Double Taxation Agreement Mauritius South Africa

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Apr 09

Double Taxation Agreement Mauritius South Africa

The old tax treaty contained a tax-saving clause, but it was removed from the new treaty. As part of a tax-saving provision, the foreign investor country authorizes the granting of credits for the fictitious taxes that the investment country issues because of a tax incentive or vacation in the country of investment. However, there were concerns that the provision of the old treaty would be used for “double non-taxation.” When a company is considered to be established in the two contracting states, the competent authorities determine the place of residence of the company within the meaning of the treaty by mutual agreement. If the authorities fail to reach a mutual agreement, the company is considered to be outside the scope of the treaty, in addition to the provisions of Article 25 (exchange of information). Both counties use the credit method to eliminate double taxation. A provision is also included for a tax-saving credit in which Mauritius takes into account the tax payable in South Africa as a tax payable elsewhere, but which has been reduced or cancelled by South Africa in order to promote economic development. There will be a new tie-break clause in the treaty to deal with the situation in which a company or other entity appears to reside in both states. It provides that the tax authorities of each state will endeavour to resolve the issue by mutual agreement. South Africa`s Ministry of Finance says the test was proposed to become the accepted test of the Organisation for Economic Co-operation and Development`s (OECD) model contract as part of its BePS (Base Erosion and Profit Shifting, BEPS) initiative. South Africa and Mauritius have signed a Memorandum of Understanding that specifies the factors that the two states will consider in deciding the country of residence. These include the location of board meetings, but also “where the day-to-day management” of the company takes place. Walker stated that Mauritius is generally chosen for a holding company for investment in Africa because it has a wide network of double taxation agreements with African countries, adding that “for Mauritius this could be a public relations disaster in the emergence – regardless of what the real impact of the changes may mean, and even if Mauritius , as a holding company, remains a favourable competence for African investments, which the new contract authorizes interest and royalties, damaging its reputation as a “gateway to Africa”. The profits derived from the disposal of other assets by a resident of a contracting state can only be taxed by that state.

The following capital gains from an internal capital gain recorded by one contracting state can be taxed by the other state: according to a recent communication from Mauritius` Ministry of Finance and Economic Development, the new income tax agreement with South Africa came into force on 28 May 2015. The contract signed on May 17, 2013 replaces the 1996 income tax agreement between the two countries. The old tax treaty has remained silent on the treatment of wealthy companies.