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Mauritius ratifies DTAA with Gabon
The Double Taxation Avoidance Agreement (DTAA) between Mauritius and Gabon has been ratified by Mauritius. The DTAA is in line with the OECD Model Convention, the only exception being that it includes a Service Permanent Establishment Clause. Taxand Mauritius discusses the potential advantages this DTAA will create for investing in Gabon through Mauritius.
Where a resident of Mauritius derives income or gains from Gabon, the amount of tax on such income or gains payable in Gabon may be credited against the Mauritius tax. Furthermore, where a company resident in Gabon pays a dividend to a resident of Mauritius who controls directly or indirectly at least 5% of the company paying the dividend, credit shall take into account the underlying tax paid by the Gabonese company out of which the dividend was paid. The provisions under the DTAA are very similar to the foreign tax credit mechanism under the Foreign Tax Credit Regulations 1996.
In case of exit from the Gabonese investment, gains arising on the disposal of the shares by the Mauritius company will be taxable only in Mauritius by virtue of the DTAA. There is no capital gains tax in Mauritius.
A dividend paid by a Gabonese company to a non-resident is normally subject to a withholding tax of 15%. However, under the DTAA, the rate is reduced to 5% if the dividend is paid to a resident of Mauritius. This results in a tax saving of 10% by using the Mauritius route.
In addition to the normal corporate tax, the profit of a permanent establishment in Gabon is subject to a 10% withholding tax. However, by virtue of Article 23 (3) of the non-discrimination article of the DTAA, the 10% withholding tax is not applicable on income derived by a permanent establishment of a Mauritius Company in Gabon.
Also published in Thomson Reuters' Taxnet Pro, 3 October 2013
Multinationals looking to invest into Gabon should study the potential advantages of doing so through Mauritius, in a legal and sustainable way. All corporates with operations in either Mauritius and / or Gabon should investigate the DTAA further in order to remain afresh of all tax developments.