowance of foreign tax credit in order to encourage more export. The rate can be further reduced depending on the actual foreign tax credit. It can also benefit from the double taxation treaty network of Mauritius, therefore reducing or eliminating withholding tax on dividend, interest, royalty and capital gains.
However, to obtain the utmost benefit of the double taxation treaty, the entity needs a Tax Residency Certificate (TRC)
Double Taxation Treaty
A tax is a two-party agreement made by two countries to resolve issues involving double taxation of passive and active income. Tax treaties generally determine the amount of tax that a country can apply to a taxpayer’s income, their capital, estate, or wealth.
A tax treaty is also called a Double Tax Agreement (DTA).
Definition of tax residence as per extract of income tax act (for both Individual and Company) -Section 73 of the Income Tax Act 1995
(1) For the purposes of this Act, “resident”, in respect of an income year, when applied to
a) an individual, means a person who
a. has his domicile in Mauritius unless his permanent place of abode is outside Mauritius;
b. has been present in Mauritius in that income year, for a period of, or an aggregate period of, 183 days or more; or,
c. has been present in Mauritius in that income year and the 2 preceding income years, for an aggregate period of 270 days or more.
b) a company, means a company which
a. is incorporated in Mauritius; or,
b. has its central management and control in Mauritius.
