CONTINUEThis site uses cookies. By continuing to browse this site you are agreeing to our use of cookies. Find out more.
  1. Front Page
  2. News By Topic
  3. Mauritius Tightens Residence Rules For Double Tax Treaties

Mauritius Tightens Residence Rules For Double Tax Treaties

by Lorys Charalambous, for, Cyprus

12 October 2006

In an attempt to head off pressure from India to change the countries' Double Tax Avoidance Agreement, the Mauritius government has announced that it will tighten up rules on the issuance of Tax Residence Certificates, and in future will issue them for only one year at a time.

The move by the Mauritius authorities is also linked to the recent signing of a Protocol to the China-Mauritius DTAA. The Protocol amends the Capital Gains and Exchange of Information Articles of the DTAA, making harder for Mauritius based companies investing in China to get capital-gains tax exemption. It will come into force after both countries have completed the necessary internal legal procedures and notified each other of its completion.

Mauritiust Minister of Finance, Rama Sithanen Mauritius said earlier in the month that he was willing to co-operate with India to prevent misuse of the treaty. "Let me state very clearly that we will collaborate to prevent any alleged misuse of the treaty," said Mr Sithanen, at a news conference on a trip to New Delhi. "But keeping in view historical, cultural, political and diplomatic ties between the two countries we need a global solution that will not penalise Mauritius." He claimed that: "The problem of roundtripping has been eliminated completely."

In September, an Indian government official said: “We are proposing to bring the DTAA with Mauritius on a par with the DTAA with Singapore. The DTAA with Singapore had included additional clauses to check round-tripping of investments.”

The Indian tax authorities have believed for years that Indian investors 'round-trip' through Mauritius in order to escape capital gains tax on stock market investments. But their attempts to re-interpret the treaty through the courts have largely failed.

The new proposals are said to include a rule that only companies listed on a recognised stock exchange be eligible for capital gains tax exemption under the treaty, and that a company should have a total expenditure of $200,000 or more on operations in the residence state (ie Mauritius) for at least two years prior to the date on which a capital gain arises. Under the treaty as it stands, there is a very basic residence requirement. These provisions would match those included in the India/Singapore treaty.

Reserve Bank of India figures for FDI in 2004-2005 show Mauritius as the lead external investor into India. Mauritius accounted for US$820m out of a total US$2,320 in FDI. Singapore trails far behind Mauritius, but is hoping that its new economic co-operation agreements with India will help to redress the balance. Indian ministers have however consistently reassured Mauritius that the island is not threatened by India's growing links with Singapore.

Although discussions between India and Singapore over their 'CECA' (Comprehensive Economic Cooperation Agreement) seem to have led to some weakening of the anti-avoidance provisions included in their treaty, India has suggested in return a US$5 billion cap on investments from Singapore.

"We have suggested that investment could be capped at around $5 billion in return for relaxing the tax treaty. The intention is to monitor inflows and check round-tripping," said a commerce ministry official.

To see today's news, click here.


Tax-News Reviews

Cyprus Review

A review and forecast of Cyprus's international business, legal and investment climate.

Visit Cyprus Review »

Malta Review

A review and forecast of Malta's international business, legal and investment climate.

Visit Malta Review »

Jersey Review

A review and forecast of Jersey's international business, legal and investment climate.

Visit Jersey Review »

Budget Review

A review of the latest budget news and government financial statements from around the world.

Visit Budget Review »

Stay Updated

Please enter your email address to join the mailing list. View previous newsletters.

By subscribing to our newsletter service, you agree to our Terms and Conditions and Privacy Policy.

To manage your mailing list preferences, please click here »