FSC JURISDICTIONS 2016 Mauritius June 6

THE INTERNATIONAL FINANCIAL SERVICE CENTRES REPORT 2016
MAURITIUS
Legislative update
Captive Insurance Act 2015 - The Act caters to the growing
interest for such insurance in Mauritius and applies uniquely
to ‘pure captives’
Profile
Dr Ludovic C. Verbist
Dr Ludovic C. Verbist is the Founder
and Managing Director of AAMIL
Group, a global financial services
provider, established in 1997. He was
previously the Managing Officer and
Secretary General of Pargesa Holding
S.A. (Geneva) and later the Managing
Director of the former Banque Privée
Edmond de Rothschild (Mauritius).
After reading law at the University of
Brussels, Dr Verbist obtained a MBA
and a Ph.D. in Economics and
Finance from the Business School at Indiana University (United
States). A frequent speaker at conferences on taxation and financial
and offshore activities, Dr Verbist’s articles appear regularly in
professional publications.
Content snapshot
Contacts
FINANCIAL SERVICES
COMMISSION
Address: FSC House,
54 Cybercity Ebene, Mauritius
Tel: (+230) 403-7000
Fax: (+230) 467-7172
E-mail: [email protected]
MINISTRY OF FINANCIAL
SERVICES, GOOD
GOVERNANCE AND
INSTITUTIONAL REFORMS
Address: SICOM Tower,
Wall Street, Ebene, Mauritius.
Tel: (+230) 404-2400
Fax: (+230) 464-0903
E-mail: financialservices
@govmu.org
Over the past 30 years, Mauritius has firmly established itself
as an international financial centre, becoming a gateway to
investment in Asia and Africa. By virtue of long historical ties
and strong cultural India and Mauritius have fostered cordial
affiliations since the 18th century. Diplomatic relations were
inaugurated in 1948, before Mauritius became an
independent state, and ever since, India and Mauritius have
cooperated closely in numerous fields.
In the financial arena there is a double taxation agreement
and under Mauritian law, and more precisely under the
Income Tax of 1995, capital gains are not taxed. Hence,
capital gains arising from the sale of shares of an Indian
company held by a Mauritian company are effectively
exempted from tax in both countries. This was contentious in
India; historical figures show that Mauritius stands out as the
main source of Foreign Direct Investment (FDI) into India.and
a new announcement in May disclosed that the Minister of
Financial Services in Mauritius had revised the DTA.
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MAURITIUS
Innovative Financial Services Centres – 2016
Investing in India through
Mauritius Structures
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The investment vehicle pertaining to
this DTA is either a Domestic Company
or, more generally, the Global Business
Company, Licence Category 1 (GBL1).
This is a tax-resident company which
carries business outside Mauritius and
whose activities and ownership are
restricted to non residents. In order to
qualify for tax exemption in India, the
GBL1 needs to demonstrate substance
in Mauritius by proving that it is
managed and controlled from Mauritius.
The effective corporate tax rate
for a GBL1 is generally 0% and a
maximum of 3%. GBL1 are governed
by the Income Tax Act 1995, under
which they are taxed at the flat rate
of 15%. Mauritius law allows an
underlying foreign tax credit, equal
to the amount of foreign taxes paid,
up to the amount of tax due in
Mauritius. In the absence of proof,
the amount of foreign tax paid is
presumed to be 80% of the Mauritius
tax. There is no capital gains tax, nor
withholding tax on dividends and
interest paid to non-residents.
Despite the clarity of this stance,
Indian tax authorities have repeatedly
tried to tax such capital gains in India.
Their main argument is that the DTA
would not be applicable in specific
situations (round-tripping, lack of
substance of the company in
Mauritius, abuse of the DTA, etc).
Consequently, several court cases as
well as the Central Board of Direct
Taxes of India (CBDT – The Authority
on Direct Taxation) have declared that
the applicability of the DTA to a
Mauritius company depends on its
actual tax residence in Mauritius, of
which the Tax Residency Certificate
(TRC) issued yearly by the Mauritius
Revenue Authority (MRA) is proof.
This evidence must be accepted as
such by the Indian Authorities.
Mauritius
On 11 May 2016, it was disclosed by the Minister of
Financial Services in Mauritius that the DTA had been
revised already last year and changes agreed.
Dr Ludovic C. Verbist, AAMIL Group
BY DR LUDOVIC C. VERBIST
Over the past 30 years, Mauritius
has firmly established itself as an
international financial centre,
becoming a gateway to investment in
Asia and Africa. Inviting features of
this country include a stable political
environment, attractive fiscal policies
and easy access - with daily direct
flights to major cities on three
continents. The presence of
international law firms, an efficient
banking system and a reliable modern
infrastructure also attract.
By virtue of long historical ties
and strong cultural affinities (almost
70% of the Mauritius population, of
around 1.3 million, is of Indian
origin), India and Mauritius have
fostered cordial affiliations since the
18th century. Diplomatic relations
were inaugurated in 1948, before
Mauritius became an independent
state, and ever since, India and
Mauritius have cooperated closely
in numerous fields.
In 1983, a Double Taxation
Agreements (DTA) was signed
between the two governments.
Its aims were to encourage mutual
trade and investment, to cater for the
avoidance of double taxation, and to
prevent fiscal evasion with respect to
taxes on income and capital gains. In
particular, Article 13 of the DTA
stipulates that capital gains earned
by the alienation of movable property
forming part of the business property
of a permanent establishment in either
country will be taxed in that other
country. Under Mauritian law, and
more precisely under the Income Tax
of 1995, capital gains are not taxed.
