27 AUGUST 2021

LEGAL ALERT
STATEMENT OF PRACTICE (SP 24/21)
TRUSTS & FOUNDATIONS

INDUSTRY UPDATE

The Statement of Practice
(SP 24/21) dated 24.08.2021
has been issued by the
Mauritius Revenue Authority
(“MRA”) to clarify the tax
liability of trusts and
foundations following the
amendments brought by the
Finance (Miscellaneous
Provisions) Act 2021
(Finance Act 2021).
As a general principle, Mauritius broadly taxes income based on two criteria:
residence and source. A resident entity is required to pay tax on its
worldwide income subject to certain exemptions and a non-resident entity is
required to pay tax on Mauritian source income.
According to section 73 Income Tax Act 1995 (“ITA”), a trust is treated as a
tax resident in Mauritius if it is administered in Mauritius and the majority of
the trustees are resident in Mauritius. In addition, where the settlor of a trust
was resident in Mauritius at the time the instrument creating the trust was
executed, that trust will again be considered as tax resident in Mauritius.
A foundation is tax resident in Mauritius if it is registered in Mauritius or has
its central management and control (“CMC”) in Mauritius.

Prism Chambers Statement of Practice (SP 24/21) - Trusts & Foundations

Prior to the amendments brought by the Finance Act 2021,
trusts and foundations were entitled to submit a declaration of
non-residence under sections 46(3) and 49A(3) of the ITA if
they satisfied certain conditions.
According to section 46(3) of the ITA, a declaration of non-
residence could be filed by a resident trust on a yearly basis
where the settlor of the trust was not resident in Mauritius or
held a Global Business Licence (“GBL”) and all beneficiaries
were non-resident in Mauritius throughout an income year.
A declaration of non-residence could also be filed if the trust
was a purpose trust and its purpose would be carried out
outside of Mauritius.
A resident foundation of which the founder was a non-
resident or held a GBL and all the beneficiaries were non-
resident could file a declaration of non-residence with the
MRA on a yearly basis as well.
Filing a declaration of non-residence would mean that the
trust or the foundation would be exempt from payment of tax
in Mauritius for the relevant income year.
The Finance Act 2021 amended the ITA with the effect that,
henceforth, trusts and foundations are no longer able to file a
declaration of non-residence for income tax exemption under
sections 46(3) and 49A(3) of the ITA. There is a
grandfathering provision for existing trusts and foundations
up to the year of assessment 2024/2025.
The MRA has explained that this amendment was necessary
from a BEPS perspective. Nonetheless, these amendments
were unexpected (since they were not announced in the
Budget Speech 2021/2022) and unsurprisingly, sent
shockwaves throughout the financial services industry.
The SOP mitigates the inevitable adverse effects of the
amendments on foreign investment and the financial services
industry as a whole.
The starting point must be the residency test applied to any
entity, be it a trust, a foundation or a company as set out in
section 73 of the ITA. Section 73A of the ITA (which was
introduced in 2001) states:
“Notwithstanding section 73, a company incorporated in Mauritius
shall be treated as non-resident if it is centrally managed and
controlled outside Mauritius (CMC)”.
Prism Chambers
The SOP reiterates that trusts and foundations fall within the
definition of “company” under the ITA. Consequently,
section 73A is equally applicable to them.
The SOP then clarifies that, when determining the residency
of a trust or a foundation, the application of the residency test
provided in section 73 does not lead to a conclusive result as
it is subject to the application of section 73A. Therefore, it
follows that if the CMC of the trust or the foundation is
located outside Mauritius, the trust or the foundation will be
considered as “non-resident” entities, irrespective of the
outcome of the residency test under section 73.
The SOP explains the criteria which will be taken into
account to determine the CMC of a trust and a foundation.
The CMC of a trust will be considered in Mauritius if:
1. The trust is administered in Mauritius and a majority of
its trustees are resident in Mauritius;
2. The settlor of the trust was resident in Mauritius at the
time the instrument creating the trust was executed or at
such time as the settlor adds new property to a trust; and
3. A majority of the beneficiaries or class of beneficiaries
appointed under the trust are resident in Mauritius.
With regard to a foundation, CMC will be considered in
Mauritius if:
1. The founder is resident in Mauritius; and
2. A majority of the beneficiaries appointed under the terms
of the charter or will are resident in Mauritius.
Based on the above, the CMC determination of a trust or
foundation is therefore also made by reference to the location
of the majority of the beneficiaries.
Where the CMC of a trust or a foundation is located outside
Mauritius, the MRA will consider that such an entity is a
non-resident and should not be taxed on its worldwide
income but only on its Mauritian source income.
The SOP also clarifies that a foundation or a trust will be
entitled to claim partial exemption on its different streams of
income subject to satisfying certain substance requirements.
1. In the authors’ opinion, the SOP reads as a hastily made
statement with a view to placating affected industries. It
extends the application of the CMC test in section 73A to
trusts and foundations almost by way of extrapolation in
Statement of Practice (SP 24/21) - Trusts & Foundations
 an attempt to water down the effects of the Finance Act Disclaimer
2021 amendments. The information provided in this legal alert is for general information purposes
only. It is not intended to provide legal advice or opinions of any kind. Please refer
2. The interpretation adopted by the MRA in the SOP to your professional advisers for specific advice.

appears to be a stretch given that the wording of section

73A, and particularly 73A(i), does not suggest that the About Prism Chambers
legislator intended this section to be equally applicable to Prism Chambers is a full-service business law firm based in Mauritius which
trusts and foundations, although it is not disputed that specialises in all aspects of revenue law. In addition to tax law, Prism Chambers
trusts and foundations are considered as company for tax also has strong corporate, finance, private client and restructuring practice areas.

purposes. For more information about our law firm, please visit prismchambers.com

3. According to the SOP, determination of the CMC of a

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trust or a foundation will also be made by reference to
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the location of the majority of beneficiaries (in addition to Level 5, Alexander House
the criteria already set out in section 73). However, this 35 Cybercity
approach does beg the question on the extent to which Ebene 72201
Mauritius
beneficiaries do in fact have influence over the
management and control of trusts and whether the T: +230 403 0900
concept of CMC is deliberately being distorted in this E: info@prismchambers.com
context.

4. The SOP issued by the MRA clarifies the stance that the
MRA is taking towards the tax liability of trusts and
foundation at present. There is no guarantee that such
stance will not change in the future given that an SOP
does not have the status of a law and is not legally
binding. Therefore, we consider this SOP as a temporary
fix but not as a robust long-term solution to the
amendment brought by the Finance Act 2021. A
permanent change in the legislation would inspire
confidence in investors and also strengthen our position
towards the OECD and the EU.

5. We hope that the authorities will seize the opportunity to

undertake a meaningful review of the tax treatment of
trusts and foundations generally so that Mauritius is able
to effectively compete with other attractive fiduciary
jurisdictions such as the Channel Islands and Singapore.

Johanne Hague Nadiah Ramsamy Zuleikha Abbasakoor

Barrister-at-Law Barrister-at-Law Barrister-at-Law

Prism Chambers Statement of Practice (SP 24/21) - Trusts & Foundations