Moore Stephens Raises Concern Over Double Tax Agreement Between South Africa And Mauritius

The revised double tax agreement between South Africa and Mauritius has raised concerns that investment in Africa through Mauritius will take a heavy knock.

The tax treaty, which has been in place between South Africa and Mauritius since 1997, has been altered considerably and could lead to investors being subject to tax in both countries.

“We're still hoping we can keep the treaty as it is, as it has worked perfectly well in the past. We're worried that South Africans won't use Mauritius to expand offshore. This could harm Mauritius,” says Managing Partner of Moore Stephens Mauritius, Arvin Rogbeer.

Under the new treaty which was signed on May 27, SARS and the Mauritian authorities have to reach agreement on whether a dual resident company should be taxed only in Mauritius or only in South Africa.

“If no agreement is reached between Mauritius and South Africa, the treaty will be null and void, and the company, as a dual resident, will be subject to tax in both South Africa and Mauritius,” explains Olivier Barbeau, director at accounting and consulting firm, Moore Stephens South Africa.

He says this could seriously affect South African investors who use Mauritius as a means of investing in other countries in Africa, with which Mauritius has treaties.

Similarly, international investors from other countries that have tax treaties with Mauritius have used the Mauritian jurisdiction to invest in South Africa.

The new treaty is still to be approved by Parliament and needs to be ratified by Mauritius. It's expected to take effect as from 1 January 2015.

Mauritius has been a popular location for international investors.

“One of the main reasons is the favourable tax condition prevailing in Mauritius, including a vast array of treaties with various countries avoiding double taxation; the absence of capital gains tax, a low effective company tax rate and no withholding taxes on interest, dividends and royalties,” says Barbeau.

He says the new treaty could lead to a Mauritian incorporated company finding itself no longer a tax resident of Mauritius, but a tax resident of South Africa, should Mauritius and South Africa agree upon this.

“This might transpire despite the fact that the company may have attempted to arrange its affairs in such a way that its place of effective management is in Mauritius. The treaty is silent on what principles will be applied by the two countries in coming to such an agreement.”

Barbeau adds that the administrative process involved in reaching such an agreement is also not spelt out, as well as whether companies will be allowed to make representations.

“It seems at least one reason for South Africa entering into the new treaty is to steer away investment in Africa via Mauritius, and to redirect it to South Africa. This would encourage international investors to establish South Africa for their company headquarters.

“SARS and National Treasury would favour South Africa as the base for international investment in other African countries. It remains to be seen whether their efforts will have the desired consequences,” says Barbeau.

PREPARED BY KIM CLOETE ([email protected]) ON BEHALF OF MOORE STEPHENS SOUTH AFRICA

About Moore Stephens

Moore Stephens South Africa has been operating since 2003 and is part of the Moore Stephens International Network (MSI), one of the world's major accounting and consulting networks with 299 independent firms and 624 offices in 101 countries.

Ranked 11th in South Africa and 12th internationally by the International Accounting Bulletin, the firm is fast-growing with a modern, innovative and dynamic approach to the profession.