Statement of Practice - Trusts and Foundations in Mauritius
The Mauritius Revenue Authority has now released its Statement of Practise on the taxation of trusts in Mauritius. Provided that the majority of beneficiaries are not resident in Mauritius then the trust will NOT be liable for tax in Mauritius.
This statement of practice seeks to provide clarification on the application of sections 73A and 116 of the Income Tax Act (ITA) pertaining to Trusts and Foundations in light of the amendments brought to sections 46 and 49A of the ITA by the Finance Act (FA) 2021.
2.1 Trusts and foundations fall within the definition of "company" which is defined in section 2 of the ITA as "a body corporate, other than a local authority, incorporated in Mauritius or elsewhere; and includes a non-resident societe, a cell of a protected cell company, a foundation, a trust or a trustee of a unit trust scheme;".
2.2 Trusts in Mauritius are governed by the Trusts Act and in accordance with section 2 of the ITA, a "trust" means a trust recognised under the laws of Mauritius.
A foundation, on the other hand, has the same meaning as in the Foundations Act.
2.2.1 Parties in a trust
Basically there are 3 main parties involved in a trust namely, settlor, trustee and beneficiary. According to the Trusts Act:
(1) A Settlor means a person who provides trust property or makes a testamentary disposition on trust or to a trust.
(2) A Trustee means a person who holds or has vested in him, or is deemed to hold or have vested in him, property of which he is not the owner in his own right, with a fiduciary obligation to hold, use, deal or dispose of it -
(a) for the benefit of any person (a "beneficiary"), whether or not yet ascertained or in existence;
(b) for any purpose, including a charitable purpose, which is not for the benefit only of the trustee; or
(c) for such benefit as is mentioned in paragraph (a) and also for any such purpose as is mentioned in paragraph (b).
(3) A Beneficiary means a person, whether· natural or corporate, entitled to benefit under a trust, or in whose favour a power to distribute trust property may be exercised.
2.2.2 Qualified number of trustees
As required under the Trusts Act, the number of trustees of a trust shall not exceed four of whom, at least one shall be a qualified trustee. A 'qualified trustee' means a management company or such other person resident in Mauritius as may be authorised by the Financial Services Commission to provide trusteeship services.
2.3 Foundations in Mauritius are governed by the Foundations Act. Following registration with the Registrar of Foundations in Mauritius, a foundation is issued with a Certificate of registration and is thus deemed a body corporate.
2.3.1 Parties in a foundation
Basically there are 3 main parties involved in a foundation namely, founder, executor and beneficiary. According to the Foundations Act:
(1) A Founder / Testator means a person who endows a Foundation with its initial assets and one founder who shall be the testator.
(2) An Executor means a person named in a will, or nominated by the testator, to carry out the directions of the will; and includes, in the case of a foreign will, the executor's duly appointed lawful agent.
(3) A Beneficiary means a person -
(a) who is entitled to benefit under a Foundation; or
(b) in whose favour a power to distribute any Foundation property may be exercised.
3.0 Liability to Tax
3.1 As a general rule, the income of Mauritius Trusts and Foundations is subject to income tax at the rate specified in Part IV of the First Schedule to the ITA, that is 15%.
3.2 Prior to FA 2021 where, in an income year, a trust
(i) of which the settlor is a non-resident or holds a Global Business Licence under the Financial Services Act;
(ii) of which all the beneficiaries appointed under the trust are, throughout an income year, non-residents or holds a Global Business Licence under the Financial Services Act;
(iii) which is a purpose trust under the Trusts Act and whose purpose is carried out outside of Mauritius;
it could file a declaration of non-residence with the Director-General within three months after the expiry of the income year and it was exempt from income tax in respect of that year.
3.3 Similarly, prior to FA 2021, a foundation of which
(i) the founder is a non-resident or holds a Global Business Licence under the Financial Services Act; and
(ii) all the beneficiaries appointed under the terms of a charter or a will are, throughout an income year, non-resident or hold a Global Business Licence under the Financial Services Act,
it could deposit a declaration of non-residence for any income year with the Director-General within 3 months from the expiry of the income year and it was exempt from income tax in respect of that year.
