NATIONAL BUDGET 2018/2019 HIGHLIGHTS PURSUING OUR TRANSFORMATIVE JOURNEY The Prime Minister, Minister of Finance and Economic Development of Mauritius, Hon. Pravind Kumar JUGNAUTH delivered his budget speech 2018/2019 on 14, entitled Pursuing our Transformative Journey. Amidst the different challenges facing the domestic economy, some important measures have been announced, including the much awaited reform in the Financial Services sector. The budgetary measures announced are in line with the Government s objective to promulgate Mauritius as a transparent, clean and sound destination for investment. In accordance with the different international conventions signed with the Organisation for Economic Cooperation and Development (OECD) and the commitments towards the European Union (EU), some bold initiatives, both at a fiscal and non-fiscal perspective, have been proposed. A brief on the proposals and key amendments to the applicable laws is provided below. NEW INVESTMENT OPPORTUNITIES (a) Innovation driven investments Fintech activities With the aim to introduce and effectively administer Fintech activities in Mauritius, a National Regulatory Sandbox Licence Committee will be set up to address all the issues being encountered by the concerned stakeholders. Artificial Intelligence (AI) and Blockchain Technologies A Mauritius Artificial Intelligence Council (MAIC), comprising of members both from the public and private sectors, is to be established with the aim to design and execute such innovative AI related projects in Mauritius; Assistance from international experts in this new field of business will be sought and the Council will be required to advise Government on the way forward. (b) New licences from the Financial Services Commission (FSC or the Commission) In line with the Government s objective to promulgate Mauritius as an International Financial Centre, promoters will now have the opportunity to apply for new licenses, namely:- (i) Custodian Services (Digital Asset) and Digital Asset Marketplace; and (ii) Compliance Services and Global Shared Services. The Financial Services Act is to be amended to that effect and specific guidelines on investment in crypto currency as a digital asset will be issued accordingly. (c ) National Electronic Licensing System With the aim to ease the process to apply for a permit, the Economic Development Board Act will be amended to provide for a National Electronic Licensing System (NELS). A permit includes a licence, authorization or clearance issued by any Ministry, Government Department and Local Authority; (d) High Net Worth Individuals In view of attracting High Net Worth Individuals (HNWI), the below schemes are being introduced and shall be enforced by the Economic Development Board (EDB):- First Scheme Mauritian citizenship Foreigners may obtain Mauritian citizenship under the following conditions:- Making a non-refundable contribution of USD 1 million to the Mauritius Sovereign Fund; and An additional contribution of USD 100,000 per member of family. Second Scheme Mauritian passport Under this scheme, foreigners may obtain a Mauritian passport under the following conditions:- Making a non-refundable contribution of USD 500,000 to the Mauritius Sovereign Fund; and An additional contribution of USD 50,000 per passport. 2018 DTOS Page 1
Foreign manpower The Government aim is to attract foreign experts, including foreign retirees to assist Mauritius in developing the innovative and emerging sector of activities; As a fiscal incentive, the foreigners will be exempted from payment of customs duties on the import of personal effects up to a value of Rs 2 million; and Application for occupation permit will processed within 5 days by EDB. REFORM IN THE FINANCIAL SERVICES SECTOR (a) Global Business Industry With effect from 01 January 2019, the Financial Services Commission will not be issuing Category Two Global Business (GBC2) licences, thus henceforth no such application will be entertained; However, the current regime will continue to apply until 30 June 2021 for GBC2s licensed prior to 16 October 2017; Subsequent to the major reforms in the Global Business industry whereby GBC2s are to be phased out by 30 June 2021, the term Category One Global Business Licence is to be renamed as Global Business Licence, entailing to amendments in various legislations; The Deemed Foreign Tax Credit (DFTC) is to be abolished as from 31 December 2018 (See more details under Fiscal Measures ). (b) Regulatory and Legislative Framework Amendments in the Financial Services Act (i) Given the major challenges facing the industry, the Financial Services Act will be amended to:- Further empower the Commission as an integrated regulator; Remove restrictions applicable to dealing in Mauritius; and Provide for enhanced substance requirements to be satisfied by the Global Business entities; (ii) A new framework to govern and improve oversight of Management Companies is to be introduced, with much emphasis on the latter s legal obligation to ensure general compliance with the applicable laws; (iii) For the combating of financial malpractices, the Commission, in collaboration with the Organisation for Economic Development and Cooperation (OECD) will be hosting a Regional Centre for capacity building; (iv) A Global Business entity holding an Insurance Manager licence under the Insurance Act will now be allowed to extend its services to domestic insurance business; (v) For an effective control of the market players in the Derivatives and Commodities Market, the Commission will be issuing new Rules under the Securities Act; and (vi) Following enquiries related to AML/CFT, Beneficial Ownership is to be determined and relevant information will have to be disclosed. The domestic legislations will be subsequently amended. (c ) Amendments to the Companies Act In view of raising awareness on the statutory duties of Directors, a fine of Rs. 100,000 and a term of imprisonment not exceeding one (1) year on being convicted for breach of duty and conflicting interest; In order to reduce cost, no public notice in two (2) daily newspapers will be required on a company being restored by the Registrar on his own motion; The certificate of current standing will no longer contain a statement regarding payment of licence fees; On a company being removed from the register, the retention period of the share register is to be extended to 7 years; and Outstanding fees will be recovered during liquidation process. 2018 DTOS Page 2
