MAURITIUS: An Introduction
MAURITIUS: An Introduction
Overview
Mauritius has one of the most stable and business-friendly environments in the world. The attractiveness of Mauritius as an International Financial Centre revolves around numerous factors such as a robust regulatory framework, a harmonised tax environment, a bilingual and skilled workforce, political stability, economic diversity, a strategic geographical location and compliance with international standards. The Economic and Financial Affairs Committee of the European Union (EU) has, on 10 October 2019, confirmed that Mauritius is fully compliant with all commitments on tax cooperation and EU tax good governance principles.
Economy
Mauritius remains among the Sub-Saharan Africa region’s most business-friendly countries, with solid economic policies and prudent banking practices. Its global trade and investment outreach have increased exports of goods and services and tourism, and low oil prices have kept inflation low.
The real Gross Domestic Product (GDP) rate has been increasing at an annual average of 3.7% since 2015 and has been on a rising trend since then. However, with the impact of COVID-19, the Mauritian economy contracted by 14.9% in 2020 with a decline in output in all sectors of the economy, except for ICT and financial services. The headline inflation rate increased up to 2.5% in 2020 with the deficit in current account of the balance of payments widened from 5.5% of GDP in 2019 to 12.7% in 2020.
The government has moved into a post-COVID-19 era and has presented an interesting economic recovery plan for the financial year 2021/2022, with more than MUR100 billion earmarked for the implementation thereof. More notably, the Mauritius Investment Corporation (MIC) has been set up by the Bank of Mauritius to invest in the hospitality and pharmaceutical sectors as well as the ‘blue economy’ and other strategic sectors. The successful turnout of the vaccination programme has enabled the opening of the borders in October 2021 leading to an increase in tourist arrivals and tourism earnings. It is expected that GDP growth in the financial year 2021-2022 will rebound to 9%, and around 6% in the financial year 2022-2023 and the financial year 2023-2024, barring any further disruption that could be caused by the pandemic or other external shocks. The recovery plan has been further boosted by the decision of the European Commission to remove Mauritius from the EU Blacklist, on 07 January 2022, by acknowledging that Mauritius has gone a long way to demonstrate its commitment to improving the legal, regulatory and enforcement measures in the fight against money laundering and terrorist financing.
With its removal from the EU Blacklist, Mauritius is now cleared from all international lists of non-compliant jurisdictions which spells a new dawn for the future of the Mauritian financial services sector.
Legal Framework
Mauritius has a hybrid legal system which combines both civil and common law practices. It is governed by principles drawn from both the French Napoleonic Code and English Common Law. The Supreme Court is the highest judicial authority in Mauritius and has unlimited jurisdiction to hear any criminal and civil proceedings. Mauritius has retained the Judicial Committee of the Privy Council of the United Kingdom as its final court of appeal.
Mauritius has also embraced arbitration as the new preferred model of dispute settlement through the International Arbitration Act 2008, which is based on the UNCITRAL model and offers an option for investors to opt for a more cost-efficient and faster out-of-court alternative for the settlement of commercial disputes, which would safeguard confidentiality. As a venue for hearings and meetings, Mauritius, which is located at the crossroads of Asia and Africa, is an excellent destination for international arbitration.
Recent Legal Developments
The following recent and key legal developments have impacted doing business in Mauritius in 2021:
Changes to Companies Act 2001 (CA)
The CA has been amended to further emphasise the commitment to combat money laundering and terrorism financing and, to that end, an obligation has been placed on every company service provider to comply with such directions as the Registrar of Companies may give and as soon as practicable, but not later than five working days from the date on which it becomes aware of a transaction that it has reason to believe may be suspicious, make a suspicious transaction report to the Financial Intelligence Unit (the “FIU”) and comply with the guidelines issued by the FIU.
Last year, the Registrar was empowered to be able to remove a company from the register of companies if the company failed to identify the beneficial owner, record and submit information thereon to the Registrar. This year’s amendment permits the Registrar to make public notice in this regard.
Changes to Foundations Act
The changes to the Foundations Act are geared towards raising awareness surrounding the potential use of charitable foundations in the furtherance of money laundering and the financing of terrorism. As such, the Registrar of Foundations can now undertake outreach and awareness programmes, as well as share information with other Mauritian or foreign law enforcement agencies in the prevention of money laundering and terrorism financing.
Changes to the Immigration Act
The Immigration Act has been amended to cater for a Family Occupation Permit. A non-citizen may, through the Economic Development Board, apply to the immigration officer for a family occupation permit authorising:
• the applicant, his/her spouse, dependant child, parent, other dependant or such other person working exclusively for the family unit, as may be approved by the immigration officer to become resident for a period of 10 years, upon satisfying the criteria;
• the applicant or his/her spouse, to carry out any occupation in Mauritius or take up employment in Mauritius; and
• such persons working for the family unit, as may be approved by the immigration officer, to take up employment with the applicant for the purpose of attending to the needs of the family.
