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Editorial

New DTAs in Force with Mauritius

Kenya

The Government of the Republic of Kenya has ratified the Double Taxation Treaty (DTA) with Mauritius through the publication of a legal notice in the Kenya Official Gazette on May 23 2014. The DTA will become effective on January 1 2015.

It was signed on May 7 2012, together with an investment promotion and protection agreement (IPPA) and ratified by the Republic of Mauritius. This is a significant event, reinforcing the economic relationship between the economic powerhouses of east Africa.

According to the World Bank, Kenya has maintained economic stability and fiscal discipline and the economy is expected to grow at 5.8 - six percent this year. It is anticipated that the DTA will further boost foreign direct investments (FDI) into Kenya and reinforce the position of Mauritius as a jurisdiction of choice for international investors bringing capital into Africa.

A DTA will achieve the objective of eliminating double taxation through various methods, namely exemption, credit and tax sparing, or a combination of these methods.

Where an investment into Kenya is made by a resident of Mauritius (such as a Mauritius company) this will lead to:

(i) a reduction in withholding tax (WHT) on dividends from 10% to 5% where the beneficial owner owns at least 10% of the company paying out the dividends;

(ii) a reduction in WHT on interests from 15% - 25% to 10%;

(iii) a reduction in WHT on royalties from 20% to 10%;

(iv) no effect on capital gains tax, as there is no capital gains tax on gains made upon the disposal of shares in Kenya; and, (v) the DTA provides for tax-sparing credit and this will not dilute any incentive that has been given in Kenya.

With the ratification of the Kenya- Mauritius DTA, Mauritius boasts one of the best networks of DTAs and IPPAs with the Africa continent. With this growing number of bilateral agreements, Mauritius is positioning itself as a safe, trusted and well-established international financial centre for international investors looking at doing business in Africa. It also consolidates its aspirations to be a premier investment gateway into Africa.

Congo

On August 1 2014, the President of the Republic of Congo authorised the ratification of the Double Taxation Avoidance Agreement (the DTAA) with Mauritius. The DTAA was signed on December 20 2010 and will come into force in Mauritius on the date as specified by the Minister in a notice published in the Government Gazette.

The DTAA will provide taxation benefits for the conduct of business between the two countries, further encouraging investment in the African continent through Mauritius. The DTAA seeks to avoid double taxation and prevent fiscal evasion with respect to taxes on the income of residents of Congo and Mauritius. The most noticeable benefits are in terms of the interests, dividends and royalties derived from Congo and paid to a Mauritian resident. These are generally subject to taxation in Mauritius. However, they may also be taxed in Congo, but where the beneficial owner is a Mauritian resident, the tax so charged is capped as follows:

(i) interest - five percent as opposed to 20% in Congo;

(ii) dividends - as opposed to 20% in Congo, zero where the beneficial ownership amounts to at least 25% of the capital of the paying company and five percent in all other cases; and,

(iii) royalties will be taxed only in Mauritius.

The business profits of an enterprise of state A is taxable only in state A, but where the enterprise carries on business in state B through a permanent establishment (PE), state B will have the right to tax the profits that are attributable to the PE. Generally, expenses incurred for the PE will be allowed as deductions.

Capital gains derived from the transfer of shares in a company resident in Congo can only be taxed in Mauritius. Capital gains are not subject to tax in Mauritius.