The first is the family situation or marital status, depending on whether you are single, married, cohabiting under a regime recognised abroad but not in Mauritius, whether you have children or not, and whether you wish to pass on to your spouse, cohabiting partner or children.

The second variable is the asset situation, i.e., what you already own and how this new acquisition will fit in with the rest of your assets.

And the third variable is taxation: personal taxation, corporate taxation, transmission taxation and international taxation.

From these three variables, with their different permutations, arise a whole series of possible scenarios, and therefore no «prefabricated» solution, hence the importance of asking the right questions before a real estate acquisition.

Another essential element to consider is the reason for the purchase: personal occupation of the property, rental investment, or desire to realise a capital gain in the short or long term.

Buying in your own name

The simplest when you are single, or couple without children, is to acquire in your own name, especially if it is for a primary residence. However, you will need to take into account your marital status and whether you intend to reserve ownership of the property for yourself alone, or whether you want your spouse to own it too.

Buying in your own name as a foreigner

Quite often, when a foreigner proposes to buy a property, the analysis of all the other variables could a priori lead to advise him to acquire through a SPV (Special Purpose Vehicle) as a Civil Society, a Limited Liability Company - more commonly known as Limited Company in Mauritius. However, it is possible that, because of the tax rules in the person's country of origin, a counter-intuitive solution may have to be found, and the person may prefer to acquire the property in his or her own name. A simple example: when a citizen of a country who lives in a country with a federal taxation (that is, a tax that varies according to states or regions within the same country, such as the United States, Switzerland, India) buys a property abroad, in his own name, he can benefit from some exemptions, especially when selling, and avoid certain surcharges on capital gains in his state of residence. Buying through a SPV could lead to higher taxation in his state of residence.

These particular cases illustrate the need for a personalised legal and fiscal analysis of the real estate purchase project.

Civil Society

Generally, buying through a civil society will be favoured with a view to transmission (inheritance).

On the tax front, a civil society is considered “transparent”. That is, from an income tax point of view, it is as if it did not exist. It is the partners who are directly taxed in their own name. So, there is no particular tax benefit to using a civil society, but no downside either (compared to an acquisition in own name).

However, in terms of transmission, it is an extremely interesting tool.

A typical case: one buys a property in his own name with his wife, having two young children, and occurs a death without will. There are three heirs, the two minor children and the wife. If, because of the tragedy, the house has to be sold to move somewhere else, the surviving spouse must obtain authorisation from a judge, because the minor children co-own the property. This authorisation will require a judicial procedure that can last up to a year. A complicated procedure that has been put in place for the protection of minors. To avoid this scenario, if two spouses buy a property through a civil society, on the death of one of the spouses, its shares will be passed on to the spouse and children.

The property continues to be held by the Civil Society. The Society will be managed by the surviving spouse. He/She will have all the powers to sell the property and distribute the proceeds of this sale between him/her and the children. It is society that sells the property, not the members.

Civil Society - Foreigners

Civil society can also be very useful for a foreigner when buying a property in Mauritius, especially to prepare the transmission of the succession to his children or others. Civil societies are particularly suitable for unmarried couples and/ or couples who are united under a foreign regime that is not recognised in Mauritius, for example the French PACS (un-married partners).

Civil Society – Transparency vs. Misconceptions

Today, it is easy to check the name of a civil partnership (Civil Society) and the identity of the partners - anonymity is no longer possible.

So, it is pointless to imagine that buying a property in Civil Society would somehow «hide» his identity as the owner of a property. In addition, there was a time, from the 1980s until about 2005, when the transfer of shares of Civil Societies presented a tax advantage over direct sales of real estate. It was then almost automatic to create a civil society to hold a property with that purpose.

We still hear nowadays: «I heard that my uncle had, in his time, bought a property using a civil society and had saved taxes or registration fees on it. » This reasoning is no longer valid.

A civil society, today, is fiscally neutral, thus presenting neither advantage nor tax disadvantage, and no fiscal «opacity».

Foreigners – Acquisition in own name or Civil society?

The choice between the two is practically the same as for a Mauritian. Civil society is often favoured when there is this logic of inheritance transmission. For a foreigner, there is a small additional advantage, it is the ease of management. Instead of having to give a power of attorney to someone to manage a property (we are talking here about administrative management with the authorities, not the rental management of the property), we can simply delegate the management of civil society for a limited time. If you have bought a property and you intend to live there, for example, only six months a year, during the remaining six months you can delegate the management of the company to someone who is in the country for the payment of expenses, co-ownership, renewal of insurance, all administrative formalities related to the detention of this property.

In the case of a registered civil partnership, the spouse of an individual owner would not have an automatic right to represent the latter in Mauritius. However, through a civil society, if the two spouses are joint managers, each can represent the company vis-à-vis the syndic, the public authorities, the administration, the EDB, etc.

The main reason for buying through a civil society remains the preparation of the inheritance transmission. It makes it possible to include children in the capital of the civil society. In addition, towards the EDB, during the acquisition through a Civil Society, where there are for example parents and children, the Civil Society can, among its partners, designate the primary non-citizen holder of the resident permit attached to the property. A child or unmarried spouse may be designated as the residence permit holder.

Limited Company

The Limited Company, as its name suggests, is a limited liability structure. It is preferred for investment, either for rental purposes or for the long term, when the property is intended for resale. Why is it interesting for rental investment? This is obviously because if a tenant suffers any damage to the property, including personal injury, the shareholder will not be held personally liable. Only the limited company will assume the rental risk.

