Mauritius Budget 2018

national-budget-speech.jpg

Mauritius Budget 2018

The Mauritian Budget Speech 2018-2019 was held on 14 June 2018 by the Hon. Pravind Kumar Jugnauth, Prime Minister and Minister of Finance and Economic Development.

2018 is a special year in Mauritius’ history marking the golden jubilee celebrations of the country.

Budget 2018-19 makes the right choices to continue building up the strengths of the Mauritian economy and society.

“Pursuing our Transformative Journey” was the key note for this budget. The Hon. Pravind Kumar Jugnauth gave the “Seven Pathways on Our Transformative Journey to a High-Income Country” namely:

  • Focus on our youth equip them with the right set of skills and values to integrate the labor market;
  • creating new opportunities for private investment and job creation by accelerating the country’s move to an age of digitization through Artificial Intelligence (AI), blockchain technologies and Fintech
  • foster a new wave of import substitution industry and revive export-led production by bossing local production of food crops and maximizing the ocean economy opportunities and expansion of the industrial infrastructure and logistics facilities
  • build the strategic and modern infrastructure
  • investment to protect and enhance our environment.
  • lifting the standard and quality of life of the population by investing in health, sports, education, and most importantly, ensuring that all families have a decent dwelling.
  • consolidate our welfare system, enhance the role and participation of women and strengthen support to the elderly.

Key Economic Highlights

  • GDP is expected to grow by 4.1 percent
  • Unemployment is expected to further decline to 6.9 percent in 2018.
  • Inflation rate is forecasted to fall to around 3.5 percent in 2018-19

Our Key budget Picks and Analyses Focused on Investment

These proposals will be included in The Finance (Miscellaneous Provisions) Bill 2018 which is expected to be released soon.

Key Tax Policies for Investors

Measures to be Taken:

  • The Deemed Foreign Tax Credit regime available to companies holding a Category 1 Global Business License will be abolished as from 31st December 2018. A new partial exemption regime will be introduced whereby 80% of specified income will be exempted from income tax. The exemption will be granted to all companies in Mauritius, except banks, and shall only apply to the following income:


    (i) foreign source dividends and profits attributable to a foreign permanent establishment;

    (ii) interest and royalties; and

    (iii) income from provision of specified financial services.

  • Companies licensed by the Financial Services Commission (FSC), claiming the partial exemption, will have to satisfy pre-defined substantial activities requirement of the Commission.
  • The existing credit system for relief of double taxation will continue to apply where partial exemption is not available.
  • The Category 2 global business regime will be abolished and the Income Tax Act provisions applicable to that regime will be reviewed accordingly.
  • The current regime will continue to apply until 30th June 2021 for companies, which have been issued a license prior to 16th October 2017.
The corporate tax rate of 3% applied on profits derived by any company from export of goods will be extended to global trading activities effected by companies.

Our Thinking

  • GBC1’s will still have the advantage of a 3% tax rate on global trading activities. The partial exemption is ring-fenced to certain types of income.
  • GBC2’s cannot be used anymore but the option of using a normal Domestic company will still be beneficial to investors who are starting-up their companies and investing in regions such as Africa, India, China and Europe.
  • Both GBC1’s and Domestic companies can use the double tax treaty network that Mauritius has built up over a number of years.
  • A Domestic company does not need regulation from the Financial Services Commission and only needs one director resident in Mauritius. It does not need an annual audit if its annual turnover is below USD 1.4 mil.

Going Digital

Mauritius wants to bolster the development of Artificial Intelligence (AI), blockchain technologies and Fintech.

Measures to be Taken:

  • Development of data hosting with a special rate of electricity to accredited data center operators having at least a Tier 3 infrastructure. This means that i type of data center offers 99.98% availability. With this configuration, it is possible to manage maintenance periods without affecting the continuity of service on the servers.
  • Government to set up a National Regulatory Sandbox License Committee to consider all issues relating to Sandbox licensing for Fintech activities.
  • The Financial Services Commission will create new licensable activities, namely Custodian of Digital Assets and Digital Asset Marketplace. This will provide a regulated environment for the safe custody of digital assets by investors and enable digital assets exchange. The Regulator will also put in place guidelines on investment in crypto currency as a digital asset.
  • Ensuring that business running Fintech activities have appropriate cyber-security and cyber-resilience policies and capacities. The regulatory framework against money-laundering and terrorist financing for banking and non-banking financial services will be harmonized and updated in line with development in Fintech.

