Mauritius tightens noose around shell companies
Global business companies operating in the low-tax jurisdiction of Mauritius must comply with the amendments issued by the FSC to be covered by the tax treaty between India and the island nation (Source: www.investorbusinessguide.mu)
Companies which are operating without sufficient manufacturing or service activities to justify their existence on the island nation, commonly called ‘shell’ companies, had better watch out.
The Indian government’s insistence on Mauritius closing loopholes in its double tax avoidance agreement (DTAA) with the Asian emerging economy, is finally yielding fruit. The Financial Services Commission (FSC), Mauritius’ non-bank financial services regulator, has made amendments to the DTAA to ensure ‘economic substance’ in global business companies operating in the island nation.
These conditions are to be met by January 1, 2015. Not only the companies that are freshly applying for a TRC but also those companies which are applying for renewal of TRC after January 1, 2015 must comply with these requirements.
As part of its commitments to ensure that only companies properly controlled and managed in Mauritius are issued a Tax Residency Certificate (TRC) – which is now a legal pre-condition for a company to avail of the DTAA – the FSC has specified certain stringent conditions that Category 1 Global Business Companies (GBC 1) will have to comply with.
The first category of rules target the directors of the GBC 1. The directors, in addition to being resident in Mauritius and able to exercise independent judgment, are now also required to be ‘appropriately qualified’. They are also required to have relevant experience to ensure that business is conducted well. Further, if the GBC 1 works as a collective investment scheme, closed end fund or external pension scheme it would have to be entirely administered from Mauritius.
As another important precondition, the GBC 1 must also satisfy at least one of the following: have office premises in Mauritius; employ at least one person who is resident in Mauritius; provide for all disputes arising out of the constitution to be resolved by way of arbitration in Mauritius; hold currently or over the next 12 months, assets of at least $100,000 in Mauritius; list shares on a securities exchange licensed by the FSC; ensure a yearly expenditure in Mauritius which can be reasonably expected from a similar company controlled and managed from Mauritius.
Some of the conditions (such as listing of the shares of the entity and expenditure incurred locally) are similar to the conditions under the India-Singapore Tax Treaty, whereas there are several new conditions such as the requirement for office space and a full time employee. It appears that since the companies need to be hold assets in Mauritius, there will be a requirement for companies to hold financial securities or real estate in Mauritius. Additionally, the condition on reasonable level of expenditure are subjective and may create some uncertainty on whether or not it has been complied with.
Source: BMR Advisors