National Budget Highlights 2019/2020
In his Budget speech delivered on 10th June 2019, the Hon. Pravind Kumar Jugnauth, the Prime Minister of the Republic of Mauritius, Minister of Home Affairs, External Communication and National Development Unit and Minister of Finance and Economic Development (the ‘Minister’) has reiterated the vision and commitment of his ruling Government for ‘EMBRACING A BRIGHTER FUTURE TOGETHER AS A NATION’.
For achieving the Government’s objective and further strengthening the pillars of economic growth amidst the challenging economic indicators, the Minister has announced a number of measures and policies centered towards: –
- Developing an Innovation Eco-System;
- Securing Inclusive Innovation;
- Boosting Productivity – Maximizing the Skills and Talents of our Youths; and
- Spurring Private Investment.
Some salient points of the budgetary measures announced by the Minister are provided below under relevant captions.
- While acknowledging the fundamental contribution of private sector investment in ensuring economic growth in an economy, the Minister announced that some 26 legislations will be amended with the aim to further ease the process of establishing and conduct of business.
- For business meetings and conferences, with at least 100 foreign attendees and a minimum stay of 3 nights, a VAT Refund scheme on accommodation costs shall apply.
- In view of promoting the construction of marinas for the development of the local tourism sector, an 8-year income tax holiday is to be granted to such newly set up company, with provisions for VAT exemption on such constructions.
- To facilitate the conduct of business in the financial services sector, a ‘single window system’ will be set up at the Financial Services Commission (FSC) of Mauritius, enabling online applications and submissions.
- A new category of enterprise, namely the Mid-Market Enterprises (MMEs), with annual turnover between MUR 50 million and MUR 250 million will be created. MMEs will be benefiting from a new Financing Scheme known as the MME Financing Scheme whereby they will be provided with a concessionary interest rate on new loans from commercial banks and line of credit facility in USD and EURO for export factoring services.
Mauritius International Financial Centre – New Opportunities
- As regards to the Mauritian financial sector’s offerings, specifically in terms of fund administration and management, a new framework is to be established.
- Existing Special Purpose Fund regime will be revamped.
- Through a bilateral agreement with the Gujarat International Finance Tec-City, licensed Mauritian fund structures and management companies will be authorized to operate in the Gujarat jurisdiction (India).
- For ensuring an appropriate and high level of wealth management service, a concept of ‘umbrella’ license is being envisaged.
- To promote the development of Real Estate Investment Trusts (REITs), a set of new rules and an attractive tax regime will be introduced.
- To keep pace with the fast evolving ‘e-commerce’ industry, a new scheme for headquartering of ‘e-commerce‘ activities will be introduced. An e-Commerce Scheme Certificate will be issued by the EDB and a 5 year tax holiday shall apply to a company incorporated in Mauritius before 30 June 2025 for the setting up an e-commerce platform.
- In addition to the Official and DEM markets, a new trading platform will be introduced at the Stock Exchange of Mauritius whereby Medium sized profitable enterprises will be able to raise capital and trade their shares.
Mauritius’ offering as a Fintech Hub
In line with the recommendations on ‘Fintech services’ from international authorities such as the Financial Action Task Force (FATF) and United Nations Office on Drugs and Crime (UNODC), the Government of Mauritius is more than committed in bringing in new services while enforcing on a suitable regulatory framework. Consequently, the following has been proposed for implementation: –
- A regime for Robotics and Artificial Intelligence (AI) enabled financial advisory services will be established;
- New licenses will be introduced for Fintech Service providers;
- Use of e-signatures and e-licenses on a pilot basis;
- ‘Crowd Funding’ as a new licensable and regulated activity in Mauritius;
With the recent assessment performed by the Eastern and Southern Africa Anti Money Laundering Group (ESAAMLG) and the European Commission (EC) on Mauritius’ regulatory framework and comforting conclusions thereat, the Government of Mauritius is leaving no stone unturned when it concerns fight against fraud, corruption, and financial crimes. For this reason, the Minister has announced that: –
- A Financial Crime Commission is to be set up, with a defined mandate to coordinate with the Financial Intelligence Unit, ICAC and FSC Mauritius’ enforcement unit in the monitoring of financial crimes.
- With respect to the exposure to cyber risks, FSC Mauritius will issue a specific code of conduct to its licensees, with industry Practice Notes on the handling client’ request.
- Local authorities, comprising of the FSC Mauritius, Integrity Reporting Services Agency are being further empowered to enforce on the legal provisions through timely investigations and to cater for whistleblowing.
- The definition of ‘Beneficial Owner’ in our local laws shall be aligned to the requirements of the Organisation for Economic Development and Cooperation (OECD).
Mauritius Africa Fund’s Strategy
- Setting up of a regional value chain in Mozambique for Liquefied Natural Gas (LNG).
- Developing a Textile City on the 80 hectares of land in Moramanga, allocated by the Malagasy Government.
- Taking advantage of investment opportunity in the Industrial and Technology Park in Naivasha, Kenya.
- Consolidating ongoing initiatives in the Special Economic Zone in Senegal, Cote D’Ivoire and Ghana.
