“Today, it takes more brains and effort to make out the income-tax form than it does to make the income.” Alfred E. Neuman.
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 25: Participating Shares Investment Relief
Facts
A resident company incorporated in Mauritius in 1998 holds an offshore certificate issued on 25 June 1998. The company continues to be governed by the Income Tax Act 1974 as it has not opted to be taxed under the Income Tax Act 1995.
Point at issue
Whether a Mauritian resident subscribing to Participating Shares of that company will be entitled to Investment Relief thereon pursuant to Section 36 of the Income Tax Act 1995.
Ruling
The company is governed by the Income Tax Act 1974 and it does not qualify as a tax incentive company. A Mauritian resident subscribing to shares in that company will therefore not be entitled to Investment Relief under Section 36 of the Income Tax Act 1995.
Offshore Certificate
- Mauritius Global Business Licences
Mauritius offers two types of offshore companies to international investors, the Global Business Licence Category (GBL) and Authorised Company (AC). The main difference lies in the area of taxation. While an AC company is not taxable in Mauritius, a GBL company is liable to tax on its income at a at rate of 15%. However, a GBL company is entitled to the higher of a deemed foreign tax credit of 80% on its foreign source income or actual foreign tax suffered. This reduces the tax liability of a GBL company to a maximum of 3%. This resulting tax liability may be reduced to less than 3% and possibly nil depending on other allowable tax deductions or actual foreign tax suffered.
A GBL is governed by the Companies Act 2001 and The Financial Services Act 2007.
This company is mainly used for investment in countries with which Mauritius has a tax treaty, thus conferring various fiscal benefits such as reduced withholding tax on dividends, interest and royalties and no capital gains tax. A GBL can carry out any business activity such as asset management, credit finance, custodian services , distribution of financial products, factoring, leasing, occupational pension schemes, pension fund administration, pension scheme management, retirement benefits schemes, registrar and transfer agencies, treasury management and such other financial and non-financial activities as may be specified by the FSC in an offshore certificate.
- Participating Shares
Participating shares, give the holder the right to receive dividends paid to preferred shareholders.
This is compared to non-participating shares, that do not give the holder a right to any share of a company’s profit and only pay a fixed rate of return like preferred shares. Participating shares also give the holder the right to receive an additional dividend based on whatever excess profits are left over after all other dividends are paid.