From a tax point of view, the rental income of the limited company will be taxed at a single rate of 15% (or the prevailing tax rate at the time), and the dividends are then exempt from tax. While for a purchase in his personal name or through a civil society, depending on the tax bracket, it can reach up to 20% tax on income (personal tax at the prevailing tax rates today).

It is important to note that if a property is intended for personal use, it should not be acquired through a Limited Company. Indeed, a double taxation is applied for the resident director or shareholder, the rent being treated as an “advantage in kind” and equal to the rental value of the property. If the property has a rental value of Rs.100,000 per month, the shareholder (who is also the beneficiary of the property) will be taxed on this “income in kind”, but the company will also be deemed to have received this notional rent and will therefore also be taxed (Corporate Tax). In all, this represents a tax charge of 30% of the rental value of the company's own property.

Trust

The trust is to be handled with great care. The trust is not accessible to inexperienced people. Most European countries have put in place a whole arsenal of tax measures against the trust. The most obvious example is France. While a French person who acquires property through a civil society will benefit from all the advantages of the France-Mauritius tax treaty, and the same applies to a Limited Company, if he or she sets up a trust, he or she will be penalised considerably. At the time of death, his assets will be taxed at over 60%, not including the annual costs of remunerating the administrator - who will also deduct from the assets placed in trust any tax penalties that may be due.

The judicious use of trusts would be rather limited to the United Kingdom and South Africa because these are mainly the only two countries that do not have an abnormally aggressive tax system regarding trusts. They are also two countries that do not practise the "hereditary reserve". Once assets have been isolated in a trust, there is considerable freedom to designate beneficiaries who may not be the children. It is therefore possible to limit the children's rights to use the property, without granting them the right to sell it. In such circumstances, the trust becomes a very constructive tool.

If you live or own property in a country that deals with what is called the “reserved portion of an estate”, the trust will necessarily be subject to requalification by the courts, and that principle of distribution of the assets to the heirs at the time of the inheritance will be applied. On the other hand, Anglo-Saxon countries with no such principle in place (absolute testamentary freedom) allow you to hold your assets in a trust and not bequeath them to your children, or limit their rights to use the assets, or even prohibit them from selling them.

Trust – dispel some misconceptions.

There is a preconceived notion that trusts can be used to "hide assets". To a certain extent, until 2016, it was indeed possible to hide the identity of the beneficiaries of a trust (albeit at the cost of structures resembling real "gas plants").

For the record…

It was Pascal Saint-Amans, long-time director of tax policy at the OECD (Organisation for Economic Co-operation and Development), who set up, among other things, all the automatic tax information exchange agreements between more than 100 countries around the world. Before the reform, if a country wanted to ask another country about the tax affairs of one of its citizens living abroad, the former had to go through a lengthy legal procedure and specifically target one aspect of its expatriate citizen's assets.

Since the OECD tax reforms, under the leadership of Saint-Amans, these exchanges of information have been automatic. This means that, for example, as soon as a French person moves to Mauritius and opens an account there, the information is automatically transmitted to France. As a result, if the person has purchased his assets legally, through a transparent structure, he will not encounter any problems with his tax authorities and, better still, he will be able to benefit from the provisions of the tax treaty that exists between the two countries.

The corollary of this tax reform has been the obligation, for all those countries that exchange information, to identify the ultimate beneficiaries, the ultimate beneficial owners of any civil society, limited company, association, trust, and foundation.

Therefore, anyone who has improperly attempted to hide their status as a beneficiary of a trust or foundation would automatically find themselves reported to the tax authorities in their country of residence and would undoubtedly suffer heavy penalties.

As a result, since the reforms of Pascal Saint-Amans, it is simply impossible to create or hold any «opaque» trust.

Only a handful of countries have refused to sign up to the automatic exchange of information, including Libya, Afghanistan, Myanmar, North Korea and... the United States. The United States did not sign up because it has its own system for collecting information, FATCA (Foreign Account Tax Compliance Act). As for the other non-adhering countries, you could theoretically place an "opaque" trust there, but you'd have to be insane to imagine moving your assets to North Korea!

For many Mauritians, the trust is seen as a way of dissociating themselves from their assets to prevent creditors from attacking them or to limit the rights of their heirs by transferring all their assets into the trust. But it's not that simple! Under the Mauritius Insolvency Act, these assets can be reintegrated into a debtor's personal assets. What's more, Mauritius applies the "reserved portion of an estate", which means that you cannot disinherit your children - so the trust can only have a limited effect in this respect.

As a result, today's trusts are no longer opaque. On the contrary, given the reputation of trusts, the banks, management companies and legal professionals involved in these transactions are much more demanding when it comes to identifying beneficiaries. As a result, trusts are mainly reserved for situations of interest mainly to South Africans and English people, and for other specific situations such as the controlled transfer of assets, to prevent children from squandering assets after death, for example.

Some Mauritians, like South Africans or Britons, depending on the size of their estate, will want to set up a trust: not to transfer their assets in it for the reasons given above, but rather to protect the property asset they have built up and exclude it from their estate. The aim is then to ensure that all these assets placed in trust will not, at the time of death, be directly accessible to the children inheriting the estate if they may not have the maturity or the necessary skills to manage them.

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