All you need to know about the Partial Exemption Regime in Mauritius

All you need to know about the Partial Exemption Regime in Mauritius

Why was the previous tax system abolished?

So today is all about the partial exemption regime in Mauritius, and as it’s been around for a while we thought it’d be good to have a recap in case you’re too embarrassed to ask what it’s all about.? Firstly, some background – prior to 2019, the regime for global business was divided between Global Businesses Corporations with Category 1 license (“GBC1”) and Global Businesses Corporations with Category 2 license (“GBC2”). ?GBC1’s benefitted from an automatic 80% deemed foreign tax credit which meant an effective tax rate of 3%, irrespective of the type of income derived, and GBC2s were fully tax exempt in Mauritius. This caused some upset from the Organisation for Economic Co-operation and Development (“OECD”) and so in order to maintain the attractiveness of Mauritius as a reputable International Financial Centre, the old tax system was abolished, and the partial exemption regime (PER) was introduced from 1 January 2019.

The Partial Exemption Regime

Both global business companies and domestic companies can qualify for the 80% partial exemption regime (“PER”) whereby 80% of particular income streams are regarded as tax exempt, resulting in an effective 3% tax rate (sound familiar). This applies in relation to the following income streams and activities:

  • Interest derived from money lent through a peer-to-peer lending platform;
  • Foreign dividends received by a company;
  • Interest derived by a company other than bank;
  • Income derived by Collective Investment Scheme (“CIS”) / Closed-End Fund (“CEF”) / CIS Manager / CIS Administrator / Investment Adviser / Asset Manager / Investment Dealer approved by the Financial Services Commission (“FSC”);
  • Income derived by companies engaged in the leasing of ships, aircrafts, locomotives and trains, including rail leasing;
  • Income derived by a company from reinsurance and reinsurance brokering activities;
  • Income derived by a company from leasing and provision of international fibre capacity;
  • Income derived by a company from sale, financing arrangement, asset management of aircraft and its spare parts and aviation advisory services related thereto; and
  • Profit attributable to a foreign permanent establishment.

A noteworthy change has been enacted in the Finance Act 2023 whereby the partial exemption granted in respect of interest earned by a CIS and CEF’s established in Mauritius was increased from 80% to 95% with effect from 1 July 2024, in order to encourage CIS and CEF’s to carry out financing through debt instruments including loans, debt obligations or similar instruments.

What are the conditions for claiming the PER?

Often people forget there are specific conditions to be eligible for the PER, namely that a company must:

  • Carry out out its core income generating activities (“CIGA”) in Mauritius;
  • employ, directly or indirectly, an adequate number of suitably qualified persons to conduct its core income generating activities; and
  • incur a minimum expenditure proportionate to its level of activities.

Furthermore, for foreign dividends, the company needs to ensure that the dividend has not been allowed as a deduction in the country of source and the company should comply with its filing obligations in Mauritius and should have adequate resources for holding and managing share participations.

The Mauritius Revenue Authority (“MRA”) released a Statement of Practice in May 2021 to provide more guidance on these conditions. Below, we examine each of them and what exactly they consist of. Of course, we are just including the key considerations here, but that application of these conditions will vary on a case-to-case basis depending on the complexity of your business.

Condition 1: Company carries out CIGA in Mauritius

In short, CIGA are the essential activities carried out that generate the income of the company. “Core” business activities are those that are central to the main operations of a business organisation, they are generally strategic in nature, focus on the improvement of customer base and could be seen as the “profit-centre” of the company.

The CIGA for each of the income streams/activities listed above have been clearly defined in the Income Tax Regulations 1996 (“ITR”). For instance, if we look at interest income, the CIGA criteria includes “Agreeing funding terms, setting the terms and duration of any financing, monitoring and revising any agreements, and managing any risks”. These activities should be carried out in Mauritius if you want to claim the 80% partial exemption on interest income in Mauritius. The same principle applies for the income streams/activities having specific CIGA requirements.

Condition 2: Company employs, directly or indirectly, an adequate number of suitably qualified persons to conduct its CIGA

The direct employment is where the company employs individuals having appropriate level of knowledge and skills to undertake the CIGA. The roles and duties must include tasks relating to that core business activity and the number of staff must be sufficient in relation to the nature and level of activities involved in the company’s core business activities.

In terms of indirect employment, the outsourcing of the CIGA to a service provider in Mauritius is permitted. This is where management companies come into play as they allocate their staff to different companies. It is the responsibility of the companies to demonstrate adequate supervision of the outsourced activities, and no double counting or multiple counting should occur if services are provided to more than one company.

Condition 3: Company incurs a minimum expenditure proportionate to its level of activities

Expenses must be incurred for the purpose of carrying out the CIGA and must be sufficient in relation to the nature and level of those activities. Appropriate records to demonstrate the adequacy of the resources used and expenditure incurred must be kept. This does seem very easy to satisfy compared to the previous two conditions.

The MRA’s Stance

The Mauritius Revenue Authority (“MRA”) has been laying down the law on companies failing to abide by the rules, especially those claiming the 80% partial exemption on interest income. The crux of the issue seems to depend on whether the interest income is derived from the company’s principal business activities and should not be incidental, that is, activities that are central to the main operations of the company. There was a case on this recently at the level of the Assessment Review Committee (“ARC”), Alteo Energy V MRA, whereby the ARC ruled in favour of the MRA in denying the partial exemption on interest income. In other instances, we are seeing that investment holding companies are also being denied the partial exemption on interest income as they are not meeting the minimum employment requirement and the CIGA requirements.

The MRA also issued two tax rulings on this particular issue, Tax Ruling 248 and 249. All this to say that the MRA is taking the matter seriously for those claiming the partial exemption. While the clarity is great, the downside is that many companies may no longer benefit from the PER in respect of interest income. Where companies do not meet the conditions allowing for the exemption, their tax liability could increase to the rate of 15%, potentially also suffering penalties and interest. Of course, it is not only limited to interest income but other income streams/activities as well. So, always be mindful of the conditions and seek proper guidance before claiming the PER!

As always, navigating tax regulations can be a tricky business, so it’s essential to consult with experts to stay on the right side of the law while maximising available benefits. Keep these key points in mind, and you’ll be well-positioned to take advantage of Mauritius’ business-friendly tax landscape—without any unpleasant surprises from the taxman. Contact us for more advice!


Regan van Rooy

Regan van Rooy offers bespoke tax solutions for every business type and every business stage. Get in touch today to chat to one of our expert consultants.

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