Mauritius: Taxation of interest from collective investment scheme/ Closed-end fund

Mauritius is increasingly popular as a platform for Fund Managers to structure investment funds, including Collective Investment Scheme(“CIS”) and Closed-End Fund (“CEF”) vehicles, targeting Africa and Asia.  Nonetheless, the Fund structures have traditionally been skewed towards equity investments while the use of Mauritius for structuring Debt Funds has remained fairly low. With public and private debt levels soaring across the globe, Mauritius has implemented legislations, through the Finance Act 2023, to give an impetus to the Debt Fund offering within its International Financial Centre.

The Securities Act 2005 has been amended to provide for CIS and CEF to be explicitly authorised to invest in “money market instruments or debt instruments including loans, debt obligations or similar instruments”.  This extension explicitly broadens the investment horizon of CIS and CEF to cater for debt funds and is welcome by industry players as it brings Mauritius at par with most sophisticated financial centres from a regulatory perspective.

In addition, in order to render Debt Funds more attractive from a tax perspective, the Income Tax Act 1995 has also been amended.  While the standard tax rate applicable to a CIS or CEF on its chargeable income is 15%, with the amendments brought to the Finance Act 2023, a CIS or CEF earning interest income may claim either:

• An exemption of 95% of the interest income earned, subject to satisfaction of prescribed economic substance requirements; or

• credit for actual tax suffered on the interest income,

whichever was more beneficial.

The application of the 95% exemption leads to an effective tax rate of 0.75% on the interest income earned by a CIS or CEF.

The economic substance conditions, which mirror the requirements under OECD BEPS Action Plan 5, require that the CIS or CEF:

• carries out its core income generating activities in Mauritius;

• employs, directly or indirectly, an adequate number of suitably qualified persons to conduct its core income generating activities; and

• incurs a minimum expenditure proportionate to its level of activities.

The core income generating activities to be carried out in Mauritius with respect to a CIS or CEF is defined in the legislation as follows:

If you wish to discuss these topics, please contact:

 WTS Tax Consulting (Mauritius) Ltd