For any individual or company considering investing or conducting cross-border activities, the issue of income taxation in multiple countries is paramount. The risk of “double taxation” — i.e., being taxed twice in two jurisdictions on the same income — can become a major obstacle to the decision to invest. As an attractive international jurisdiction, the Republic of Mauritius has established a network of double taxation avoidance agreements (DTAAs) aimed at securing flows between Mauritius and other countries.
1. What is a double taxation agreement?
A double taxation agreement is a bilateral treaty between two countries that aims to prevent the same person or company from being taxed twice on the same income in both countries. These treaties specify the types of taxes covered, the status of residents, and the mechanisms for eliminating double taxation (tax credits, exemptions, withholding taxes). They also often include clauses to prevent tax evasion or treaty abuse.
In the case of Mauritius: the jurisdiction has signed numerous agreements (between 44 and 46, depending on the source).
2. How does this mechanism work in Mauritius?
For investors or tax residents in Mauritius or a partner country, the agreement provides certainty regarding cross-border taxation. In Mauritius, the main points are as follows:
- A network of agreements in force: 46 double taxation treaties have currently been signed, some of which are still awaiting ratification.
- In the absence of a treaty, Mauritius applies a unilateral method of eliminating double taxation, generally in the form of a tax credit limited to the local tax due on the same income.
- The entry into force of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI) on February 1, 2020, amended several existing conventions. In particular, this mechanism introduces the “principal purpose” (PPT) anti-abuse clause, which allows treaty benefits to be denied in cases of artificial arrangements.
- Mauritius applies a default corporate tax rate of 15%, with an exemption on most capital gains realized by residents.
In practical terms, if a Mauritian resident receives income from a partner country, the agreement may provide for a reduced withholding tax in that country or allow a tax credit in Mauritius. Conversely, a foreign resident receiving income from a Mauritian source may, depending on the applicable agreement, benefit from limited taxation or exemption. Each situation must be examined on a case-by-case basis according to the specific provisions of the relevant treaty.
3. What are the specific tax benefits for residents or investors?
The existence of an agreement between Mauritius and a partner country offers several benefits:
- Reduction of withholding taxes on dividends, interest, or royalties in the source country, if provided for in the treaty. For example, for a Mauritian resident using an applicable treaty, a partner country could impose a reduced rate.
- Legal certainty: the agreement provides a written and negotiated framework for cross-border taxation, which is reassuring for investors.
- Tax credit or exemption in the state of residence to prevent income from being taxed twice on the same basis.
- Mitigation of the risks of excessive taxation or tax surprises in the case of international activities (investments, transfers, expatriation, etc.)
List of key countries with an active agreement with Mauritius
Here are some illustrative examples (to be discussed in detail in the country articles):
- France
- Belgium
- Luxembourg
- Switzerland
For each one, readers can consult a dedicated article detailing the agreement, applicable rates, and specific conditions.
4. The absence of an agreement with Switzerland: what are the implications?
It should be noted that Mauritius currently has no clear agreement in force with Switzerland. This means that cross-border income may be subject to taxation in both countries, with no specific bilateral mechanism to avoid double taxation. It will therefore be necessary to rely solely on the internal tax rules of each country or to consider other appropriate structures. This situation represents a higher tax risk and requires increased vigilance.
Tax residency rules, MLI, and anti-abuse precautions
Since the MLI came into force for Mauritius, existing agreements have been amended to include anti-abuse provisions. For example:
- The principal purpose test (PPT): a conventional benefit may be denied if one of the main reasons for the transaction was to obtain a tax benefit.
- Tax residence: to benefit from a treaty, you must be a resident of one of the contracting states. Status must be verified: incorporation, control, domicile, etc.
- Permanent establishment (PE): in the case of activity in the source country, taxation may differ if the company has a permanent establishment there.
- Precautions for investors: it is essential to verify that the income is covered by the treaty and that all conditions are met (beneficial owner, economic substance requirements, etc.). Failure to comply with these conditions may result in the rejection of the treaty benefits.
The MLI (Multilateral Instrument) is an international treaty developed by the OECD as part of the BEPS (Base Erosion and Profit Shifting) project.
