CLA News / Double Taxation Avoidance Agreements and Commonwealth Investment: How Mauritius Structures Capital Efficiently and Transparently

Mauritius has, over three decades, developed one of the most sophisticated treaty networks among Commonwealth jurisdictions. With over forty-five double taxation avoidance agreements (DTAs) in force — including with the United Kingdom, India, South Africa, Singapore, and France — the island has positioned itself as a preferred conduit for cross-border investment flows, particularly into Africa and across the Indo-Pacific corridor.¹ This article examines the structural and legal dimensions of that network, its alignment with contemporary OECD standards, and the practical compliance obligations that Commonwealth investors must navigate. References throughout are made to the Mauritius Income Tax Act 1995, the Financial Services Act 2007 (FSA), and guidance issued by the Mauritius Revenue Authority (MRA) and the Financial Services Commission (FSC).

I. Treaty Policy and OECD Alignment

Mauritius is not an OECD member, but its treaty practice has progressively converged with OECD Model Convention standards since its accession to the Inclusive Framework on Base Erosion and Profit Shifting (BEPS) in 2017.² As a signatory to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (the MLI), Mauritius has modified a substantial portion of its DTA network to incorporate minimum standard provisions — most notably Article 6 (purpose of the covered tax agreement) and Article 7 (prevention of treaty abuse through the Principal Purpose Test, or PPT).

The PPT now operates as the primary anti-avoidance filter across the network. Treaty benefits will be denied where it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining those benefits was one of the principal purposes of an arrangement. This standard — drawn from OECD BEPS Action 6 — has been integrated into the revised India-Mauritius DTA (renegotiated via the 2016 Protocol), the Mauritius-South Africa DTA, and several other instruments.³ Commonwealth investors should also note that the Mauritius-UK DTA still follows the 1981 text: its provisions on residence, beneficial ownership, and permanent establishment are materially sparse, and ongoing renegotiation — if concluded — would materially change the legal landscape for UK-Mauritius investment structures.⁴

Mauritius’s treaty policy reflects a deliberate choice to adopt the residence-based allocation model, attributing primary taxing rights over dividends, interest, royalties, and capital gains to the state of the investor’s residence — typically Mauritius — rather than the source state. This remains the engine of Mauritius’s utility as a holding and financing jurisdiction, though it is now heavily conditioned by substance requirements.

II. Substance Requirements and Anti-Treaty Abuse Safeguards

The concept of substance in Mauritius has evolved considerably since the Financial Action Task Force (FATF) and OECD scrutiny of the mid-2010s. The FSC revised its framework through two key instruments: the revised Global Business Licence (GBL) regime under the FSA 2007, and the Substance Requirements Guidance Note issued in 2019 and updated subsequently.⁵ Under this framework, a GBL entity — the primary vehicle for accessing DTA benefits — must demonstrate that its core income-generating activities (CIGAs) are conducted in Mauritius: directed and managed locally, with adequate physical presence, qualified staff, and board-level decision-making occurring in-jurisdiction.⁶

From the tax side, the MRA requires that resident companies claiming treaty protection demonstrate genuine central management and control — not merely registration — aligned to the OECD concept of effective management.⁷ The most operationally significant anti-abuse provision, however, is the beneficial ownership test embedded in most Mauritius DTAs. Reduced withholding tax rates on dividends, interest, and royalties are available only where the Mauritius entity is the true beneficial owner of that income, free of any obligation to pass it on.⁸ Conduit arrangements with no economic substance will fail this test and attract full source-state withholding.

The post-2016 India-Mauritius Protocol illustrates the stakes. Capital gains on Indian shares acquired after 1 April 2017 are now taxable in India, fundamentally altering the exemption that had made the Mauritius-India corridor one of the world’s most heavily trafficked bilateral investment routes.⁹ Commonwealth investors should treat this as a template for reform across other corridors, particularly those involving African jurisdictions actively renegotiating legacy treaties.

III. Use Cases: Funds, Holding Companies, and Cross-Border Financing

Mauritius offers a mature ecosystem of investment vehicles with distinct legal characteristics and treaty interaction profiles. For funds, the key treaty consideration is transparency: where a fund registered under the Securities Act 2005 (which is generally treated as separate taxable entity in Mauritius) is treated as fiscally transparent in an investor’s home jurisdiction, it is the investor — not the fund — who is treated as beneficial owner of underlying income. Fund managers should seek advance confirmation from the MRA on treaty availability in such cases, and document the analysis carefully.¹⁰

Intermediate holding companies established as GBL entities are the workhorse of Commonwealth investment structuring into Africa. A typical structure involves a UK or Commonwealth parent holding shares in a Mauritius GBL company, which in turn holds equity in operating subsidiaries across East or Southern Africa. The Mauritius entity can receive dividends from subsidiaries free of domestic tax (subject to a notional foreign tax credit regime) and distribute upwards at reduced or zero withholding tax, depending on the applicable DTA. Mauritius has operational DTAs with Kenya, Rwanda, Zimbabwe, Lesotho, and Mozambique, among others.¹¹

Cross-border financing structures leverage the interest withholding tax reduction provisions in Mauritius DTAs. A Mauritius GBL lender funded by equity or shareholder loans from a parent in a DTA jurisdiction on-lends to an operating subsidiary in a source state, collecting interest at a reduced withholding tax rate. The retained spread represents the economic return in Mauritius. Such structures require careful transfer pricing documentation in the source state and must withstand scrutiny under the PPT — the commercial rationale must be demonstrably more than tax minimisation.¹²

