Is Mauritius a Tax Haven? The Complex Truth

The question of whether Mauritius functions as a tax haven is complex, requiring examination of its financial systems and regulatory environment. This article defines a tax haven, explores Mauritius’s financial framework, assesses the nation against these criteria, and highlights its significant regulatory changes to align with international standards.

Defining a Tax Haven

A tax haven is characterized by features that attract foreign capital and business activities through financial advantages. These include low or zero tax rates on foreign-sourced income, appealing to non-residents seeking to reduce tax liabilities. Such jurisdictions may also lack effective information exchange with other tax authorities, hindering efforts to combat tax evasion.

Transparency is another factor, with tax havens sometimes obscuring financial dealings through minimal disclosure requirements for company formation. Historically, a lack of requirements for substantial economic activity was a hallmark, allowing companies to be domiciled for tax benefits without significant local business. The Organisation for Economic Co-operation and Development (OECD) uses these criteria to identify jurisdictions that pose risks to the global tax base.

Mauritius’s Financial Framework

Mauritius has developed its economy into an international financial center, serving as a hub for investment into Africa. The Financial Services Commission (FSC) oversees the regulatory landscape, licensing and supervising non-banking financial services and global business activities. The Bank of Mauritius regulates the banking sector, ensuring stability and adherence to international standards.

The nation offers financial services, including global business companies (GBCs), trusts, and funds. GBCs are entities incorporated in Mauritius that primarily conduct business outside the country. These companies are subject to a 15% corporate income tax rate. A partial exemption regime introduced in 2019 allows an 80% tax exemption on certain foreign-sourced income, which can reduce the effective tax rate to 3% for qualifying activities. Mauritius also does not levy capital gains tax or withholding tax on dividends paid to non-residents, enhancing its appeal for international investors.

Assessing Mauritius Against Tax Haven Criteria

Assessing Mauritius against tax haven criteria reveals a nuanced picture, reflecting both historical practices and recent reforms. While Mauritius’s corporate tax rate of 15% is not exceptionally low compared to some global standards, the 80% partial exemption on specific foreign-sourced income effectively reduces the tax burden for certain activities to 3%. This low effective rate on foreign income has historically been a characteristic associated with tax haven operations.

Regarding information exchange, Mauritius has made significant strides towards greater transparency. The country has implemented the Common Reporting Standard (CRS), which facilitates the automatic exchange of financial account information with participating jurisdictions to combat tax evasion. This commitment contrasts with the traditional tax haven characteristic of lacking effective information exchange. Mauritius has also engaged with the OECD’s Base Erosion and Profit Shifting (BEPS) project, which aims to curb tax avoidance strategies.

Historically, the ease of company formation and minimal substance requirements were concerns. However, Mauritius has introduced economic substance requirements for companies to qualify for tax benefits, ensuring that businesses must demonstrate genuine economic activity within the country. For Global Business Companies (GBCs) to maintain tax residency and access treaty benefits, they must be managed and controlled from Mauritius, including having at least two resident directors and maintaining their principal bank account and accounting records locally.

Mauritius’s Regulatory Evolution

Mauritius has undertaken substantial regulatory reforms in response to international pressure and evolving global standards for financial transparency and anti-money laundering (AML) and counter-financing of terrorism (CFT) efforts. The country was placed on the Financial Action Task Force (FATF) grey list in February 2020 due to strategic deficiencies in its AML/CFT framework. This listing also led to Mauritius being placed on the European Union’s (EU) list of high-risk countries.

In response, Mauritius addressed these identified deficiencies through legislative and regulatory amendments. The FATF noted that Mauritius had substantially completed its action plan by June 2021, leading to its removal from the grey list in October 2021. The European Commission officially removed Mauritius from its list of high-risk third countries in January 2022, recognizing that all strategic deficiencies had been addressed.

These reforms included enhancing substance requirements for companies and strengthening its framework for information exchange by implementing the Common Reporting Standard (CRS). Its engagement with the OECD’s BEPS Inclusive Framework further demonstrates alignment with international efforts to combat harmful tax practices and improve tax transparency.