Mauritius has strategically structured its network of double taxation avoidance treaties (DTTs) based on the OECD Model Treaty of 1977, ensuring alignment with international tax standards and practices. This approach provides consistency and clarity in tax obligations for investors and entities engaged in cross-border transactions with Mauritius.

Key Features of Mauritian DTTs

1. OECD Model Treaty Basis:

  • By adhering closely to the OECD Model Treaty, Mauritius ensures that its DTTs are in line with globally accepted tax norms. This alignment provides a reliable framework for addressing double taxation and fostering international economic cooperation.

2. Tax Sparing Provisions:

  • One of the standout features of Mauritian DTTs is the inclusion of tax sparing provisions, particularly beneficial in treaties ratified post-independence. These provisions allow foreign investors to benefit from tax exemptions or reduced tax rates on income derived from Mauritian sources, especially dividends.
  • Under tax sparing provisions, when Mauritian-source dividends are exempt from taxation in Mauritius due to specific tax incentives, foreign investors are entitled to a notional credit for the amount of tax that would have been payable if the exemption had not been applied. This notional credit can then be applied to reduce the investor’s domestic tax liability in their home country.

Benefits of Tax Sparing

1. Full Benefit of Tax Incentives:

  • Tax sparing ensures that foreign investors receive the full benefit of Mauritian tax incentives. It allows them to credit the notional amount of Mauritian tax against their domestic tax liabilities, effectively lowering their overall tax burden.

2. Encouragement of Foreign Investment:

  • By making Mauritius more attractive to foreign investors through favourable tax treatment, tax sparing provisions encourage the influx of foreign capital. This influx supports economic growth and development in Mauritius.

3. Promotion of International Trade and Investment:

  • The inclusion of tax sparing provisions in DTTs reflects Mauritius’ commitment to promoting international trade and investment. These provisions provide certainty to investors regarding their tax liabilities and enhance the attractiveness of Mauritius as a preferred jurisdiction for structuring investments into emerging markets, especially across Africa and Asia.

Impact as a Global Financial Center

1. Alignment with International Tax Norms:

  • By adhering to the OECD Model Treaty and including tax sparing provisions, Mauritius demonstrates its proactive stance in aligning with international tax norms. This alignment promotes fair and efficient tax practices, benefiting both investors and the Mauritian economy.

2. Enhanced Attractiveness for Investment:

  • The structured approach to DTTs and the inclusion of tax sparing provisions have been instrumental in Mauritius’ emergence as a global financial centre. These measures make Mauritius an appealing hub for investments in sectors such as financial services, real estate, and infrastructure development.

Conclusion

Mauritius’ commitment to aligning its DTTs with the OECD Model Treaty and incorporating tax sparing provisions underscores its dedication to fostering a conducive environment for global business operations. These provisions mitigate double taxation risks, promote transparent and cooperative tax relations with treaty partner countries, and encourage foreign investment. This strategic approach has solidified Mauritius’ reputation as a reliable and attractive jurisdiction for international trade and investment, contributing to its economic growth and development.