IV. Compliance Considerations for Commonwealth Investors

The evolving international tax landscape demands legal precision. Three compliance themes are particularly pressing. First, documentation is paramount. The PPT is a fact-sensitive inquiry: treaty benefits are determined by what can be demonstrated, not merely asserted. Board resolutions, management accounts, service agreements, and correspondence must reflect genuine in-jurisdiction decision-making. Retrospective reconstruction of substance carries significant legal risk.¹³

Second, OECD Pillar Two may fundamentally alter the calculus for large corporate investors. For groups with consolidated revenues exceeding EUR 750 million, the Income Inclusion Rule and Undertaxed Profits Rule may claw back income retained in Mauritius where the effective tax rate falls below 15%.¹⁴ Mauritius has enacted a Qualified Domestic Minimum Top-Up Tax (QDMTT) under Sub-Part AF of the Income Tax Act 1995, which applies to fiscal years commencing on or after 1 July 2025. The QDMTT imposes a top-up tax on covered persons who are members of multinational enterprise groups with annual consolidated revenues of EUR 750 million or more, where the combined effective tax rate in Mauritius falls below 15%. Investors should obtain specific legal advice on their group’s Pillar Two position and QDMTT obligations before structuring through Mauritius.

Third, the automatic exchange of information regime — under which Mauritius participates in the Common Reporting Standard (CRS) and FATCA — means that beneficial ownership and financial account information is shared annually with counterpart jurisdictions.¹⁵ There is no informational opacity in Mauritius structures for CRS-obligated investors. Compliance strategies must be designed on this basis from inception. Transfer pricing documentation in source states — particularly Kenya, South Africa, Rwanda, and Zimbabwe, each of which operates OECD-aligned regimes — must also be contemporaneous and arm’s-length compliant.

Conclusion

Mauritius remains a compelling gateway for Commonwealth investment, offering treaty depth, regulatory sophistication, and a legal framework increasingly aligned with international norms. The era of passive treaty access, however, is firmly over. The PPT, substance requirements, Pillar Two, and the AEOI regime collectively demand that every structure be built on genuine economic presence, properly documented decision-making, and full understanding of applicable tax obligations. Mauritius has not become less useful — but its utility is now contingent on legal and operational rigour. Structures designed and maintained with care will continue to deliver material efficiencies; those that are not will face increasing scrutiny from Mauritius authorities and source-state tax administrations alike.

By Assadullah Durbarry

Barrister-at-Law Mauritius, & Admitted in Australia

Principal, Durbarry Chambers, Mauritius

Assadullah Durbarry is a dual-qualified legal practitioner, admitted in Mauritius and Australia, a philanthropist and the founder of Durbarry Chambers and the Ilma Foundation. He can be contacted at a@durbarry.

References

1. Mauritius Revenue Authority, List of Double Taxation Avoidance Agreements (MRA, 2024). See also Financial Services Commission, ‘Global Business — Overview’ <https://www.fscmauritius.org>.
2. OECD, ‘Members of the Inclusive Framework on BEPS’ (OECD, 2024). Mauritius joined the Inclusive Framework in 2017.
3. OECD, Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 — 2015 Final Report (OECD Publishing, Paris, 2015). See also Protocol amending the Convention between Mauritius and India for the Avoidance of Double Taxation, signed 10 May 2016.
4. Convention between the Government of Mauritius and the Government of the United Kingdom for the Avoidance of Double Taxation (1981). For the status of ongoing negotiations, see MRA press releases.
5. Financial Services Commission, ‘Substance Requirements — Guidance Note’ (FSC Mauritius, 2019, updated 2021). See also Financial Services Act 2007 (Mauritius), ss 71–72.
6. Ibid, paras 3.1–3.6 (CIGA criteria); see also OECD, Countering Harmful Tax Practices More Effectively, Action 5 — 2015 Final Report (OECD Publishing, Paris, 2015), ch 4.
7. Mauritius Revenue Authority, ‘Guidance Note on Tax Residency’ (MRA, 2023). See further Income Tax Act 1995 (Mauritius), s 73A.
8. OECD Model Tax Convention on Income and on Capital (2017), Commentary on Articles 10, 11, and 12; Indofood International Finance Ltd v JP Morgan Chase Bank NA [2006] EWCA Civ 158.
9. Protocol of 10 May 2016 amending the India-Mauritius DTA, Art 3 (inserting new Article 13(3A)–(3B)).
10. Securities Act 2005 (Mauritius), ss 97–103; OECD, ‘The Granting of Treaty Benefits with Respect to the Income of Collective Investment Vehicles’ (2010).
11. MRA, List of DTAs in Force (2024) — covering Kenya (2012), Rwanda (2013), Zimbabwe (2013), Lesotho (1997), and Mozambique (2012).
12. OECD, Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD Publishing, Paris, 2022), Ch X; Income Tax Act 1995 (Mauritius), ss 75B–75F.
13. OECD BEPS Action 7, Preventing the Artificial Avoidance of Permanent Establishment Status (2015).
14. OECD/G20 Inclusive Framework on BEPS, Global Anti-Base Erosion Model Rules (Pillar Two) (OECD Publishing, Paris, 2021).
15. OECD, Standard for Automatic Exchange of Financial Account Information in Tax Matters (2nd edn, OECD Publishing, Paris, 2017). Mauritius has reciprocal CRS participation from 2018 and FATCA IGA status.