- Further expanding strategic Partnership with Pan-African and international multilateral development financial institutions, such as Trade and Development Bank, AFREXIM Bank and Fonds de Solidarité Africain in view of mobilizing project finance to Mauritian enterprises expanding their business in Africa.
- The existing income exemption thresholds will increase by the amounts ranging from MUR 5,000 to MUR 45,000 as follows:
|Category||From (MUR)||To (MUR)||Increase (MUR)|
|Individual with no dependent||305,000||310,000||5,000|
|Individual with one dependent||415,000||420,000||5,000|
|Individual with two dependents||480,000||500,000||20,000|
|Individual with three dependents||525,000||550,000||25,000|
|Individual with four or more dependents||555,000||600,000||45,000|
|Retired/disabled person with n dependent||355,000||360,000||5,000|
|Retired/disabled person with dependents||465,000||470,000||5,000|
The new thresholds will be effective as from income year starting on 1st July 2019.
- The income tax rate of 10% will continue to apply in the case of an employee who earns, in the first month of the income year, a basic salary inclusive of compensation not exceeding MUR 50,000 provided his annual net income in that income year does not exceed MUR 700,000. Such an employee will benefit from a tax credit of 5% of chargeable income at the time of submission of income tax return. The employee will be subject to Pay As You Earn (PAYE) at the rate of 10% if his average cumulative emolument in a month is below MUR 53,845.
- The Mauritius Revenue Authority (MRA) needs information from employers to pay household employees the Negative Income Tax Allowance or Special Allowance. As such household employers will be given the option to either pay the NPF/NSF contribution on a monthly basis or continue to pay NPF/NSF contribution at the end of the year but will have to submit quarterly statements to the MRA.
- Lump sum income received by a person by way of commutation of pension, death gratuity or as compensation for death or injury will be excluded from the computation of the Solidarity Levy. However, an individual ‘s shares of income in a societe or succession will be taken into account in the computation of the solidarity levy.
- Interest income received by an individual from Peer-to-Peer lending will be subject to income tax at the rate of 3%. Any bad debt and fees payable to the Peer-to-Peer operator will be deductible from the taxable interest income. No Tax Deduction at Source (TDS) will be applicable on Peer-to-Peer interest income.
- Additional deduction in respect of a dependent child who is pursuing tertiary studies will now be available for a maximum of 4 dependents instead of 3 dependents.
- An individual will be allowed to claim up to MUR 10,000 as relief in respect of medical insurance premium paid for a fourth dependent.
- The additional income tax exemption of MUR 50,000 will be granted to a retired or disabled person having more than 1 dependent, instead of being restricted to those having 1 dependent only.
- Upon satisfying the pre-defined substantial activities requirement in compliance with the Base Erosion and Profit Shifting (BEPS) Action 5 report, newly set-up company involved in innovation-driven activities will benefit from tax holiday of 8 years on income derived from its intellectual property assets developed in Mauritius. However, for existing companies, the tax holiday of 8 years will be available on income derived from intellectual property assets developed in Mauritius after 10th June 2019.
- Tax holiday of 5 years will be granted to a Peer-to-Peer lending operator provided the company starts its operation prior to 31 December 2020.
- Tax holiday of 4 years will be granted on income derived from bunkering of low Sulphur Heavy Fuel Oil.
- Presently, 100% annual allowance is available for capital expenditure incurred on plant and machinery if the amount does not exceed MUR 30,000. The threshold will be raised to MUR 60,000.
- The new taxation system of banks will be fine-tuned as follows:
- Income derived by banks from Global Business Companies will be exempted from the levy under the Value Added Tax Act;
- The rate of the levy will be increased from 4% to 4.5% of operating income for banks having operating income exceeding MUR 1.2 billion in a year;
- A cap will apply on the increase in levy payable by a bank in order to ensure that no bank is burdened by an excessive levy amount;
- The levy is not a deductible expense under the corporate tax; and
- No foreign tax credit will be allowed in respect of the above.
- A reduced tax rate of 5% is applicable on the chargeable income of bank in excess of its chargeable income in the base year (year of assessment 2017/2018) if the bank grants at least 5% of its new banking facilities, to any of the following categories of businesses:
- Small and Medium Enterprises (SMEs) in Mauritius;
- Enterprises engaged in agriculture, manufacturing or production of renewable energy in Mauritius; or
- Operators in African or Asian countries.
- Enterprises having an annual turnover not exceeding MUR 10 million and engaged in specific activities such as manufacturing or trading of goods will be given the option to pay 1 percent of its turnover as final income tax on its business income or file the normal income tax return.
- A freeport operator or private freeport developer engaged in the manufacture of goods will be liable to income tax at the rate of 3% on profits derived from the sale of goods on the local market. Existing manufacturing companies issued with a Freeport certificate will have to meet the following substance criteria:
- Employ a minimum of 5 employees; and
- Incur an annual expenditure exceeding MUR 3.5 million
- Freeport Operators will be liable to pay Corporate Social Responsibility (CSR) on the sale of goods on the local market.