(d) Amendments to the Insolvency Act Filing of the declaration of solvency with the Director of Insolvency Service can henceforth be effected on the same date as the resolution for winding up of the company; The retention period of company records by the liquidator is being extended from three to five years, starting from the date the company was dissolved; Allow for the FSC to make a petition to wind up a company which is a past licensee of the FSC to cater for situations where the licences have been terminated and the company is no longer a licensee; and Review the order of payment to MRA in the context of a receivership or a winding up. FISCAL MEASURES (a) Corporate Taxation The Deemed Foreign Tax Credit regime available to companies holding a Category 1 Global Business Licence will be abolished as from 31 December 2018. A partial exemption regime will be introduced whereby 80% of the specified income will be exempted from income tax. The exemption will be granted to all companies in Mauritius, except banks and shall apply to the following income: Foreign source dividends and profit attributable to a foreign permanent establishment Interest and royalties Income from provision of specified financial services Companies licensed by the Financial Services Commission (FSC) claiming partial exemption, will have to satisfy the predefined substantial activities requirement. 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 except for companies issued with a licence before 16 October 2017. This current regime will continue to apply until 30 June 2021. The Deemed Foreign Tax Credit available to banks will be abolished as from 01 July 2019. No distinction will be made between Segment A and Segment B income. A new banking regime will be introduced. Chargeable Income up to MUR 1.5 billion will be taxed at 5% and the excess at 15%. An incentive system also is applicable for chargeable income exceeding the chargeable income for a set base year provided a pre-defined conditions are met. The special levy applicable on banks which is scheduled to end by will be extended up to June 2019. The Special levy under the Income Tax Act will be removed and replaced by a Special Levy introduced under the Value Added Tax Act. The exemption granted to Freeport Operators and private Freeport Developers on export of goods will be removed as from 30 June 2021 for companies which have been issued with a Freeport Certificate before 14. The 50% cap imposed on sales of goods on the local market will no longer apply under the Freeport regime. Freeport Operators and private Freeport Developers will continue to be exempted from the Corporate Social Responsibility (CSR) contribution. 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. The Solidarity levy on telephony service providers introduced in 2009, will be extended up to June 2020. The levy will be payable by profitable companies. The requirement for book profit of a company to exceed 5% of its turnover to be liable to the levy will be removed. 2018 DTOS Page 3
An investment tax credit of 5% over 3 years will be granted in respect of expenditure in new plant and machinery (excluding motor cars) by a company importing goods in semi Knocked down form on the condition that at least 20% local value addition is incorporated therein. The credit will be available in respect of investment made up to 30 June 2020. Companies will not be allowed to offset any unused tax credit such as the foreign tax credit against CSR payable. Companies which have been granted tax holidays will be required to contribute to CSR. Tax Deduction at Source (TDS) will be extended to commission payment at the rate of 3%. TDS rate applied on rent paid to a non-resident will be increased from 5% to 10%. TDS will not apply to director fees. The income tax exemption granted on interest income received from debentures and bonds quoted on the stock exchange will be extended to returns from sukuks (Islamic Bonds). A five-year tax holiday has been introduced for Mauritian companies collaborating with the Mauritius Africa Fund for the development of infrastructure in Special Economic Zones (SEZ). The tax holiday will cover investments in SEZ infrastructure development and will benefit two eligible categories of firms namely project developers and project financing institutions. (b) Personal Taxation The Negative Income Tax (NIT) allowance is henceforth computed on the basis of the monthly basic salary instead of total earning criteria. However, an employee whose monthly total earnings exceed MUR 20,000 will not be eligible to NIT. This will ensure that employees performing overtime are not penalised and that the NIT does not act as a disincentive to additional work. The Income Exemption Thresholds have been increased by MUR 5,000 as shown in table below and will be effective as from income year starting 01 July 2018: Category From (MUR) To (MUR) Individual with no dependent 300,000 305,000 Individual with one dependent 410,000 415,000 Individual with two dependents 475,000 480,000 Individual with three dependents 520,000 525,000 Individual with