Taxation – Mauritius Offshore Companies
Mauritius benefits to most types of businesses when it comes to tax planning, we have listed below a few example of how Mauritius as a low tax jurisdiction can benefit each type of business.
a. Trading Companies
Significant tax benefits can be obtained while trading globally if the appropriate tax efficient arrangements are made. Group of companies trading internationally can set up Mauritius offshore companies such as gbc 1, gbc 2 or trusts to be part of the group and same can be used to buy and sell goods between the group’s companies by establishing the right invoicing strategy.
b. Professional Services Companies such as:
- Computer programmers
Considerable tax savings can be achieved by setting a Mauritius offshore company. Professionals can enter into a contract with the client outside their country of residence. Income is then accumulated low of tax in Mauritius
c. Offshore Property Companies
Using Mauritius offshore companies is very popular when it comes to investing in overseas properties.
Capital Gain Tax, inheritance tax, share selling rather than property selling proves to be advantageous when investing in properties through Mauritius offshore companies.
Offshore companies have several options of raising funds in order to acquire properties. It is also good to note that Mauritius properties are accessible to non-Mauritius citizen via the IRS (Integrated resort scheme).
In the event the properties acquired by the Offshore Companies are rented out, rental income would be taxed in Mauritius at 3% should the Offshore Company be a GBC 1 and 0% if the Offshore Company is a GBC 2 (A gbc 2 is classified a being a non-resident Mauritius Company and does not have access to the Double Tax Treaty network). Moreover, if the property is acquired by a GBC 1 in a country where Mauritius holds a double tax treaty, withholding tax on dividends can be consequently reduced in the country where rental is charged and no underlying taxes will be charged in Mauritius.
d) Doing business in Africa, Asia and Eastern Europe
In light of the development of the emerging countries and globalisation, cross border set up are very much favoured when it comes to tax minimisation. Mauritius is ideally located for cross-border transactions with the emerging countries and provides the appropriate vehicles to benefit from the wide tax treaty network with the African, Asian and Eastern Europe countries.
Mauritius is very often used to establish an offshore company of global business category 1 (gbc 1) type, this type of company through tax residence certificates, gives access to several treaties such as South Africa, Mozambique, Madagascar, Namibia, Senegal amongst other African Countries and several Asian and Eastern Europe countries.
For a better understanding of how a double tax treaty can minimize tax, we have set an example below with Mozambique as the country we would like to do business with by setting up an offshore company known as a global business company category 1 (gbc 1) in Mauritius. The gbc 1 is planning to invest and operate in Agriculture in Mozambique. To take advantage of tax deductions through the double tax treaty Mauritius-Mozambique, the below structure together with a brief explanation will give you an idea how one can take advantage of the several tax treaties Mauritius have with different countries:
- Set up a trust in Mauritius that will hold the shares of a GBC 1, settlor of the Mauritius trust can be individual or corporate, the gbc 1 will then hold the shares of the Mozambican Company. The Mozambican company will then have the legal right to hold property and carry operation in Mozambique.
- Corporate tax rate in Mozambique is 32% but agricultural companies were taxed at 10% until end 2010, no such benefit has been renewed as at date, 32% branch tax will therefore be applicable until further notice unless incentives under special tax regimes which apply to certain investment projects are granted. Incentives may include tax credits reduction or exemption of corporate tax is also available under the Fiscal Benefits Codes for Companies that invest in Rapid Development Zones, this includes agriculture.
- Withholding Tax (WHT) on dividends paid to residents and non-residents are at 20%.
- Interest paid to residents and non-residents is subject to a 20% withholding rate.
The Withholding tax rates on Dividends and Interest are as follows by using the Mauritius Tax Treaty with Mozambique:
- Dividends: 8% whereby the beneficial owner (gbc 1) holds at least 25% of the capital of the Mozambican Company paying the dividend. 10% withholding tax on the dividend if the gbc 1 holds less than 25% of the capital of the Mozambican Company. And, 15% in all other cases.
- Interest: 8%
Mauritius effective corporate tax for a gbc 1 as at 26/01/2011 is 3%.
We mentioned earlier that the above structure provides for business expansion. In such an event, the gbc 1 wishes to open a company in Madagascar that will operate in the agricultural sector there. The structure will therefore be as follows:
How the double tax treaty works in the updated structure?
The GBC 1 is a Mauritius Resident Company and by this status can avail to the double tax treaty network subject to the appointment of 2 Mauritian Resident directors. By appointing 2 Mauritius Resident directors, the gbc 1 then applies for Tax Residence Certificates (TRC) with the Mauritius Revenue Authorities to gain access to the whole tax treaty network.
The tax rates disclosed above may be subject to changes and it would be advisable to consult a professional tax advisor for offshore tax planning prior to set up a vehicle in any jurisdiction.