Newsletter 2009 Qtr 3

Transcription

1 Newsletter 2009 Qtr 3 To our Clients and Friends, We are pleased to forward to you the third issue of our complimentary Newsletter for 2009, which primarily provides our readers information on developments and updates impacting the Global Business Sector in Mauritius. Mauritius News AAA now operating from new offices AAA is pleased to announce that, with effect from 29 May 2009, it has moved to 1 st Floor, The Exchange, 18 Cybercity, Ebene. Also named as the HSBC Centre, the building is in the heart of the new financial district and is a stone throw away to several major international banks, the Financial Services Commission and various other service providers involved in the Global Business sector. FSC 2009 Statistical Bulletin According to the latest figures released by the Financial Services Commission, the number of licensed entities operating in the Global Business sector has increased despite the global economic slowdown.

2 The 2009 Statistical Bulletin shows that the number of GBC1 and GBC2 has increased by 21 % and 9 % respectively during the year Also, 163 new Collective Investment Schemes and Closed End Funds were licensed during that year. NEW INCORPORATIONS IN 2008 Licensed Entities 31 Dec Dec 2007 New Entities in 2008 GBC1 10,031 8,283 1,748 GBC2 22,908 20,999 1,909 CIS and Closed End Funds GBC1s, CIS and closed-end funds have been popular amongst a wide spectrum of the international business community and this is reflected in the following analysis by sector: ACTIVITIES BY SECTOR No SECTOR INVESTMENT HOLDING CIS CLOSED-END FUNDS 1 ICT 24% 9% 9% 2 Energy 5% 5% 3% 3 Financial Services/Business 14% 16% 2% Activities 4 Real Estate 7% 0% 1% 5 Transportation 7% 10% 13% 6 Manufacturing 1% 3% 1% 7 Printing 1% 1% 2% 8 Hospitality and Entertainment 1% 1% 0% 9 Health Care 1% 8% 1% 10 Engineering 0% 3% 1% 11 Mining 3% 2% 1% 12 Food and Agriculture 3% 2% 1% 13 Others 28% 25% 65% 14 Telecommunication 2% 12% 0% 15 Construction 3% 3% 0% Total 100% 100% 100% EIU s Political Instability Index and Vulnerability The Economist Intelligence Unit ( EIU ) has ranked Mauritius among the 7 countries with the lowest risk of facing a social crisis due to the impact of the global recession. In March 2009, EIU published a Political Instability Index and Vulnerability to social and political unrest. Norway is ranked first with a vulnerability factor of 1.2 on a scale of 0 to 10. With a factor of 3.5, Mauritius is ranked 7 th out of the 165 countries surveyed.

3 Islamic Banking in Mauritius Islamic banking products are now available in the Mauritius market. Current Accounts and Term Investment Accounts have been officially launched by financial institutions based in Mauritius. These products which are Shariah compliant are being offered to investors operating in the Global Business sector only. The global Islamic financial market is growing at a fast rate and the introduction of Islamic banking in Mauritius will offer opportunities to global clients especially those from the Middle East investing into India, China and Africa. International Conference An international conference spearheaded by the Board of Investment, will be held in Mauritius for a week from 28 September to 3 October The conference will cover different sectors including financial services, Business Process Outsourcing, Internet and Data Hosting. Local service providers in the Global Business sector will be given an opportunity to discuss matters and projects in the financial arena with international participants. Mauritian financial institutions offer alternative access route to Indian Securities Market Access to securities market in India is possible through Sub Accounts of Foreign Institutional Investors ( FII ). Portfolio investment in India is restricted to FII and Sub Accounts of registered FII. A growing number of financial institutions, registered in Mauritius and licensed as FII with The Securities and Exchanges Board of India ( SEBI ), are offering the opportunity to investors including Collective Investment Schemes incorporated in Mauritius, to be registered as Sub Accounts of the FII. As Sub Accounts of the FII, any CIS holding a Category 1 Global Business Licence will avail of the double tax treaty advantages between India and Mauritius. Insolvency Act 2009 A new Insolvency Act has received the Parliament Assent on the 8 May Prior to that, the statutory framework dealing with insolvency in Mauritius was scattered among various pieces of legislations: (1) Winding up, receivership and liquidation of companies were dealt with in the Companies Act The parts relating to these processes were not repealed by the Companies Act (2) Individual insolvencies were dealt with in two separate statutes namely the Bankruptcy Ordinance of 1888 and the Insolvency Act of The Insolvency Act of 1982 which is essentially the Insolvency Ordinance of 1856 dealt with the insolvency of individual non-traders while the Bankruptcy Ordinance of 1888 dealt with the insolvency of individual traders.

