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Mauritius: A Kenyan connection

On May 23 2014, the Kenyan Parliament ratified the Double Taxation Avoidance Agreement (DTAA) signed with Mauritius in 2012 so as to make it effective as of January 1 2015. Mauritius will bring the DTAA into effect on publication of a Gazette notice – this is expected to take place before January 1 2015.

The DTAA will enhance business and fiscal efficiencies between Mauritius and an emerging east-African powerhouse.

The DTAA covers taxes imposed on income and aims to eliminate double taxation on residents of Mauritius and Kenya. Residence is determined in accordance with the laws of each contracting state, or failing which, by means of typical tie-breaker rules.

Business profits of an enterprise are taxable only in its state of residence unless it carries on business in the other state through a permanent establishment (PE). In determining profits, expenses incurred for the business will be allowed as deductions.

Dividends, interests and royalties arising from Kenya paid to a Mauritian resident may be taxed in Mauritius. They may also be taxed in Kenya, but where the beneficial owner is a Mauritian resident, the tax levied has been capped to: (i) dividends: 5% from 10% if the beneficial owner is a company with a minimum shareholding of 10% of the paying company; (ii) interests: 10% from 15% on interest received from financial institutions; and (iii) royalties: 10% from 20%.

Gains derived by a State A resident from the alienation of movable property forming part of the business property of a PE located in State B may be taxed in State B. Gains arising from transfer of shares will be taxable only in the state in which the alienator is resident. Capital gains are not subject to tax in Mauritius.

As an offshore jurisdiction, Mauritius has the highest number of DTAAs with other African countries.

Mushtaq Namdarkhan & Shianee Calcutteea

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