Hence, capital gains arising from the
sale of shares of an Indian company
held by a Mauritian company are
effectively exempted from tax in
both countries.
Innovative Financial Services Centres – 2016
Case Study: Captive
Insurance Act 2015
In December 2015, the Mauritian
National Assembly passed the
Captive Insurance Act 2015, whose
aim is to diversify the financial and
corporate services sector as well as
to boost the captive insurance
market in Mauritius. The Act caters
to the growing interest for such
insurance in Mauritius and applies
uniquely to ‘pure captives’. A captive
is a subsidiary company that is
incorporated to provide insurance for
its parent company and its group
affiliates. It is a form of selfinsurance that allows for substantial
savings to be made on insurance
premiums that would otherwise be
paid to external insurance firms, and
to insure low occurrence but heavy
financial risks, such as consequences
of terrorist acts.
The Act defines the requirements,
obligations and licensing procedures
of pure captive insurance businesses.
It stipulates that captive insurers must
hold a Category One Global Business
Companies Licence (GBL1) along with
an external insurance licence from the
Financial Services Commission (FSC).
In order to obtain the latter licence,
the captive must apply through a
captive insurance agent.
Furthermore, as a GBL1, the
captive insurer will also profit
from Mauritius’ Double Taxation
Agreements (DTAs) and Investment
Protection and Promotion
Agreements (IPPAs).
As an incentive to promote this
developing market, the Act amends
the Income Tax Act 1995 by providing
for a maximum of 10 years tax holiday
for captive insurance companies.
If you would like further information on products or services access http://www.campdenwealth.com/content/financial-service-centre-report
Some quarters in India have regularly
asked for a revision of this DTA. Theis
has been fuelled by pressure groups
from India, with the main cause of
concern being the existence of ‘round
tripping’ - that many investors are, in
fact, Indians who set up companies
in Mauritius and invest in their own
country from Mauritius with a view to
avoid Indian taxes.
Historical figures show that
Mauritius stands out as the main
source of Foreign Direct Investment
(FDI) into India. For the period
between April 2000 and September
2015, FDI inflows from Mauritius into
India amounted to over US$ 91 billion.
This represents around 34% of the
total FDI. Given this mutually-beneficial
investment route for both countries,
could changes be brought to the DTA?
For years now, both countries have
worked together through the Joint
Working Group for amendments in
the treaty. It has been deemed
necessary for Mauritius to clear any
uncertainties arising under the DTA
ever since proposed measures were
announced in the Indian budget in
2012, particularly the introduction of
the General Anti-Avoidance Rules
(GAAR), which empower the Indian
tax authorities to deny taxpayers the
benefit of an arrangement that they
have entered into for an impermissible
tax-related purpose.
Notwithstanding this mutually
beneficial investment route, rumours
have abounded for 20 years about
changes to be brought to the DTA.
Even though additional conditions
have been added gradually by the
Financial Services Commission of
Mauritius (FSC) to ensure adequate
substance of any GBL1 wanting to
avail itself of this DTA, no change
has been brought to the DTA itself.
That was until 11 May 2016, when it
was disclosed by the Minister of Financial
Services in Mauritius that the DTA had
been revised already last year and
changes agreed, but only disclosed
now. This notwithstanding numerous
articles published by ex-Ministers of
Finance, academics and experts, who
unanimously called for a status quo.
The issue remains extremely sensitive
- with its economic, social, financial,
and political ramifications.
“Historical figures
show that Mauritius
stands out as the
main source of
Foreign Direct
Investment (FDI)
into India.”
Changes
The changes are essentially as follows
India will have the right to tax
capital gains on disposal of assets
in India, and no longer Mauritius,
as from 1 April 2017.
From that date until 31 March 2019,
the tax rate in India will be half the
standard rate, conditional to a
limitation of benefits (LOB) clause,
i.e. that the Mauritius company
spends at least MUR Rs 1.5 M.,
some US$ 40,000. As from 1 April
2019, taxation will be at the full
rate in India.
Withholding tax of 7.5% in India
on interest on bank loans from
Mauritius banks as from 1 April 2017.
Grandfathering clause for all
investments or loans made
before 31 March 2017, which
will remain untaxed in India until
sale or maturity.
Enhanced exchange of information
clauses, to be disclosed.
worse position than its ‘competitors’,
although no mention of most
favoured nation (MFN) has apparently
been included in this DTA revision.
In addition, Indian tax laws are
being modified, which will impact
all investments. The new Direct Taxes
Code (DTC) contains General Anti
Avoidance Rules (GAAR). GAAR
was first proposed in 2009. Its
implementation is now planned
in April 2017.
The consequence of these increased
taxes is that investors will likely want to
see a growth in the expected rate of
return before taxation, to compensate.
Let’s hope this will not dampen the
flow of investments into India, in
particular through Mauritius.
The Hon. Prime Minister of India,
Mr Modi stated on an official visit in
Mauritius on 12 March 2015 that no
changes would be brought to the
DTA, which might harm Mauritius.
It is anticipated that other DTA which
India has will now be reviewed with
the same aim, leaving Mauritius in no
If you would like further information on products or services access http://www.campdenwealth.com/content/financial-service-centre-report
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