The new tax treaty between South Africa and Mauritius will be seen as a step in the right direction and will reaffirm the Mauritius positioning as a financial center of choice for the African continent, according to Abax Corporate Services.

Following the signing of a revised double-tax treaty between South Africa and Mauritius in 2013, a Memorandum of Understanding (MoU) was finalized recently between the authorities of the two countries to bring more clarity to the controversial issue of residence.

The MoU is designed to give some insight into the process that will be adopted by the fiscal authorities of the two countries when assessing the tax residence of a ‘person’.

International investors including South African businesses already use Mauritius as their base for their growth on the continent, but the proposed mutual agreement procedure will have to consider the OECD’s BEPS (Base Erosion Profit Shifting) initiative concerning taxes.

The MoU now signed by the two countries helps by stating the factors that would be used by the authorities in determining where the ‘person’ is fiscally resident, and thus which country has the first taxing rights.

However, the proposed mutual agreement procedure has created uncertainty and concern for international investors and businesses already using Mauritius as their base for their growth into South Africa and elsewhere on the continent, as well as for South African businesses, which have already chosen to base their international expansion in the island’s financial center.

Richard Arlove, ABAX CEO, said that the new treaty as a whole is favorable to inbound investors in South Africa while South African enterprises using the Mauritius jurisdiction for their international expansion will find it a little more onerous to satisfy.

“The MoU brings more certainty to South African companies that wish to use the Mauritius financial center to do business in Africa and globally. And given the business-friendly environment in Mauritius, they enjoy a significant cost advantage for their international business, coupled with financial and treasury facilities that are essential for their growth strategy,” he said.

Arlove said these changes are in line with global trends and with the redefined requirements of the Mauritius financial center as a jurisdiction of substance.

“The treaty brings additional reasons for South African enterprises to separate their international operations from their domestic ones and to set up their regional /international headquarters in Mauritius to fully benefit from all the advantages the island’s financial center has to offer in terms of business facilitation,” he said.