Foreword

The highly anticipated Budget speech for 2019-2020 was delivered by the Prime Minister and Minister of Finance & Economic Development on Monday 10 June 2019. Preparing an impactful budget in an election year was always going to be a tall order. Whilst the Budget was built around 10 main avenues centered mainly on consolidating socio-economic growth, infrastructural development and environmental protection, the fiscal measures announced are aimed at strengthening the existing legislative tax framework, addressing certain stakeholders’ concerns and further aligning our tax regime with international standards.

Together with certain unsurprising populist measures, this Budget feels somewhat lukewarm in terms of fiscal reform. However, where the Budget speech lacks in punch, the Annex makes up for it in terms of consolidating of a number of measures brought in last year’s Finance Act.

This Budget Tax Flash analyses some of the tax-related measures announced in the Budget speech and accompanying Annex.

Analysis

The tax proposals can be broadly categorized in two sets: (i) implementing tax measures in order to encourage the development of innovative products within the Mauritius International Financial Centre (ii) amending existing tax legislation to comply with standards sets by international organisations such as the OECD and the EU.

The proposed tax holidays to be granted on innovation box regime (8 years), e-commerce platform (5 years) and peer-to-peer lending (5 years) are in line with the Government’s vision to position Mauritius as a hub for innovative activities. However, particularly for innovation-driven activities, the companies will need to satisfy the substance requirements (including the development of IP assets in Mauritius) in accordance with OECD standards in order to benefit from the tax holiday. The proposal for a new regime for Real Estate Investment Trusts will also need to be tax efficient and OECD compliant.

The introduction of POEM (place of effective management) in last year’s Finance Act was not particularly well received by the financial services industry and tax practitioners. The potential uncertainty that could be raised by an additional limb to the residency test appeared to far outweigh any benefits. The proposal to revert to a “control and management” test is sensible and is more in line with international standards for determining tax residency.

One of the most significant changes in last year’s Finance Act was the reform of any tax laws which may be considered as harmful tax practices. The deemed foreign tax credit was abolished and instead a partial tax regime was established. This year’s Budget fixes other regimes which may be considered as ring-fencing the domestic market from the foreign market such as the Freeport sector.

The decision to extend the application of the partial exemption regime to international fibre capacity activities, reinsurance and reinsurance brokering and aviation-related activities will be a welcome one. It was hoped that the extension would be broader (such as the taxation of digital goods and leasing of locomotives) but this was always going to be a delicate exercise with the backdrop of the OECD looming close by. The substance requirements attached to the partial exemption regime will be further defined and in particular in relation to outsourcing activities. These measures are being implemented to deal with the concerns raised by the EU earlier this year on our substance requirements.

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