In addition, the list of persons who hold the status of resident under the Act has been extended to include (i) a person who purchases or otherwise acquires an apartment used, or available for use, as residence, in a building of at least two floors above ground provided the purchase price is not less than USD375,000, or its equivalent in any other hard convertible foreign currency, and (ii) the Holder of a Family Occupation Permit, his/her dependants and persons working for the family unit.
Further amendments have been made to include, inter alia, the automatic extension of a 10-year permanent resident permit issued prior to 01 September 2020 to cover a 20-year period, the ability to switch category of permanent resident permit to retired non-citizen, the extension of the validity of an occupation permit.
Changes to the Protected Cell Companies Act
The amendment brought to the Protected Cell Companies Act has extended the use of protected cell companies for business activities relating to real estate development which consists of acquiring, developing, holding, managing and disposing of real estate assets or portfolios of real estate assets in different cells.
Changes to the Income Tax Act
The main amendments brought to the Income Tax Act falls under two sections: corporate taxes and personal taxes.
- Corporate taxes
The provision on application of arm’s length principle in the Income Tax Act has been amended to state that it shall apply to all business or income earning activities carried out in or from Mauritius, thereby clarifying that this principle shall also apply to global business companies.
Trusts and foundations shall no longer be eligible to claim tax exemption under the Income Tax Act. A grandfathering period has been provided up to the year of assessment 2024-2025 to any trust or foundation which was set up before 30 June 2021, with restrictions on specific assets and incomes.
As from 01 July 2022, income derived from investment in shares shall be deemed as income derived from Mauritius only where the said shares are in a company resident in Mauritius.
In addition, further tax incentives have been introduced for (a) the manufacturing industry: engaging in the medical, biotechnology or pharmaceutical sectors, or having a turnover exceeding MUR100 million; (b) higher education institutions registered under the Higher Education Act; (c) a company incorporated on or after 01 July 2021 and holding an investment certificate issued by the Economic Development Board; (d) a health institution with respect to expenditure on international accreditation; (e) a company with respect to expenditure made on specialised software and systems; and (f) a manufacturing company with respect to expenditure incurred on market research and product development for the African market.
- Personal taxes
Where an individual holding a ‘premium visa’ as issued by the Economic Development Board works remotely from Mauritius and whose income is remitted in Mauritius, that income shall be deemed to be derived in Mauritius. The individual shall be liable to income tax on their deposits in a bank account in Mauritius unless they have paid tax on said deposits in their country of origin. However, where a holder of a premium visa spends money in Mauritius through the use of his/her foreign credit or debit cards, the amount so spent shall be deemed not to have been remitted in Mauritius. This amendment will be backdated to take effect as from 1 November 2020.
Commencing on 1 July 2021, where an individual has contributed to a personal pension scheme approved by the Financial Services Commission under the Insurance Act, he/she shall be entitled to deduct from his net income for that income year, the amount contributed or MUR30,000, whichever is lower.
Commencing on 1 July 2021, where an individual has made a donation through electronic means to a charitable institution, he/she shall be entitled to deduct from his/her net income for that income year the amount donated or MUR30,000, whichever is lower.
The Mauritius Revenue Authority will also only consider a charitable institution to be one, if its objects meet the following criteria:
(a) are of a public character;
(b) do not yield any profits to its members;
(c) are exclusively for:
(i) the advancement of religion;
(ii) the advancement of education;
(iii) the relief of poverty, sickness and disability;
(iv) the protection of the environment;
(v) the advancement of human rights and fundamental freedoms;
(vi) the promotion of any other public object beneficial to the community; and
(d) are carried out either in or outside of Mauritius.
Changes to Non-Citizens (Property Restriction) Act
The two main amendments brought to the Non-Citizen (Property Restriction) Act seek to further regulate the acquisition and disposable of immovable properties in Mauritius and relate to (i) the requirement for non-citizens giving security over immoveable property in Mauritius to obtain the approval from the Prime Minister’s Office (the “PMO”) and (ii) the establishment of a non-citizen property restriction register.
Changes to Registration Duty Act
To create a level playing field with other property schemes and accelerate the sale of IRS/RES units, the Registration Duty Act has been amended to provide for a reduced registration duty on the sale of a property under the Integrated Resort Scheme, the Real Estate Scheme or the Invest Hotel Scheme which shall be levied at the rate of 5% on the value of the property at the time of registration or USD70,000 whichever is the lower (which was previously at the rate of 5% or USD70,000 whichever is the higher).
Further amendments have been brought to encourage the acquisition of property in Mauritius by introducing a new Home Ownership Scheme and a new Home Loan Payment Scheme.