Its purpose is to quickly and simultaneously amend existing bilateral tax treaties between countries in order to incorporate anti-abuse and transparency clauses without having to renegotiate each treaty individually.
5. Understanding the impact of the MLI on Mauritius’ tax treaties
The MLI (Multilateral Instrument) is an international treaty established by the OECD as part of the BEPS (Base Erosion and Profit Shifting) project. Its aim is to quickly and simultaneously amend existing bilateral tax treaties between countries in order to incorporate clauses to combat tax abuse and increase transparency, without the need to renegotiate each treaty individually.
Prior to the MLI, any new anti-avoidance rule had to be inserted into a bilateral treaty through a complete renegotiation between the two States concerned. Since its adoption, Mauritius has automatically updated its existing treaties with signatory countries to include enhanced protections against tax avoidance.
The MLI introduced several important provisions:
The Principal Purpose Test (PPT): if the main purpose of a structure or transaction is to obtain a tax benefit provided for in the treaty, that benefit may be denied. In other words, if the economic rationale for the transaction is not credible, it may be considered an artificial arrangement by the tax authorities.
Prevention of double non-taxation: some older agreements allowed taxpayers to avoid taxation in both the source country and their country of residence. The MLI corrects this loophole to ensure that income is effectively taxed at least once.
Improved dispute resolution mechanisms: the MLI introduces an arbitration procedure between tax administrations to resolve cases of protracted double taxation.
Redefining permanent establishment: the concept of permanent establishment has been broadened to include structures used to artificially avoid taxation in a country, even in the absence of a physical presence.
Mauritius signed the MLI in 2017, and it came into force in 2023 for most of its tax treaties. This applies in particular to treaties with countries such as France, Luxembourg, the United Kingdom, and India. As a result, investors must now be able to demonstrate real economic substance in Mauritius—including an effective headquarters, local staff, and operational activity—if they wish to continue to benefit from the advantages provided by tax treaties.
Conclusion
The Republic of Mauritius has established a robust and structured international tax framework, based on an extensive network of double taxation agreements and the integration of the latest standards in transparency and the fight against treaty abuse. Whether you are a resident, investor, or entrepreneur, these agreements help secure cross-border flows, avoid the risk of double taxation, and legally optimize your international tax situation.
However, these benefits are never automatic. They require a rigorous analysis of each applicable treaty, strict compliance with residency and substance requirements, and increased vigilance since the MLI came into force. International taxation has become more demanding and more regulated, but also more predictable for those who understand the rules.
In this context, fully understanding the mechanisms of these agreements, anticipating risks, and methodically structuring operations is an essential strategic lever for any individual or professional with interests in Mauritius.
FAQ
Here are six frequently asked questions:
What is double taxation and how can a treaty prevent it?
Double taxation occurs when the same income is taxed both in the source country and in the country of residence. A treaty prevents this by dividing the taxing rights between the two countries and providing for mechanisms such as reductions, exemptions, or tax credits.How do I know if an agreement applies to my situation?
It is necessary to check whether Mauritius has signed an agreement with the country concerned, then examine the tax residency criteria, the type of income received, and the specific conditions provided for in the treaty.What types of income are generally covered by an agreement?
The agreements primarily cover dividends, interest, royalties, salaries, pensions, real estate income, and corporate profits. They specify who can tax what, and within what limits.What happens when there is no agreement between two countries?
In the absence of an agreement, each country applies its own tax rules. This can lead to double taxation, unless one of the two countries provides for a unilateral elimination mechanism, such as a tax credit.What are the risks if I do not comply with the residency or substance requirements?
Failure to meet tax residency criteria or lack of real economic substance (e.g., headquarters, activity, staff) may result in the loss of treaty benefits and exposure to tax adjustments.Why is the MLI changing the agreements, and what does this mean for me?
The MLI strengthens existing conventions by incorporating anti-abuse clauses. This means that only structures with a clear economic justification can continue to benefit from the tax advantages provided.
To secure your cross-border investments and take full advantage of tax treaties, please do not hesitate to contact us for personalized support.
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