Our Thinking

  • This will be an exciting development for Mauritius as a number of Sandbox licenses have already started to be issued and the development will increase investor appetite to set-up regional data centers and Fintech companies to compete with the like of other Fintech start-ups in Africa and in Europe.
  • Connectivity and bandwidth speed will need improvement to launch this platform.
  • A Custodian of Digital Assets and the Digital Asset Marketplace will probably be GBL licensed companies and will require certain infrastructure and systems to operate under the license.
  • A Custodian of Digital Assets allows investors to store their digital assets with a regulated custodian that provides clients with segregated accounts. Custody of assets for a cryptocurrency is very different to that for a standard custody account. It is not, technically, cryptocurrency itself that is held in custody. Rather, it is the unique private key in respect of any cryptocurrency transaction that is the true asset. Loss of a private key is an unacceptable scenario as there is no other way of accessing the cryptocurrency.
  • A Digital Asset Marketplace will permit investors to establish relationships with exchanges. Some cryptocurrency exchanges function as gateways between the fiat currency and cryptocurrency universes, while others operate only within the latter. Managers will wish to carry out extensive due diligence and spread assets across numerous exchanges to reduce risks relating to cybersecurity and server failure. Exchanges are an area where regulators are able to at least partially regulate the entry and exit points – in other words converting fiat currency (dollars, pounds, euros) to and from cryptocurrency – to the cryptocurrency marketplace from the perspective of anti-money laundering (AML) and counter-terrorist financing (CTF).

Attracting High Net Worth Individuals and Talented Professionals

The Governments investment promotion agency, the Economic Development Board (EDB) will manage two schemes to attract High Net Worth individuals who satisfy defined criteria and after doing a due diligence check.

Measures to be Taken:

  • Offering foreigners, the opportunity to obtain Mauritian citizenship provided they make a non-refundable contribution of USD 1 million to a Mauritius Sovereign Fund. For their spouse and dependents, they will have to make an additional contribution of USD 100,000 per member of family.
  • Offering the opportunity to obtain a Mauritian passport provided they make a contribution of USD 500,000 to the Mauritius Sovereign Fund. For their spouse and dependents, they will have to make an additional contribution of USD 50,000 per passport.
  • The Mauritius Sovereign Fund will be managed by the Mauritius National Investment Authority. Any withdrawal from the Fund will be used to meet disbursements for new capital projects and public debt repayments.
  • The EDB will also operate a Foreign Manpower Scheme to attract foreign talents, particularly in emerging sectors such as AI, Biotechnology, smart agriculture and the Ocean Economy, amongst others.
  • An application for an occupation permit will be processed within 5 days by the EDB and the employer will have to contribute the equivalent of one-month salary per foreign worker recruited.
  • Government will also offer a new package of fiscal and non-fiscal facilities to attract foreign retirees. Besides the right to acquire an apartment, they will be exempted from payment of customs duties on the import of personal effects up to a value of Rs 2 million.

Our Thinking

  • The exact criteria for obtaining citizenship and passports was not clear in the past and now the new criteria is more transparent. It’s unclear though if this will be a popular policy and what real benefit it would hold for Mauritius?
  • The high investment threshold into the Mauritius Sovereign Fund may also be an impediment especially as the payment is non-refundable. Investors could just as well invest in the Portugal Golden Visa scheme and hold fixed property as an investment asset and qualify for a Portuguese citizenship and an EU passport.
  • Citizenship would also permit foreigners to acquire property in Mauritius and this may increase property prices for local residents.

Increasing Regional and International Ties

Mauritius wants to boost up demand for Mauritian products, and the government wants to forge new ties for economic diplomacy - going beyond regional cooperation with SADC, COMESA, IOR-ARC (Indian Ocean Rim Association for Regional Cooperation) and IOC (Indian Ocean Commission). The following economic treaties are being finalized:

  • The Comprehensive Economic Cooperation Partnership Agreement (CECPA) with India;
  • The Free Trade Agreement with China;
  • The enhanced bilateral cooperation with Saudi Arabia and Middle East countries;
  • Renewed partnership with the member states of the Commonwealth Group; and
  • The framework agreement for the Continental Free Trade Area in Africa (CFTA).

