BTG March Newsletter

 

New Registered Certificate for Food Processing - Mauritius

 

Just as we thought the investment opportunities of Mauritius couldn't get any better, with the likes of all the smart cities & property development schemes (PDS) growing at such a rapid rate, Mauritius has taken another leap and added another investment opportunity. 

As we all know the food industry worldwide is an emerging, high growth market with growing profits and pipelines. Most importantly to investors, the food processing sector is one of the most prominent investment opportunities globally. 

To give a boost to food processing activities in Mauritius, a Registration Certificate (Food Processing) has been announced by the Economic Development Board to promote agriculture and importation of agricultural products to be used as raw material. This will result in having the finished product developed in Mauritius which in turn will increase exportation growth & opportunities.  

As Mauritius is part of the South African Development Community and the Common Market for Eastern and Southern Africa, there could be opportunities for duty free imports into African countries that are part of the trade blocs.

There are many benefits that the registered certificate holders will receive as incentives, these will include the following: 

·         Income Tax holiday for the first eight years of operation,

·         Exemption from payment Registration duty and land transfer tax for the purchase of immovable property

·         VAT exemption on equipment and machinery. 

This is a huge opportunity for current/new food processes to enter into the Mauritian market and take advantage of this exemptions and the massive supply chain it offers. If you would like to read through the Guidelines for application, please click the link below.

 

Rectangle: Rounded Corners: Guidelines for Application of Registration
Certificate (Food Processing)

 

 

South Africa Taxation Laws Amendment.

 

 

 

South Africans in  Mauritius & Tax on Foreign Income.

 

 

The Taxation Laws Amendment Act 17 of 2017 was promulgated 18 December 2017 giving effect to some international tax law changes in South Africa.

The key features from an international tax perspective are:

Interest-free and low interest loans, advances or credit

Interest-free and low interest loans, advances or credit made to companies owned by trusts trigger a donation of the interest foregone and donations tax is payable.

The coverage of this anti-avoidance provision is now also extended to situations where Interest-free and low interest loan claims are transferred to current or future beneficiaries of trusts by the settlor of a trust and shareholder of a company. Here too the interest foregone will also be treated as a donation by the settlor or shareholder. The effective date of these changes is 19 July 2017 and applies in respect of any amount owed by a trust or a company in respect of a loan, advance or credit provided to that trust or that company.

It is important that investors review all existing loan structures to assess whether the interest rates may need to be revised. For any new loans introduced, the loan terms should include an interest rate, have a term specified for repayment and may also have security over the loan.

There are some commentators that take the view that the South African Revenue Services should accept an interest at the official rate of interest (in the foreign currency of the loan) + 100 basis points. Other commentators take the view the transfer pricing provisions override the official rate and that an arm’s length rate above the official rate needs to be used. Investors should review their position with their tax advisor.

Controlled Foreign Company

The extension of the application of Controlled Foreign Company (CFC) rules (an anti-avoidance provision) to foreign companies held through foreign trusts or foreign foundations.

Investors use foreign companies held through foreign trusts or foreign foundations for estate planning purposes and asset protection. The financial results of the foreign companies don’t usually form part of the consolidated financial statements of the investors South African company. However, the International Financial Reporting Standard (IFRS) 10 does require a group of companies of which the parent company is resident in South Africa need to consolidate their financial results in the South African parent’s financial statement.

This change came into operation on 1 January 2018 and applies in respect of any year of assessment commencing on or after that date.

The effect of this change on an offshore business that is indirectly owned by a South African investors through a trust or foundation is that the investor’s South African company is required under IFRS10 to include the offshore company’s results in its consolidated accounts.

This change came into operation on 1 January 2018 and applies in respect of any year of assessment commencing on or after that date.

At face value the application of this rule seems limited to, for example, South African listed companies or larger multi-national enterprises.

However, there could be situations where IFRS10 could apply to small and medium sized enterprises as well.

Please note this communication has been provided purely to raise awareness of the proposed tax changes and this is not intended to be construed as tax or legal advice in any way. The information provided is for general guidance only. If you have any further queries regarding the tax law changes, we recommend you engage the assistance of independent legal or tax advisor.

 

There is a flurry of investors and emigrants coming to Mauritius from different parts of the world including South Africa. There are various reasons for this and sometimes tax and better investment climate are the key factors. This is good news for Mauritius as investors bring new expertise, investment, and employment opportunities.

However, the South African Revenue Services won’t give up their tax base so easily and there are certain rules investors need to understand if they are considering leaving South Africa for the tropical shares of Mauritius.

South Africa has a residence-based tax system, which means that the residents are taxed on their worldwide income.

South Africans working abroad can usually qualify for a tax exemption on their foreign employment income. However, this exemption is under threat and recently the tax law was changed to limit this exemption.

Merely coming to Mauritius and getting a Mauritian tax number does not mean the South Africa investor is tax resident in Mauritius and no longer tax resident in South Africa.

Certain factors need to be considered beforehand. Some of these factors are objective, some subjective and some defined by the double tax treaty between South Africa and Mauritius.

Basically, South African tax residents are, but for certain exclusions/exemptions, subject to income tax on their worldwide income, i.e. income derived within and outside South Africa.

Non-residents will remain taxable on their South African actual or deemed source income. The normal source principles as determined and developed by the South African courts continue to be applicable.

The word “resident” in the South African context means, amongst other, a natural person who is: ordinarily resident in South Africa; or physically present in South Africa for a specified period (physical presence test).

In the Mauritian context a resident is an individual, who (i) has his/her domicile in Mauritius unless his/her permanent place of abode is outside Mauritius; (ii) has been present in Mauritius in that income year, for a period of, or an aggregate period of, 183 days or more; or (iii) has been present in Mauritius in that income year and the 2 preceding income years, for an aggregate period of 270 days or more.

It could be possible to be tax resident in both South Africa and Mauritius and to solve this problem the double tax treaty will define where the person is tax resident.

Under the double tax treaty an individual’s status is determined as follows:

(a) the individual is deemed to be a resident of the State in which a permanent home is available to the individual. If a permanent home is available to the individual in both States, the individual is deemed to be a resident only of the State with which the individual’s personal and economic relations are closer (the so-called “center of vital interests”). Factors that count here are the most fixed and settled place of residence of the individual, place of business and personal interest, the status of individual in country, i.e. immigrant, work permit periods and conditions, etc., the location of personal belongings, nationality, family and social relations (schools, church, etc.), political, cultural or other activities, application for permanent residence, period abroad; purpose and nature of visits and frequency of and reasons of visits.

(b) if the State in which the center of vital interests is situated cannot be determined, or if the individual does not have a permanent home available to that person in either State the individual, is deemed to be a resident of the State in which the individual has a habitual abode. The factors that count here is determining the individual’s present habits and mode of life.

(c) if the individual has a habitual abode in both States or in neither of them, the individual is deemed to be a resident of the State of which the individual is a national.

(d) if the individual is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by agreement.

It’s always good to consult with a tax advisor to make sure you know which side of the divide you become a tax resident and when and what the consequences will be.

 

BTG Management Services (Mauritius) Limited.

 

 


 

BTG Management Services (Mauritius) is a full service Management Company located in Mauritius licensed by the Financial Services Commission under section 77 of the Financial Services Act of 2007.

 

Contact Info

Head Office: MAIN OFFICE, Nautica Commercial Center, Royal Road Black River,  Mauritius

Phone: (+230) 483-1212

Fax: (+230) 483-1313

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