- Any company facing financial difficulty may be allowed to carry forward its losses if it is taken over by another shareholder provided conditions imposed by the Minister are met. This will be deemed to be effective as from 1st July 2018.
- The Income Tax Act will be amended to reduce the possibility for a casino or a gaming house to split payment to winners in order to avoid the 10% tax on winnings exceeding MUR 100,000. The threshold amount of wins to be reported upon in the statement of winnings to the MRA will be lowered from MUR 100,000 to MUR 50,000.
- Registration duty, land transfer tax and tax on the transfer of leasehold rights in State land will not be leviable on the transfer of immovable property between a statutory body, a company where Government holds directly at least 90% of its shareholding or a wholly owned subsidiary of that company.
- Transfer of a movable property between spouses will be registered free.
- No registration duty for a first-time buyer of bare land not exceeding 20 perches on the first MUR 2.5 million of the acquisition cost.
- No registration duty for a first-time buyer of an existing house or apartment on the first MUR 5 million of the acquisition cost.
- No registration duty on a secured housing loan not exceeding MUR 2.5 million.
- A Voluntary Disclosure of Income Scheme will be introduced to allow voluntary disclosure of previously undeclared income held in a bank account overseas or used to purchase foreign assets. A person making such disclosure on or before 31st March 2020, will be subject to tax on the disclosed chargeable income at the rate of 15% free from any penalty and interest.
- Small and medium enterprises, that is enterprises having turnover not exceeding MUR 50 million will be given the opportunity to regularize any undeclared or under-declared income with the MRA free from penalty and interest.
- A small and medium enterprise will be allowed to pay arrears of tax owed to the MRA as at 10th June 2019 free from penalty and interest provided payment is made on or before 31st March 2020.
- The Expeditious Dispute Resolution Tax Scheme and Alternative Tax Dispute Resolution will be enlarged to cover tax assessments raised in connection with the Environment Protection Fee and duties and taxes under Customs Laws.
- An artist will be exempted from the payment of the service fee required to obtain a Tax Residence Certificate from the MRA.
- A company which does not spend its CSR funds as per the law is required to remit any unspent amount to the MRA for onward remittance to the NCSR Foundation. Assessment may be raised by the MRA on a company which has neither spent the CSR fund nor remitted same to the MRA.
- The legal provision of the arm’s length test will be fine-tuned to remove any doubt or uncertainty about its application.
Value Added Tax
- Where a local company supplies services to a foreign company who is outside Mauritius, the services will be zero-rated for VAT purposes provided the foreign company does not, in turn, supply these same services to another local company.
- Where there is a splitting of a business entity into different entities to avoid registration for VAT purposes, each entity will be required to be compulsorily registered for VAT.
- Where a VAT invoice is issued to a non-VAT-registered person in business, his name, business address and Business Registration Number will have to be stated.
- The management of insurance schemes is exempted from VAT.
- In order to expedite the process of VAT refunds, all VAT registered persons will have to file their VAT return and pay VAT electronically as from 1st March 2020.
- The claim for repayment of input tax in respect of capital goods has been extended to;
- Goodwill on acquisition of a business; and
- The acquisition of intangible assets such as software, patents or franchise agreements.
Ensuring Compliance with International Best Practices
- The Income Tax Act will be amended with regards to the determination of tax residency for companies so that a company shall not be considered as tax resident in Mauritius if it is centrally managed and controlled outside Mauritius. Amendments will be made to Section 71A of the Financial Services Act.
- Partial exemption regime will be extended to cover companies engaged in
- Leasing and provision of international fiber capacity;
- Reinsurance and Reinsurance brokering; and
- The sale, financing arrangement and asset management of aircraft and its spare parts, including aviation-related advisory services.
- In order to address the deficiencies in the partial exemption regimes introduced in the last year’s budget, the Income Tax Regulations 1996 will be amended to:
- Define the detailed substance requirements that must be met in order for a taxpayer to enjoy the partial exemption benefit;
- Lay down the conditions that must be satisfied where a company outsources its Core Income Generating Activities, namely:
- The company must be able to demonstrate adequate monitoring of the outsourced activities;
- The outsourced activities must be conducted in Mauritius; and
- The economic substance of service providers must not be counted multiple times by multiple companies when evidencing their own substance in Mauritius.
- Amendments will be made to Section 71 of the Financial Services Act.
- The Income Tax Act will be amended to set out rules on controlled foreign company (CFC).
DTOS Ltd is a leading service provider in the Global Financial Services Centre of Mauritius. It is a Management Company duly licensed by the Financial Services Commission (FSC) to provide inter alia, corporate, trustee and fund administration services.
BOARD OF DIRECTORS
Abdool Sattar Jackaria
Michael Francesco Murphy
The above information has been extracted from the budget speech 2019/2020 delivered by The Minister of Finance and Economic Development, the Hon. Pravind Kumar JUGNAUTH on 10th June 2019. Nevertheless, the budget proposals may be subject to amendments during debates in parliament and deemed to be proclaimed under Finance Acts which will be communicated in due course.
Should you require any further information or have any specific query on the above, you may contact:
Jimmy Wong, FCA, TEP
Madvi Jeebun, FCCA, ACA