4 (3) Part of the individual insolvency was dealt with in the Code Civil Mauricien. The new Insolvency Act provides for procedures that permit quick and easy access to the process of rehabilitation, providing sufficient protection for all those involved, giving a structure that permits the negotiation of a commercial plan, enabling the majority of creditors in favour of the plan or other course of action to bind all other creditors by the democratic exercise of voting rights and ensuring judicial and other supervision so that the process is not subject to manipulation or abuse. The Insolvency Act 2009 provides procedures for two important alternatives to winding up, namely (i) workouts and (ii) voluntary administration. The Act addresses the issues which arise from cross-border insolvency, that is, in the case of an individual or company insolvency, assets that may be held in more than one jurisdiction as well as creditors that may also be located in a number of countries. Another crucial coverage of the Act is the introduction of a new set of statutory provisions dealing with netting arrangements in financial contracts. Finance Act 2009 The Deputy Prime Minister and Minister of Finance delivered to Parliament on 22 May 2009 his budget speech for the six months to December After parliamentary debates for over two weeks, the Finance Bill will most probably be presented to the National Assembly in the first half of July The Finance Act, which is expected to be passed shortly after presentation of the Bill will thus give legal effect to measures announced in the Budget. A summary of the Budget was circulated by AAA on the 23 May Introduction of Advance Payment System (APS) Phase II Advance Payment System was first introduced in July 2008 and was applicable to companies with a turnover of more than MUR 100 million. With effect from 1 July 2009, all companies will be subject to Advance Payment System, whereby quarterly APS Statements will be required to be filed with the Mauritius Revenue Authority and tax paid accordingly. The APS quarter of a company depends on its accounting year and is given in the table below: Quarter First Second Third Income for period 3 months commencing on the first day of the accounting year 3 months immediately following end of first quarter 3 months immediately following end of second quarter The APS statements and payment of tax must reach the office of the Mauritius Revenue Authority within three months from the end of the quarter to which it relates.

5 Our readers are reminded that there are two methods of computing chargeable income under APS: Method A: Chargeable income is deemed to be 25 % of the chargeable income of the company for the accounting year ending on a date immediately preceding that quarter. Method B: The chargeable income is the difference between the gross income and the allowable deductions for that quarter including any loss brought forward from the previous quarter or the accounting year preceding that quarter. In addition to the APS, a company must file an annual return with the Mauritius Revenue Authority within six months from the end of its accounting year. Any tax underpaid/overpaid under APS, will thus be taken care of upon the filing of the annual return. International News China Tax Update For foreign investors investing into Chinese domestic entities through the Qualified Financial Investment Institution program ( QFII ), dividends, bonuses and interest paid by Chinese domestic entities are subjected to 10% withholding tax in China. According to the new China Enterprise Income Tax Act and recent circular of GuoShuHan2009 No. 47, the Chinese domestic company shall pay the withholding tax amount before remitting funds. Based on the GuoShuHan (2009) No.81, the China State Administration of Taxation ( SAT ) clearly stated the qualifications for entitlements to the benefits from double tax agreements ( DTA ) with China. Four important points are listed below: (1) If the withholding tax ( WHT ) in the relevant DTA is higher than the current China tax rate (10%) on dividends, then the 10% shall apply. (2) One must maintain the existing status of the entity for a minimum of 12 months before migrating to a jurisdiction or upgrading the qualification within the same jurisdiction to access better DTA rates. (3) If accessing DTA preferential arrangement on dividends is the only reason for a transaction of investment structure, then the China tax authority has the right to adjust WHT rate. (4) A local tax certificate must be provided.