four or more dependents 550,000 555,000 Retired/disabled person with no dependent 350,000 355,000 Retired/disabled person with dependents 460,000 465,000 Introduction of a Tax Band of 10% for individual having net income of up to MUR 650,000. There is an increase in deduction for a dependent child pursuing tertiary education as set out below: Tertiary Studies From (MUR) To (MUR) Abroad 135,000 200,000 Mauritius 135,000 175,000 A retired person who in an income year derives emoluments not exceeding MUR 50,000 will be eligible to the enhanced income exemption thresholds granted to retirees. New deduction to individuals for investment in rainwater harvesting system for houses will be allowed. The profit charge payable under an Islamic Financing Arrangement for the construction of a house will qualify for interest relief if the arrangement is secured on immovable property. The exemption threshold on the lump sum received as severance allowance, pension or retiring allowance will be raised from MUR 2 million to MUR 2.5 million. 2018 DTOS Page 4
A withholding tax of 10% will be introduced on winning amount exceeding MUR 100,000 obtained from the Mauritius National Lottery. The 10% tax will also apply to winnings in casinos & gaming houses in excess of MUR 100,000. The Insurance Industry Compensation Fund will be exempted from income tax. (c ) Tax administration The Income Tax Act will be amended to ratify the decision that,where an individual who derives net income and exempt income exceeding MUR 15 million in an income year or owns assets the cost of which exceed MUR 50 million and who has submitted his income tax return, is now required to submit a statement of assets and liabilities together with his income tax return for the income year starting on 01 July 2017. Furthermore, an individual who has submitted his income tax return during the last 5 years will not be required to submit a statement of assets and liabilities. Penalties will be imposed on a person who fails to furnish information needed for automatic exchange of information with other countries. The provisions regarding an amended assessment by the MRA will be reviewed and an objection and appeal procedure will be set out for any additional assessment raised by the MRA. Currently, a person dissatisfied with a tax assessment made by the MRA and the Registrar-General s Department pays 10% of the amount assessed prior to lodging an objection. He will be required to pay an additional 5% if he is still not satisfied with a determination at objection and intends to appeal before the Assessment Review Committee. Casinos, Gaming Houses and bookmakers are required to submit a return on Wins above MUR 100,000 to the MRA. Provision will be made in the Mauritius Revenue Authority Act for enforcement actions regarding arrears of revenue instead of in the various revenue laws. This will allow the MRA to streamline its actions for efficient recovery of debts. The Expeditious Dispute Resolution of Tax Scheme (EDRTS), targeting settlement of disputes of less than MUR 10 million, will be extended to assessments raised from 01 July 2015 to 30 June 2016. (d) Value Added Tax A number of operators register voluntarily for VAT purposes solely for benefiting from VAT refund on capital goods, following which they de-register. To avoid abuse of the system, MRA will be empowered to claw back VAT refunded on capital goods exceeding MUR 100,000 (other than building) in such cases. A VAT-registered person will henceforth not be required to pay VAT on import of capital goods in case the VAT payable exceeds MUR 150,000. However, the VAT-registered person will still have to declare the import in his VAT return. A VAT-registered person who submits his return electronically also has to submit electronically a consolidated list of the taxable supplies made to any person, other than a final consumer. The list is to be submitted in terms of serially numbered invoices, that is, invoice-wise instead of taxpayer-wise. 2018 DTOS Page 5
Board of Directors Jean-Claude Bega Jimmy Wong Dipak Chummun Abdool Sattar Jackaria DTOS Ltd is a leading service provider in the Global Financial Services Centre of Mauritius. It is a Management Company duly licensed by the Financial Services Commission (FSC) to provide inter alia, corporate, trustee and fund administration services. DTOS Trustees Ltd is a wholly owned subsidiary of DTOS Ltd and licensed by the FSC to act as qualified trustee and to provide trust-related services. The above information has been extracted from the budget speech 2018/2019 delivered by The Minister of Finance and Economic Development, The Honourable Pravind Kumar JUGNAUTH on 14. Nevertheless, the budget proposals may be subject to amendments during debates in parliament and deemed to be proclaimed under Finance Acts which will be communicated in due course. Should you require any further information or have any specific query on the above, you may contact: Jimmy Wong, FCA, TEP Didier Viney, FCCA Madvi Jeebun, FCCA DTOS Ltd 10th Floor, Standard Chartered Tower, 19 Cybercity, Ebene Mauritius Email: info@dtos-mu.com Tel: +230 4046000 Fax: +230 4681600 Website: www.dtos-mu.com Disclaimer: The information in the news alert was prepared by the professional staff of DTOS Ltd. The information given is not exhaustive and readers are advised to consult with professionals such as independent accountants, legal counsel and investment bankers before taking any formal action. DTOS Ltd will be pleased to discuss specific problems. Whilst all reasonable care has been taken in the preparation of this newsletter, DTOS Ltd accepts no responsibility for any errors it may contain, whether caused by negligence or otherwise, or for any loss, however caused, sustained by any person that relies on it. 2018 DTOS Page 6