Mauritius also wants to improve its Africa Strategy to enable new cross-border investment opportunities for entrepreneurs. Therefore a 5-year tax holiday is proposed for Mauritian companies collaborating with the Mauritius Africa Fund for the development of infrastructure in the Special Economic Zones (SEZ). The tax holiday will cover investments in SEZ infrastructure development and will benefit two eligible categories of firms: project developers and project financing institutions

Our Thinking

  • The reliance solely on regional intergovernmental treaties and organizations may not have beneficiated Mauritius in the long run and its understood that economic co-operation will now extend further with China India and Africa – key regions for the trade of goods and services.
  • The main objectives of the CFTA are to create a single continental market for goods and services, with free movement of business persons and investments, and thus pave the way for accelerating the establishment of the Customs Union. It will also expand intra-African trade through better harmonization and coordination of trade liberalization and facilitation. 
  • As part of its outward investment strategy to increase the economic space of Mauritius, the Government is embarking on the development of special economic zone projects in selected African countries that will open up investment opportunities. Government to Government agreements have been signed with Senegal, Madagascar and Ghana and, more recently, the Government of Côte d’Ivoire has expressed an interest for securing Mauritian expertise for developing a Special Economic Zone (SEZ).

Review of the Freeport Regime

The Mauritius Freeport is one of the leading duty-free logistics and distribution hubs in the region. The Freeport regime will be amended as follows –
  • The corporate tax exemption granted to freeport operators and private freeport developers on export of goods will be removed. The current tax regime will continue to apply until 30th June 2021 to companies which have been issued with a freeport certificate before 14th June 2018.
  • Freeport operators and private freeport developers will continue to be exempted from the Corporate Social Responsibility (CSR) contribution.
  • Repair and maintenance of heavy duty equipment will be introduced as a freeport activity.
  • An exhibition area being used for the purpose of vault activities will be authorised.
  • The 50% cap imposed on sales of goods on the local market will no longer apply.
  • The maximum period for warehousing of goods in the Freeport will be aligned to that of a bonded warehouse, that is 24 months. A moratorium period of 42 months will be granted on goods warehoused in the Freeport before 14th June 2018;
  • Provision of services relating to mobile capital will not be allowed within the Freeport. The holder of a freeport certificate, issued before 16th October 2017, may continue to provide services within the Freeport until 30th June 2021.
  • Manufacturing activities will not be allowed in the Freeport. A transitional period will be granted to existing manufacturing companies.
  • Enterprises outside the freeport zone will not be allowed to store goods in a freeport zone. However, authorisation already granted to a third party freeport developer to provide warehousing facilities to an enterprise outside the freeport zone for storage of goods will continue to apply until 30 June 2020.

Our Thinking

  • The tax rate for a Freeport company now engaged in non-manufacturing activities will possibly revert to 3% or 15% depending on local or offshore sales. This removes the advantage of operating under a Freeport license.
  • As manufacturing in the Freeport will no longer be permitted, any manufacturing concerns will now potentially have to relocate their facilities which will be an additional burden depending on what the transitional period will be.

Investment Tax Credit

Tax Deduction at Source

  • Tax Deduction at Source (TDS) will be extended to ‘commission payment’ at the rate of 3%.
  • The TDS rate applied on rent paid to a non-resident will be increased from 5% to 10%.
  • TDS will not apply to director fees.

Tax Administration: Income Tax

  • Statement of Assets and Liabilities by High Net Worth. An individual who derives net income and exempt income exceeding 15 million rupees in an income year or owns assets the cost of which exceed 50 million rupees, is required to submit a statement of assets and liabilities together with his income tax return. The Income Tax Act will be amended to ratify the decision taken to extend by one year the due date for submission of the statement, i.e. together with the income tax return for the income year starting on 1st July 2017. Furthermore, an amendment will be made to specify that an individual, who has submitted his income tax returns during the last five years, will not be required to submit a statement of assets and liabilities, along with his/her income tax return.
  • Exchange of Information with Other Countries. Penalties will be imposed on a person who fails to furnish information needed for automatic exchange of information with other countries.

National Regulatory Sandbox License Committee

  • A National Regulatory Sandbox License (RSL) Committee will be set up, following the recommendation by the High-Level Committee comprising representatives of the bank of Mauritius, the Financial Services Commission, the Economic Development Board, and the Financial Intelligence Unit. The Committee will consider all issues relating to the issue of Sandbox licensing for Fintech activities and provide guidance to stakeholders on the functioning of the RSL framework.
  • These guidelines will cover the investment and development of blockchain technologies and cryptocurrencies as digital assets.

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

OUR NEWSLETTER