OECD Declares Mauritius Partial Tax Exemption Regime as Not Harmful

OECD Declares Mauritius Partial Tax Exemption Regime as Not Harmful

Tri-Pro Administrators Ltd wishes to inform its stakeholders that, on 19 July 2019, the Organisation for Economic Cooperation and Development (OECD) released its report on harmful tax practices across various jurisdictions.

The report proves and affirms that Mauritius which had previously been categorised as a jurisdiction with tax malpractices no longer has such negative tax practices.

Precisely, the Mauritian “Partial Tax Exemption Regime”, which saw the light in 2018 to replace the fiscal regulations on the Global Business Licence Regime” has now been declared to be not harmful.

Before the 2018 Global Business Licence Regime, the OECD ruled certain Mauritian tax regimes as harmful and recommended the abolishment of such regimes. These regimes included the Global Business Licence Category 1 (GBL 1) companies and Global Business Licence Category 2 (GBL 2) companies. GBL 1 granted Holding Companies certain treaty benefits such as an 80% deemed foreign tax credit, which reduced the effective tax rate of such companies from 15% to 3%. On the other hand, GBL 2 granted tax exemption to companies.

To address the OECD’s concerns, Mauritius abolished the GBL Regimes in 2018 and introduced a Partial Exemption Regime, which provides for an 80% tax exemption on specified passive income of Global Business Corporations (GBCs) in Mauritius.

A tax credit is generally preferred to an exemption as this gives dollar for dollar savings in tax rather than tax savings at the effective tax rate. Thus, the new regime ensures that the GBCs paid some tax in Mauritius on their global income.

Mauritius also introduced substance requirements for companies seeking to enjoy the 80% exemption. These requirements include that a GBC must, at all times, carry out its core income generating activities in, or from Mauritius by employing (either directly or indirectly) a reasonable number of suitably qualified persons to carry out the core activities and the GBC is expected to have a minimum level of expenditure proportionate to its level of activities.

Upon a review of the Mauritian Partial Exemption Regime, the OECD has now declared the Mauritian Partial Exemption Regime as not harmful as the regime complies with the OECD’s standards.

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