Changes to the Economic Development Board Act
The Economic Development Board Act has been amended to introduce the Premium Investor Scheme under which an investor with a minimum investment of MUR500 million in emerging sectors, pioneering industries and first movers, innovative technologies and industries, or any other targeted economic activity, in relation to the manufacture of pharmaceuticals and medical devices, may apply for a Premium Investor Certificate and benefit from (i) rebates, exemptions and preferential rates with respect to taxes, duties, fees, charges and levies under any enactment; and (ii) facilities, grants and exemptions in relation to land and building, infrastructure and public facilities, utilities and labour requirements including foreign labour.
Changes to Workers’ Rights Act (WRA)
- Compromise agreement
Irrespective of any provision to the contrary in the Code Civil Mauricien and any other enactment, a worker and an employer shall enter into a compromise agreement if they both agree to resolve a dispute concerning the termination of employment or non-payment or short payment of remuneration. The conditions pertaining to the validity of the compromise agreement are set out in the WRA.
- Wage Guarantee Fund Account
There is no longer a requirement for an enterprise to be declared insolvent by the Supreme Court of Mauritius for its workers to benefit from the Wage Guarantee Fund Account. Workers will now be able to benefit from the payment out of the Wage Guarantee Fund Account if an enterprise is considered insolvent without the need to get a Supreme Court order.
- End-of-year bonus
The statutory end-of-year bonus equivalent to one twelfth of the earnings of employees for that year is also payable to employees earning a monthly basic wage of MUR100,000, or less, who have been in employment with the same employer for only part of the year and their employment agreement comes to an end.
- Protection against termination of agreement
A disciplinary hearing initiated against an employee should be completed within 30 days of the date of the first oral hearing. Extension by mutual consent in specific circumstances was allowed. The WRA now provides that the extension by mutual consent can only be done provided that the disciplinary hearing is completed not later than 60 days of the date of the first hearing.
- Suspension
If the employer suspends the employee pending the outcome of an investigation carried out before a charge of alleged misconduct is levelled against an employee, or pending the outcome of a disciplinary hearing on account of the employee’s alleged misconduct or poor performance, the employer shall pay the employee his/her basic salary during the suspension period.
- Reduction of workforce
The WRA now provides for reduction of workforce on the grounds of restructuring for financial reasons. The employer must thus give a written notice to the Redundancy Board, together with a statement containing the relevant information. The Redundancy Board shall only entertain such notification from an employer in that case if it is satisfied that:
(a) the enterprise is over-indebted and not economically viable and any further debt would increase the risk of the enterprise being insolvent; and
(b) the restructuring may enable the enterprise to manage the repayment of its debts without being insolvent and to dispose of adequate cash flow to continue its operations.
The statement to be provided shall contain all the information set out under the WRA, failing which the reduction of workforce shall be deemed to be unjustified.
- Savings and transitional provisions
The WRA provides that the fixed-term contract(s) entered into between a worker and an employer before the commencement of the WRA for a total period of more than 12 months pertaining to a work of permanent nature shall, on the commencement of the WRA, be deemed to be an indeterminate contract with effect from the month immediately following the twelfth month of employment under the contract. The above transitional provision is now only applicable to workers whose monthly basic salaries were MUR30,000 or less (i.e., MUR360,000 or less per annum).
Doing Business in Mauritius
Some of the key areas where Mauritius excels are as follows: dealing with construction permits, where Mauritius ranks 8th out of 190 countries; paying taxes, where the country is ranked 5th with a score of 94% in the ease of paying taxes indicator, owing to the sustained reforms implemented by the Mauritius Revenue Authority; registering a business/incorporating a company online in less than two hours; getting electricity - reduced costs and time for a new electricity connection; registering property - enhancement of the Mauritius e-Registry System (MERS) and streamlining of procedures; and improving the legal framework for resolving insolvency.
Mauritius also ranked 1st on the 2020 Mo Ibrahim Index of African Governance and has an attractive fiscal regime with a corporate tax rate of 15%. Companies qualifying as residents for tax purposes are entitled to a “partial exemption” regime of 80% on specified foreign source income. Companies engaged in export of goods, and freeport operators or private freeport developers engaged in the manufacture of goods, are liable to tax at the rate of 3% on income derived from sale of goods on the local market. Regarding personal taxation, an individual having an annual net income not exceeding MUR650,000 is subject to income tax at the rate of 10%, while an individual having an annual net income exceeding MUR650,000 is subject to income tax at the rate of 15%.
The country has concluded 45 tax treaties and is party to 29 Investment Promotion and Protection Agreements (one of which has not yet been ratified) which provide extra assurance and security for its potential investors. The extensive and expanding network of these treaties confirms the genuineness of Mauritius as a tax-efficient jurisdiction for structuring investments.