Bermuda: Mauritius Government Tables National Budget

Last Updated: 25 June 2018
Article by Sharmilla Bhima and Malcolm Moller
Most Read Contributor in Bermuda, November 2018

On 14 June 2018 the Mauritian Prime Minister, in his capacity as Minister of Finance, tabled the National Budget for the fiscal year 2018/2019 under the theme "Pursuing Our Transformative Journey". The Budget now awaits to be debated before Parliament and thereafter adopted; however, the measures were long awaited as they confirm the Government's long-term and short-term vision and seek to enhance the legal framework that will enable the Government to achieve what the budget has described as 'the Seven Pathways on Our Transformative Journey to a High Income Country'.

As it is the case every year, the proposed budget is expected to attract mixed views. A review of the measures recommended for the judiciary, which includes the global business sector, discloses an ambitious project which heralds the advent of a new legal climate. A highlight of the suggested changes for the legal system is set out below.

STRENGTHENING THE JUDICIARY

The enabling legislation will be amended in order to accommodate the increased jurisdiction of the lower courts of Mauritius for civil claims with the resultant effect that cases heard by the Supreme Court are streamlined.

Currently, the Intermediate Court is limited to hearing cases with a jurisdictional limit of USD 14,000. Under the proposed measures, it will be able to entertain civil claims of up to USD 56,000 and will also have mediation powers which were hitherto within the exclusive province of the Supreme Court.

This undoubtedly hallmarks a complete turnaround of the dispute resolution landscape in Mauritius and the changing role that its Supreme Court will be called upon to play to uphold the overriding interests of justice in the 21st century's sophisticated and rapidly evolving global market.

GLOBAL BUSINESS

New Tax Regime

A dual fiscal regime is being proposed specifically tailored for the global business industry on the one hand and for banking institutions on the other hand. In this regard, as from 01 January 2019, the following changes will occur:

For the Banking Sector

The distinction known as Segment A and Segment B income will be abolished and the chargeable income of banks will be taxable as follows:

  • 5% tax rate applicable on chargeable income more or less equal to MUR 1.5 billion [USD 42million];
  • 15% tax rate applicable on chargeable income exceeding MUR 1.5 billion [USD 42 million];
  • an incentive system will be in place by which banks having an income higher than MUR 1.5 billion [USD 42 million] the tax rate may be reduced to 5% if pre-determined conditions have been satisfied;
  • the current special levy on banks will be maintained until 30 June 2019; and
  • a special levy will be applicable under the VAT as from 01 July 2019 by which banks will be charged on the net operating income derived from their domestic operations.

For the Global Business Sector

  • the taxation of companies currently licensed as a GBL1 companies (GBL1) will be reviewed in order to meet with prevailing international best practices. Accordingly, GBL1 companies will be granted an income tax exemption at the rate of 80% on the following items:
  • foreign source dividends and profits attributable to a foreign permanent establishment;
  • interest and royalties; and
  • income derived from provision of specified financial services.
  • a partial exemption regime will replace the deemed foreign tax credit system for GBL1 companies . However, where this is not available, a GBL1 company will benefit from the current foreign tax credit system for taxes suffered on foreign income tax; and
  • profits derived from global trading activities will subject to a reduced tax rate of 3%.

Extended Powers of the Financial Services Commission (FSC)

The Financial Services Act 2007 will be amended in order to extend the reach of the FSC's powers to the following matters:

  • regulate custodian services (Digital Asset) and Digital Asset Marketplace;
  • regulate Global Shared Services and compliance services; and
  • remove all restrictions applicable to dealings in Mauritius.

Unified Global Business Licence

  • the FSC will issue a single harmonised global business licence to be known as 'Global Business Licence' (New GBL Licence). The new GBL Licence will be subject to strict enhanced substance provisions in line with the Government's avowed mission to combat money laundering. However, it is to be noted that the precise provisions have not been announced yet; and
  • the Category 2 GBL type of licence (GBL2) will be abolished such that as from 01 January 2019, only a single global business licence will be available for the conduct of global businesses, namely the New GBL Licence. However, in the interests of companies currently licensed as GBL2, grandfathering provisions will be in place by which the existing regime for GBL2 companies incorporated before 16 October 2017 will continue to apply.

Enhanced Role for Management Companies

  • a new framework will be developed to supervise management companies (i.e. those licensed by the FSC to provide fiduciary services to GBL companies);
  • management companies will be responsible for Anti Money-Laundering and combatting the financing of terrorism and the legal, regulatory and corporate governance of companies; and
  • companies and partnerships incorporated in Mauritius whose business is predominantly abroad and that comprise non-resident majority shareholders must secure a GBL from the FSC or an authorisation from the FSC through a management company.

New Growth Pole – Artificial Intelligence, Blockchain Technologies and Fintech

In order to promote the growth of the Fintech sector, a National Regulatory Sandbox License Committee will be set up and guidelines will be issued on the investment of crypto currency as a digital asset.

In this regard, the FSC, as regulator, will be called upon to create new licensable activities, namely Custodian of Digital Assets and Digital Asset Marketplace. Through these licences, the Government seeks to establish a regulated environment for the safe custody of digital assets by investors and enable the exchange of digital assets.

In the same breath, the FSC will put in place guidelines on investment in crypto currency as a digital asset. It will ensure as well that applicants for Fintech activities have appropriate cyber-security and cyber-resilience policies and capacities.

Employment Law

In its endeavour to achieve gender equality, the Government will amend the Employment Rights Act 2009 (ERA) in order that paid maternity leave is extended to women who have not yet reckoned 12 months of continuous service with their employer.

Under the ERA's current regime, only women who reckon 12 months of continuous service with their employer are entitled to paid maternity leave.

ATTRACTING HIGH NETWORTH CLIENTS

In its bid to further open the Mauritian economy, the Government proposes to attract high net worth citizens through the opportunity extended to them to obtain a Mauritian passport once they make a contribution of USD 500,000 to the Mauritius Sovereign Fund. Insofar as their spouse and dependents are concerned, they will have to make an additional contribution of USD 50,000 per passport.

The budget is silent on the safeguards that the Government will put into place in order to ensure that this opportunity is not misused through money laundering or other illicit structures. It is assumed therefore that any amendments to the enabling legislation on money laundering will address this concern.

CONCLUSION

On the restricted analysis of the impact that the proposed measures of the National Budget 2018/2019 is likely to have on the legal sector, it cannot be disputed that (i) it shows the Government's mindfulness to address current issues and concerns of the global business industry (ii) it lays down the foundation for the worldwide concern to achieve gender equality and (iii) it places emphasis on the judiciary's overriding role to uphold the high standards of justice in a volatile and rapidly changing global market and its influence on the Mauritian landscape. It remains to be seen therefore how the Mauritian Parliament will respond to the Government's vision and proposal to take the Republic of Mauritius a step higher into its growth.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Sharmilla Bhima
Malcolm Moller
 
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