Buying property in Mauritius
Promising returns, a favourable tax and investment regime and the promise of permanent residency make Mauritius an attractive investment option.
How Does It Work?
Although free to rent anywhere, the only way a non-citizen can purchase property in Mauritius is through an IRS or RES development. Under the IRS, residential properties such as luxury villas, apartments and penthouses can be sold freehold to foreigners at a minimum price of US$500 000, which entitles the purchaser to a residency permit. The IRS targets the top-end segment of the international property market as an attractive lifestyle investment, expected to yield high returns and escalate in growth over the next 10 years. IRS developments generally include luxury amenities such as golf courses, marinas, beach clubs and wellness centres, as well as restaurants and other facilities. Under the IRS, there are no restrictions on the acquisition of residential real estate by foreigners, making it simpler for foreign investors to inject money into new property developments, of which there are many. Their meteoric growth is testimony to the huge increase in demand.
Under the RES, on the other hand, residential units are sold to non-citizens at no minimum price. The RES allows the development of any mix of residences for sale on freehold land (not exceeding 10 hectares), and acquisition of property worth at least US$500 000 entitles the purchaser to a residency permit. The scheme targets those who want to invest, work and live in Mauritius, and those who desire to own a second home or holiday home there.
The permanent residency permit granted to successful purchasers (as well as their spouses and dependents) also entitles holders to apply for occupation certificates, which allows them to start businesses or to become employees of Mauritian companies. After the government-prescribed number of years, both IRS and RES purchasers may apply for a Mauritian passport in addition to their permanent residency permits.
What are the Tax Implications?
The island of Mauritius has always offered a favourable taxation environment, with key benefits including a 15% corporate and individual income tax rate and no capital gains or inheritance tax on properties purchased. It should be noted, however, that the South African and Mauritian governments signed a new double-taxation agreement (DTA) in May (and which could come into effect as soon as 1 January 2014) that is causing ripples of alarm in investor circles.
According to Johan Hatting, senior manager of international tax at Pricewaterhouse Coopers, the most significant deviation in the new treaty concerns companies that are tax residents in both Mauritius and South Africa: ‘Such dual residents are subject to double taxation. Organisation for Economic Co-operation and Development (OECD) model-based tax treaties resolves such double taxation by determining that the company shall be solely tax resident in the treaty state in which its “place of effective management” is situated.’ Under the new Mauritius tax treaty, explains Hatting, the effective management criterion is substituted with an administrative discretion: ‘Accordingly, SARS and the Mauritian authorities must “endeavour” to reach “mutual agreement” on whether a dual-resident company should be taxed only in Mauritius or only in South Africa. If SARS does not reach an agreement, the dual-resident company will be subject to double tax.’
What about Buy-to-Let?
In an island nation with a stable political environment, sunshine aplenty and a steady flow of tourists, it’s hardly surprising that the potential for property rental is substantial. ‘We find that most buyers are well informed in regard to Mauritius and recognise the importance of location when it comes to rental income and capital growth potential,’ says Tagg, who adds that Grand Baie is the location that appears to attract most foreigners, especially in the rental market. According to Knight Frank’s 2013 Africa Report, a four-bedroom executive home in Port Louis commands a monthly rental of MUR107,100 (around R34 500), with yields of 8%.
Rental income is taxed at 15% but income-generating expenses are deductible when computing for the taxable income: resident individuals earning rental income are subject to a withholding tax of 5%, which is credited against the individual’s income-tax liability. Those who own more than one residence or who own a property costing more than MUR2 million (approximately R650 000) are required to file an income tax return, whether or not the income is taxable.
Text: Jocelyn Warrington, Juliet King