4.1 Following the repeal of subsection (3) of section 46 and subsections (2) and (3) of section 49A of the ITA, the above exemption will no longer be available except for trusts and foundations which were set up before 30 June 2021. These entities can avail of the exemption under section 161A (71) and (72) of the ITA. This provision is applicable up to year of assessment 2024/2025. Therefore, trusts and foundations having an income year starting on or after 31 December 2024 will not benefit from this grandfathering provision.
4.2 During the grandfathering period, the grandfathered Trust/Foundation cannot benefit from the exemption in respect of new assets/activities such as intellectual property assets acquired and income from specific assets or projects started after 30 June 2021.
5.0 Trusts and Foundations resident in Mauritius
5.1 The definition of residence is set out in section 73 of the IT A. With regard to Trusts and Foundations, the relevant extract of section 73 is reproduced hereunder:
"73. Definition of residence
(1) For the purposes of this Act, "resident", in respect of an income year, when applied to-
(d) a trust, means a trust-
(i) where the trust is administered in Mauritius and a majority of the trustees are resident in Mauritius; or
(ii) where the sett/or of the trust was resident in Mauritius at the time the instrument creating the trust was executed;
(da) a Foundation, means a Foundation which -
(i) is registered in Mauritius; or
(ii) has its central management and control in Mauritius;"
5.2 Trusts and foundations which are considered to be resident in accordance with the definition of residence set out in section 73 of the IT A will be liable to tax in Mauritius on their worldwide income at the rate specified in Part IV of the First Schedule to the ITA.
6.0 Non-resident Trusts and Foundations
6.1 A company incorporated in Mauritius is non-resident if it is centrally managed and controlled outside Mauritius in accordance with section 73A of the ITA which reads as follows:
'73A. Companies treated as non-resident in Mauritius
(1) Notwithstanding section 73, a company incorporated in Mauritius shall be treated as non-resident if it is centrally managed and controlled outside Mauritius.
(2) A company referred to in subsection (1) shall submit a return of income as required under section 116. '
On the basis that trusts and foundations fall within the definition of 'company' 1n accordance with section 2 of the ITA, they are deemed non-resident if their central management and control takes place outside Mauritius, in line with the provisions of section 73A of the IT A.
Accordingly, it is apposite to define what would constitute 'central management and control' for a trust and a foundation.
6.2 Determination of Central Management and Control
A trust would have its central management and control in Mauritius when:
(i) The trust is administered in Mauritius and a majority of the trustees are resident in Mauritius;
(ii) The settler of the trust was resident in Mauritius at the time the instrument creating the trust was executed or at such time as the settler adds new property to the trust; and
(iii) a majority of the beneficiaries or the class of beneficiaries appointed under the terms of the trust are resident in Mauritius.
A foundation would have its central management and control in Mauritius if:
(i) the founder is resident in Mauritius; and
(ii) a majority of the beneficiaries appointed under the terms of a charter or will are resident in Mauritius.
7.0 Income derived from Mauritius
A Trust or Foundation which, throughout an income year, is non-resident, shall be liable to tax only on its chargeable income attributable to its Mauritian source income at the rate specified in Part IV of the First Schedule to the ITA.
8.0 Exempt Body
A foundation or trust whose exclusive purpose or object is of a charitable nature will be exempt from tax in Mauritius in accordance with Item 1 of Part I of the Second Schedule to the ITA.
9.0 Partial Exemption
Any foundation or trust may claim partial exemption on such categories of income specified under Sub Part 8 and Sub Part C of the Second Schedule to the ITA subject to satisfying the conditions prescribed relating to substance of their activities.
10. Annual Return of Income
Any foundation and trust shall in accordance with section 116 of the ITA submit an annual return of income.
Director-General, Mauritius Revenue Authority, 24 August 2021