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Using a ‘société’ for Structuring in Mauritius
Under the Mauritius Income Tax Act 1995, a soci?t? includes a soci?t? de fait or a soci?t? en participation, a joint venture or a partnership formed under the law of a foreign country. For Mauritius tax purposes, a resident soci?t? is regarded as a transparent vehicle - that is, the soci?t? is not liable for tax in Mauritius. Instead, every associate/partner of the soci?t? is liable to income tax on his share of income from that soci?t?. Taxand Mauritius discusses why a soci?t? provides certainty for investors and the related tax treatment required.
The ITA 1995 provides that a soci?t? will be considered to be a resident in respect of an income year when it has a seat or si?ge in Mauritius and includes a soci?t? that has at least one associate partner or associ? or g?rant resident in Mauritius.
In a recent ruling ("TR 101") issued by the Mauritius Revenue Authority ("MRA"), a partnership formed under the law of a foreign country has been treated as a resident 'soci?t?' for Mauritius tax purposes. The MRA also reiterated the fact that a resident soci?t? is treated as a transparent entity for Mauritius tax purposes. TR 101 can be viewed on the MRA's website - www.mra.gov.mu.
TR 101 - A Recap
The Fund will be established as a limited partnership under the laws of Canada. Under the Income Tax Act (Canada), a partnership does not have legal capacity and the Fund would, therefore, not be subject to income tax in Canada.
The Fund proposes to invest in South East Asia through a wholly owned Singapore holding company. The Singapore holding company will be managed and operated from Singapore by a Singapore management company. The Fund will not derive any income from Mauritius. All income will be derived from investments in South East Asia.
The General Partner of the Fund will be a Caymans exempted limited company. However, the officers and directors of the General Partner will be Mauritius residents and all Board meetings of the General Partner will be held in Mauritius. The General Partner will delegate powers to a manager, provided that the management and conduct of the activities of the Fund shall remain the sole responsibility of the General Partner.
The Manager of the Fund will be established as a Category 1 Global Business Company ("GBL 1"). It will operate from Mauritius and its Board will be mainly comprised of Mauritius resident directors. Board meetings will be held in Mauritius. The Manager will receive a management fee payable by the Fund. See the diagram below to understand the proposed structure.
The MRA confirmed that the Fund would be treated as a soci?t? for tax purposes in Mauritius, as the Fund falls under the definition provided in the ITA 1995.
Furthermore, given that the management and control of the Fund rests with the General Partner and the General Partner is managed from Mauritius, the Fund would be treated as a resident soci?t? for Mauritius tax purposes in accordance with the definition assigned to the term in section 73(c) (ii) of the ITA 1995.
The MRA further confirmed that the partners of the Fund who are not resident in Mauritius would not be liable for income tax in Mauritius in respect of their share of income in the Fund because the Fund would not derive any income from Mauritius. However, the Manager and the General Partner, being resident in Mauritius for tax purposes, would be taxable on their worldwide income.
Certainty for Investors using the ruling procedures.
Under the ITA 1995, a ruling published in the Government Gazette is a binding statement on the Director General of the MRA as to the application of the ITA 1995 to the facts set out in the ruling. This is an interesting feature of the Mauritius ITA 1995, as it gives certainty of the tax treatment when using a Mauritius vehicle.
Tax Treatment of a soci?t?
TR 101 reaffirms the tax treatment of a resident soci?t? in Mauritius. However, it is worth noting that a non-resident soci?t? will be liable for income tax as if the soci?t? was a company and will pay income tax on its chargeable income. This tax is imposed on income that is being derived from Mauritius and it is charged at a rate of 15%. Furthermore, where a resident soci?t? holds a GBL 1 Licence, it can opt to be liable to tax at the rate of 15%.
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