The Finance (Miscellaneous Provisions) Act 2021 has, this month, been passed in Mauritius. The purpose of this Act was to bring into force the provisions the Honourable Minister of Finance made in his Budget Speech on 11th June 2021. But when the Act came out as a Bill late on Friday 16th July it included a provision which was not included in the Budget speech and sent shock waves throughout the trust and company administration business on the Island
The Bill proposed the removal of the non-residence exemption for trusts set up by non-Mauritius residents for non-Mauritius resident beneficiaries, which means these trusts will now be fully taxable in Mauritius as if it were a Mauritius resident entity at 15%.
Mauritius is the jurisdiction of preference for most people living on the African continent. These trusts will now be looking to relocate which could see the collapse of the trust and foundation industry on the Island
Initially the inclusion of this provision into the Bill was seen as an unintentional addition and would be removed before the Bill became law – but the Bill has now made it onto the statute books and the provision to tax the trusts and foundations to full Mauritius taxes is still in the Act.
In general a trust is regarded as resident in Mauritius if
The trust is administered from Mauritius and the majority of the trustees are resident in Mauritius, or
If at the time the trust was created, the settlor was a Mauritian resident
However if the settlor was a non-Mauritian resident and the beneficiaries of the trust are non-resident in Mauritius then the trust would be treated as non-resident in Mauritius if the trust applied for a certificate of non-residence within three months of the income tax year.
The provision to remove the exemption to tax for trusts set up by foreigners for foreigners means that one of the main reasons for setting up a trust in Mauritius will be lost.
Trusts are set up by wealthy people for a number of reasons, but if the settlor lives in a country where the tax system is not sufficiently well developed to tax settlors of foreign trusts in their home jurisdiction – they look for a jurisdiction which recognises trusts and does not tax the wealth in the trust.
Charging wealth in a trust to tax on the settlor or on the beneficiaries is not easy for many high tax jurisdictions. Assets transferred into a trust are not beneficially owned by anyone – which is why they are so useful to avoid tax, provide privacy and keep the assets away from opportunistic creditors.
When a settlor transfers assets into trust, he gives the assets to the trustees so he or she no longer owns the assets. However the trustees do not own the assets either. The assets is held in the name of the trustees but they cannot benefit from the trust assets, neither are the assets on their balance sheet. The trust assets are held by the trustees for the benefit of the beneficiaries – who may or may not benefit in due course.
The only downside of a trust – is that the trustee, although it may not benefit from the trust assets nevertheless has control – and makes the decisions. This is why many wealthy people who are attracted to the benefits of a trust – do not use them because they do not wish to relinquish control.
However it is possible to set up ‘Special Purpose Trustees’ in which the settlor retains control but without losing all the benefits of the trust – which is the GFOS area of expertise.
Many small jurisdictions have introduced a law of trusts and an exemption from local taxes. It is a simple process to move a trust from one jurisdiction to another from Mauritius to Guernsey for example, and trust and company administration organisations with offices in both jurisdictions will offer this service to their clients – see our podcast professional of the week to name but one.
Naturally Mauritius plans to phase in the taxation of existing trusts over time. So for trusts set up before 30 June 2021, they can take advantage of a ‘grandfathering’ provision in which they are allowed to continue to apply for the certificate of non-residence up to the 2024/25 year of assessment.
However for trusts set up after 30th June they cannot apply for the certificate of non-residence and will be chargeable to the Mauritius flat rate of tax which was introduced in 2007 of 15%
Oak Group is a member of Caroline’s Club and has assisted me in writing this newsletter. GFOS has a number of clients who are resident in Africa and it will now advice these clients to take action if they are to avoid the 15% tax charge to be levied on the income in a few years
Caroline’s Club recognises that wealthy people need good advice from a range of private client professionals from estate agents, tax advisers, lawyers, accountants and so on. It’s aim is to connect better private client professionals across the globe in a more meaningful way to build trust with clients and win business
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