Mauritius Newsflash – National Budget Insights 2019-20

Pravind Jugnauth, Prime Minister and Minister of Finance & Economic Development of the Republic of Mauritius delivered the 2019-20 National Budget on 10 June, which included a number of measures to further improve the ease of doing business in Mauritius, to further expand and diversify Mauritius as an international financial centre and to ensure compliance with international standards.

The key measures and proposals for international business and foreign nationals include:

To expand accessibility of products globally by:

• Establishing a new framework for fund administration and fund management
• Updating the existing Special Purpose Fund regime to ease access to new markets
• The Financial Services Commission (FSC) entering into an agreement with Gujarat International Finance Tec-City to recognise Mauritius-licensed funds and management companies as qualified to operate in Gujarat as well.

To diversify the product base of the international financial centre by introducing:

• New rules and an attractive tax regime to promote the development of Real Estate Investment Trusts (REITs)
• An ‘umbrella licence’ for wealth management activities
• A scheme for headquartering of ‘e-commerce’ activities
• A framework for Green Finance in line with the ‘Marrakech Pledge’ – a continental coalition of African Capital Markets Regulators and Exchanges committed to foster green financing on the continent
• A new trading platform at the Stock Exchange of Mauritius to allow medium-sized profitable enterprises that do not qualify for listing on the official and Development & Enterprise Market (DEM) markets to raise capital and trade shares.

To facilitate conduct of business in the financial services sector by setting up:

• A ‘single-window system’ at the FSC to allow for submission of documents for financial services and global business applications.

To bolster Mauritius as a regional Fintech hub, the FSC is to:

• Establish a regime for Robotics and Artificial Intelligence (AI) enabled financial advisory services
• Introduce a new licence for Fintech Service providers
• Encourage self-regulation for Fintech activities, in consultation with the United Nations Office on Drugs & Crime (UNODC)
• Introduce the use of e-signatures and e-licences on a pilot basis
• Create ‘Crowd Funding’ as a new licensable activity.

To provide for Income Tax Holidays:

• Innovation Box Regime – A newly set-up company involved in innovation-driven activities benefits from a tax holiday of 8 years on income derived from its intellectual property assets developed in Mauritius.Existing companies will, henceforth, benefit from the 8-year income tax holiday on income derived from intellectual property assets developed in Mauritius after 10 June 2019.In order to benefit from the income tax holiday, companies will have to satisfy pre-defined substantial activities requirement in compliance with the Base Erosion and Profit Shifting (BEPS) Action 5 report.
• E-commerce Platform – A 5-year tax holiday will be introduced for a company setting up an e-commerce platform provided the company is incorporated in Mauritius before 30 June 2025.The Economic Development Board Act will be amended to allow for the issuance of e-Commerce Scheme Certificate.
• Peer-to-Peer Lending – A 5-year tax holiday will be granted to a Peer-to-Peer lending operator provided the company starts its operation prior to 31 December 2020.

To strengthen the regulatory framework to fight fraud, corruption and financial crimes and increase investors’ confidence:

• A Financial Crime Commission will be set up to act as an apex body to ensure greater co-ordination and coherence among the various investigative agencies, including the Independent Commission Against Corruption (ICAC), the Financial Intelligence Unit (FIU) and the enforcement department of the FSC in carrying out their functions, in particular in dealing with drugs investigations and other financial crimes
• The FSC will develop a Financial Data Handling Code of Conduct to address cyber risks
• The Bank of Mauritius (BOM), FIU and FSC will introduce industry-wide Practice Notes with respect to handling clients’ requests.

To ensure compliance with international best practices:

(i) Tax Residency of Companies – The Income Tax Act will be amended to implement the recommendation of industry stakeholders regarding the determination of tax residency for companies so that a company will not be considered as tax resident in Mauritius if it is centrally managed and controlled outside Mauritius. Consequential amendments will be made to Section 71A of the Financial Services Act.

(ii) Reforms to the Tax Regime of Global Business Companies – To address the deficiencies identified by the EU in the partial exemption regimes, the following reforms will be implemented:

• Partial Exemption Regime – 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, and to lay down the conditions that must be satisfied where a company outsources its core income generating activities, such that the company must be able to demonstrate:
  • Adequate monitoring of the outsourced activities
  • The outsourced activities must be conducted in Mauritius
  • The economic substance of service providers must not be counted multiple times by multiple companies when evidencing their own substance in Mauritius.

    Consequential amendments will be made to Section 71 of the Financial Services Act.

• Anti-abuse rule – The Income Tax Act will be amended to set out rules on controlled foreign companies (CFC).

  In addition, the Companies Act, Limited Liability Partnerships Act and Limited Partnerships Act are all to be amended to provide for the definition of beneficial owner with a view to fulfilling the requirements of the OECD.

To further develop the Financial Services Sector:

1. Co-ordinated Approach to Private Banking and Wealth Management Licensing – Given that the FSC already regulates activities under the ambit of wealth management, which are provided by private banks, the BOM and the FSC will explore the convergence of Private Banking and Wealth Management licences.
2. Broadening the Network – The partial exemption regime will be extended to cover companies engaged in leasing and provision of international fibre capacity, companies engaged in reinsurance and reinsurance brokering as well as those engaged in the sale, financing arrangement and asset management of aircraft and its spare parts, including aviation related advisory services.The limit on the number of shareholders permitted for private companies incorporated under the Companies Act will also be reviewed.
3. Headquartering of E-Commerce activities in Mauritius – The Financial Services Act will be amended to introduce a scheme for the Headquartering of E-Commerce activities in Mauritius.
4. Upgrading the Regulatory Sandbox Licence Framework – The Economic Development Board (EDB) will pursue consultations with the UNODC and relevant stakeholders with a view to proposing appropriate amendments to the Economic Development Board Act to upgrade the Regulatory Sandbox Licensing Framework for Fintech Activities.

Online Betting – In line with the intention to developing Mauritius as an online betting platform for foreigners, the EDB would be issuing a “Sandbox Licence” to enable interested parties to develop a licensing programme that would include the elaboration of an appropriate legal framework, the choice of latest software solutions for real-time tax deduction at source for every online betting transaction and exploring risk-assessed Blockchain and Crypto Currency initiatives.

To enhance the Processing of Applications for Work and Residence Permits by Foreign Nationals

1. With a view to providing more certainty in the processing of work permit applications, the Non-Citizens (Employment Restriction) Act will be amended to introduce strict timelines for assessment of completeness of application, obtaining clearances from other authorities and determination of an application.
2. The process for issuing Occupation Permit, including the Schedule under the Economic Development Board Act will be reviewed making provisions for clearly defined eligibility criteria and introduction of guidelines.

Inclusive Education, Skills and Talents

1. Significant Employers Scheme – A Significant Employers Scheme will be introduced by the EDB to support businesses. A foreign worker, employed by a company under this scheme, will obtain an entry permit at arrival, valid for a period not exceeding 3 months, allowing them work while the employer completes the Occupational Permit Procedure. This Scheme will replace the Foreign Manpower Scheme to support businesses operating in fields where local talents are scarce.
2. Attracting Talents from Abroad – The capital outlay requirement of USD40,000 under the innovator Occupation Permit for Start-ups that are mentored by an accredited incubator will be waived. The Economic Development Board Act will be amended accordingly.

Conclusion
Last year Mauritius introduced major tax reforms in the Global Business Sector in response to pressure from international bodies such as the OECD and the European Union. It is encouraging to see such a wide-ranging package of measures in this Budget that are designed to revitalise and enhance Mauritius as an International Financial Centre.