6 Transfer of shares of an Indian Company Transfer of shares of an Indian company must be in accordance with the procedural requirements set out under the Companies Act, In addition to compliance under Companies Act, regulations under the Foreign Exchange Management, Act 1999 relating to pricing guidelines and related issues may need to be considered as well. Also, unlike the shares of a public company that are freely transferable, in case of private companies the transfer of shares is restricted and subject to the provisions provided in the Articles of Association of the company and the approval of the board of directors. A company cannot register a transfer of shares unless the share certificate is accompanied by a duly stamped and executed share transfer form. These share transfer forms are not available online and thus originals have to be procured from the Registrar of Companies (RoC) in India. The validity period of the share transfer forms is six months from the date of the issue of the share transfer form. In case of transfers executed outside India, it is important to factor in the time that may be required to avail of these forms for completion and filing. Share transfer forms must be duly executed and stamped. Details on the form would include total consideration, distinctive numbers, share certificate numbers and particulars and signatures of transferors, transferees and witnesses. Stamps of the correct amount must be affixed on the transfer form. The current rate of stamp duty is 0.25% of the total consideration of the shares stipulated in the transfer instrument. Normally the transferee lodges the shares for transfer with the company as it is in his own interest to ensure that the transfer is registered. A share transfer is complete when the transferor hands over to the transferee duly stamped and executed share transfer forms and the company, duly registers the transfer in the register of members. (Source: ALMT Legal, India) Investment in India: Round-tripping issue The Indian Central Board of Direct Taxes is investigating ways of acting against roundtripping. Various jurisdictions have been targeted and the Indian government is looking into ways to prevent abuse of tax treaties. Mauritius has adopted many measures to control the round-tripping practice. Service providers in Mauritius have to confirm with the Financial Services Commission, on application for a Global Business Licence that no round-tripping is involved. Companies need to comply with the conditions of the licence and the regulator is provided with means to constantly control and monitor the licensee s adherence to laws and regulations. Mauritius, which has been classified on the White List of OECD last April, is committed to eradicate mal practices and ensure best practice. The Financial Services Act 2007 incorporates the conditions for tax residency. Renewal of the Tax Residence Certificate on a yearly basis means that the regulator is able to ensure ongoing compliance with laws, regulations and licensing conditions.

7 Tax Ruling Tax Sparing Credit under DTA A limited partnership (P) formed in Cayman Islands, proposes to incorporate a subsidiary in Mauritius (S) which will hold a Global Business Category 1 Licence. S will make an investment of 49% in the share capital of an Indian company which would be engaged in the business of development of a Special Economic Zone (SEZ) in India, under the Special Economic Zones Act. Section 80-IAB of the Indian Income Tax Act 1961 allows a deduction in respect of profits and gains derived from development of a SEZ. Additionally, Section 115-O of the said Act grants an exemption to undertakings engaged in the development of a SEZ from dividend distribution tax % on distribution of dividends. Points in issue Whether, in relation to the profits and gains derived by the Indian company from its business of developing a Special Economic Zone in India, S is eligible for a tax sparing credit under Regulation 9 (1) of the Income Tax (Foreign Tax Credit) Regulations 1996 in respect of Indian profits tax which would otherwise have been payable but for the exemption effectively given as a result of the enactment of Section 80-IAB and Section 115-O of the Indian Income Tax Act. Rulings Regulation 9 (1) of the Income Tax (Foreign Tax Credit) Regulations 1996 of the Income Tax Act 1995 provides that, where the Director-General is satisfied that provisions have been introduced in the law of a foreign country with a view to promoting industrial, commercial, scientific, educational or other development in that country and that under those provisions income has been exempted from tax which would otherwise have been chargeable to foreign tax, "he shall allow a credit for the amount of foreign tax which would have been chargeable had those provisions not been enacted." A similar tax sparing clause has been provided in the Mauritius-India tax treaty. Section 80-IAB of the Indian Income Tax Act does not satisfy the above conditions since no relief is provided either by exemption of income or by reduction in the amount of income tax payable. However, Section 115-O provides for an exemption of tax on distributed profits derived by enterprises operating in a SEZ. In accordance with the provisions of Section 115-O of the Indian Income Tax Act 1961 S will be eligible for a tax sparing credit in respect of the dividend distribution tax which would otherwise have been payable. The tax sparing credit, however, will be limited to and in the proportion of the share of interest of S in the Indian company. (Source: Mauritius Revenue Authority)

8 Contact Us If you have any questions about the newsletter or the Mauritius Income Tax, or if you would like to discuss its implications and planning opportunities, please contact us. AAA Global Services Ltd 1 st Floor, The Exchange 18 Cybercity, Ebene Mauritius Tel: Fax: headoffice@aaa.com.mu Disclaimer This newsletter is a copyright of AAA Global Services Ltd. No reader should act on the basis of any statement contained herein without seeking professional advice. AAA Global Services Ltd and its officers expressly disclaim all and any liability to any person who has read this newsletter, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this newsletter.