Double Taxation Avoidance Agreements (DTAAs)Mauritius
Double taxation happens when the same activity is taxed more than once under a standard tax system and this circumstance occurs mainly during cross-border transactions involving foreign affiliates.
In an attempt to limit this double taxation, a tax treaty (DTAA) is signed between two countries with the goal, firstly, to set a preferential tax rate and secondly, to enable the use of relief, either under a deduction method where the foreign taxes are treated as an expense or the exemption method where the country of residence does not tax the income generated abroad or by means of Foreign Tax Credit whereby taxes paid on foreign income in one country are offset against taxes on the same income in the other country.
Mauritius Tax Treaty Network
Each country has its own tax system and each domestic law defines how it intends to tax its residents. Most countries use the principles of residency and source to assess their ability to levy taxes.
The concept of tax residence is different from the concept of physical residence for tax purposes. By making use of the facilities and resources available in a country, it can be understood that the profits of a company have been sourced within its borders and this gives the right to that country to levy taxes accordingly. This situation may lead to a double taxation and, in such situation, the use of a bilateral tax treaty would have a significant benefit as it defines residency for tax purposes and how the taxes are to be distributed between the two countries.
There are usually two approaches that would determine the tax residency of a company; 1) the legal approach that would be defined according to the country of incorporation and 2) an economic approach that is usually determined by many factors, but mainly the place of effective management and substance.
There is no overarching set of rules that requires countries to collaborate with other countries in the collection of taxes.
Countries enter into DTAAs mainly to attract foreign investments, protect their collective tax base from aggressive tax planning by multinationals (MNCs) and indirectly encourage their local enterprises to export their goods and services globally.
In all fairness, an MNC will aim to reduce its worldwide tax burden by trying to mitigate taxes occurring in high tax jurisdictions. This has led to the emergence of numerous jurisdictions, such as Mauritius, the U.K, Switzerland and many others in Europe, the U.S and elsewhere, adapting and improving their legal environment, regulatory framework and tax regime to attract international clientele and these jurisdictions are known as International Financial Centres (IFCs).
Although IFCs appear to have a pejorative connotation when it comes to taxation, high-tax countries like the United States and the United Kingdom have also formed their own IFCs and signed 41 and more than 100 DTAAs respectively. Mauritius followed suit and emerged as an IFC some 20 years back and built a strong tax treaty network mainly focused on fostering investment in mainland Africa.
Mauritius Tax Treaties
Mauritius has 44 tax treaties in force as at the date this article is being written and this includes 15 treaties with African countries.
Maximum tax rates applicable when using Mauritius DTAAs while investing in the following African countries:
|Botswana||5% and 10%||12%||12.5%|
|Congo||0% and 5%||5%||Exempt|
|Egypt||5% and 10%||10%||12%|
|Madagascar||5% and 10%||10%||5%|
|Mozambique||8%, 10% and 15%||8%||5%|
|Namibia||5% and 10%||10%||5%|
|South Africa||5% and 10%||10%||5%|
|Zimbabwe||10% and 20%||10%||15%|
Mauritius DTAAs with non-African countries:
Australia | Bangladesh | Barbados | Belgium | China | Croatia | Cyprus | France | Germany | Guernsey | India | Italy | Jersey | Kuwait | Luxembourg | Malaysia | Malta | Monaco | Nepal | Oman | Pakistan | Seychelles | Singapore | Sri Lanka | State of Qatar | Sweden | Thailand | UAE | United Kingdom.