The Supreme Court recently provided an interesting interpretation of the application of the remittance rule, as well as the tax residency rule, in a judgment delivered in the now commonly called “Dilloo Case”.
Under the Mauritius tax laws, an individual is tax resident in Mauritius if he (i) spends at least 183 days in an income year in Mauritius, (ii) spends at least 270 days, in aggregate, in an income year and two preceding years in Mauritius, or (iii) has his domicile in Mauritius unless his permanent place of abode is outside Mauritius.
As per the basis of taxation, a resident taxpayer is subject to tax on worldwide income while a non-resident is only subject to tax on income derived from Mauritius. However, as a separate section, the tax laws provide that, with respect to individuals only, income derived from outside Mauritius is only subject to tax on remittance to Mauritius.
In the Dilloo Case, the taxpayer was a Mauritian national employed as Sales Manager in a company based in Saudi Arabia. In view of not having spent the required number of days in Mauritius, he did not file his income tax returns for the assessment years 2016/2017 to 2018/2019. However, during this same period, he transferred his savings to Mauritius, some of which were used to purchase immovable property locally, and subsequently earned rental income.
The taxability of the rental income earned in Mauritius was not disputed. However, the issue at stake was whether (i) the taxpayer was a resident of Mauritius for the relevant assessment years; and (ii) the remittance basis of taxation is applicable to resident individuals only or both resident and non-resident individuals.
It is noteworthy that the Assessment Review Committee (“ARC”), being the lower appellate body to which the taxpayer appealed prior to lodging the case at the Supreme Court, took the view that income remitted to Mauritius is subject to tax irrespective of whether the individual is resident in Mauritius or not. Interestingly, both the taxpayer and the Mauritius Revenue Authority (“MRA”) appealed to the Supreme Court against this interpretation.
The Supreme Court ruled in favour of the MRA, taking the view that:
- It is imperative that an individual be resident in Mauritius for his foreign sourced income remitted to Mauritius to be subject to tax in Mauritius;
- Since the taxpayer did not adduce sufficient evidence to establish he was not resident in Mauritius, he was deemed to be resident on the basis of his permanent place of abode being in Mauritius;
- The fact that “savings” were transferred to Mauritius does not alter the “income nature” of the funds transferred into “capital nature”;
- As a resident, the taxpayer was subject to tax on the income remitted to Mauritius in the year of remittance, the more so that he could not produce sufficient evidence of any tax paid in Saudi Arabia, other than a letter from his employer confirming minimal “expatriate tax” paid; and
- Only a certificate from a foreign tax authority can be used to demonstrate evidence of foreign tax suffered.
If you wish to discuss these topics, please contact:
WTS Tax Consulting (Mauritius) Ltd.
