06/04/2021
END OF THE GRANDFATHERING ERA - WHAT NEXT?
As one may recall, the global business sector was
subject to major reforms in the year 2018, which in
fact, ensued the OECD/G20 BEPS Project. This
project initiative transcended jurisdictional borders
and in e ect, entailed a series of changes to the
legal and fiscal regime of many countries, including
Mauritius.
Prior to the change, a company proposing to carry
its business outside of Mauritius could apply for a
Category 1 Global Business Licence (GBC 1 licence)
or a Category 2 Global Business Licence (GBC 2
licence), as the case applies. A company with GBC 1
licence, being resident in Mauritius, was taxed at the
headline rate of 15% on its chargeable income and
was entitled to a deemed foreign tax credit (DFTC)
of 80%, which resulted into an e ective maximum
tax rate of 3%. On the other hand, a company with
GBC 2 licence, though resident in Mauritius by virtue
of its incorporation was exempt from corporate tax
in Mauritius.
Further to the enactment of the Finance Act 2018, a
new global business framework was introduced and
the GBC 1 and GBC 2 licences were abolished. The
new framework provided for a single licence which
was referred as Global Business Licence (GBL) and
could be sought by a Global Business Corporation,
and an authorization which could be sought by an
Authorised Company. However, in order to ensure a
smooth transition to the new regime, companies
holding the GBC licences issued before 16 October
2017, were grandfathered till June 2021. It meant that
no changes were required to such structures until the
end of the grandfathering period. On the other hand,
companies holding the GBC Licences issued after 16
October 2017, could operate with the same licence up
to 31 December 2018. A GBC 1 licence which was valid
on 31 December 2018 was deemed, after that date, to
be a Global Business Licence. In contrast, the GBC 2
Licence was lapsed on 31 December 2018 and holders
of such licence had to take the relevant action.
A company holding the GBC 1 licence which is
grandfathered and is valid on 30 June 2021 shall,
after that date, be deemed to be holding a Global
Business Licence and shall be referred as a Global
Business Corporation. On the contrary, a company
holding the GBC 2 licence which is grandfathered and
is valid on 30 June 2021 shall, after that date, lapse,
but the holder shall continue to –
(i) comply with such terms and conditions as the
Financial Services Commission (FSC) may
determine;
(ii) remain subject to the obligations of a licensee;
and
(iii) comply with the directions of the FSC for the
orderly dissolution of the business and the
discharge of its liabilities.
The changes to the fiscal regime resulted in the
elimination of the DFTC and the introduction of a
new tax credit system known as the Partial
Exemption Regime (PER). It entitles a tax payer to
benefit from an exemption of 80% on certain
specified income, however, subject to compliance
with substance requirements. The reform was
blessed by the OECD which confirmed in its report on
Peer Review Results regarding assessment on
harmful tax practices of preferential regimes in
various jurisdiction, including Mauritius, that the
country met all the requirements of BEPS Action 5
and that it did not have any harmful tax practices in
its regime.
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