Since 2001, residents (called 'ordinarily resident') are taxed on their world-wide income, but non-resident persons continue to be taxed only on their South African source income. A capital gains tax was introduced in 2001.

'Ordinary residence' is not defined in the law, but has been described as involving some continuity of residence, or as being the place where a person's belongings are stored, and to which he means to return.

Expatriates on assignment are normally classified as 'temporarily resident', which is equivalent to non-resident from a tax perspective, although there might come a point at which this could be challenged if roots start to go down too deeply. For instance, after three years immigrants are brought within South African exchange control laws, although they can leave with their assets intact for another two years after that.

Foreign nationals entering South Africa need to make a declaration of their foreign assets, and undertake that these will not be made available to residents of South Africa during their stay.

There is no requirement for temporary workers to remit earnings from foreign assets to South Africa, and they may make 'reasonable' transfers home from monies earned in South Africa. On departure, an expatriate may take away his savings, but needs to confirm that he has not emigrated from South Africa before.

Anti-avoidance legislation is quite well-developed in South Africa, and an ordinarily-resident individual will find it quite hard to develop foreign companies or trusts to defer tax; however, this will not affect expatriates as long as they retain temporary resident status.

The consequences of becoming resident are very negative for an expatriate, especially since the introduction of capital gains tax in 2001. Any growth in capital assets will be taxed over the period in which an expat is regarded as resident in the country, even if the assets are located overseas and they remain unsold.

On becoming tax resident, the expatriate is given a tax base for capital gains tax equal to the market value of his assets. This exempts the accrued gain up to that point, but when he ceases to be a resident when his tour of duty is complete, he is treated as having sold his assets at their market value.

 

Mauritius has adopted a cautious attitude towards offshore banking development, and as a result, there are only 10 Offshore Banking Units (OBUs) established on the island. The legal and supervisory regime for these is laid out in the Banking Act of 1988, and the Central Bank, or Bank of Mauritius, is responsible for the licensing, regulation, and supervision of the banking sector. A fairly wide range of services are available from these OBUs, including fund administration, portfolio management, treasury, custody and trust services, and can be conducted in currencies other than the Mauritius Rupee.

In March, 2005, the Mauritius National Assembly passed two bills - the Bank of Mauritius Bill and the Banking Bill - designed to give the Central Bank more autonomy and to remove differences between the offshore and onshore banking regimes.

Under the new law, the Bank of Mauritius offers only one type of banking licence as opposed to the two (onshore and offshore) previously available. The Banking Act clarifies the division of responsibilities for the financial; sector between the central bank and the Financial Services Commission. The Act also annulled the existing Foreign Exchange Dealers Act; in future, such dealers will fall under the aegis of the central bank.

An individual is considered to be resident in Mauritius if he is present there for more than 183 days in any tax year, or 270 days in aggregate during a given tax year and the 2 preceding it. Residents are liable for tax on their world-wide income, but only if it is received in Mauritius, whereas non-residents are liable only on income arising in, or deemed to have arisen in the island.

Income tax for residents was traditionally charged at a progressive rate of between 5% and 30% on income up to MR55,000 (with no lower limit below which income tax is not charged, but with a maximum cumulative tax of MR750 in the 5% income tax band).

However, changes introduced in the 2006-07 Budget included:

• A reduction in the number of tax bands from 4 to 2 over a three year period, following which there will be only one single flat rate of 15% on all types of income, from July 2009.
• From 1 July 2006 , a flat rate of 15% to be applied to the first Rs 500,000 of chargeable income. If taxable income does not include interest income, the chargeable income above Rs 500,000 will be taxed at 22.5%. Chargeable income from interest will be taxed at a maximum of 15%.
• Tax on interests, royalties, fees for technical services, rental income and payments to contractors and sub-contractors is now to be be deducted at source, above a threshold (for interest) of less than Rs 120,000 in a year.
• Any individual who owns more than one residence or is owner of an immovable property costing more than Rs 2 million, is now required to file an income tax return, irrespective of whether his income is chargeable or not.
• All taxpayers are now required to declare in their income tax returns the total income derived over the tax year, including exempt income.

The double tax treaty with South Africa is based on the OECD model treaty.

The tax position of dividends and interest paid by offshore companies (which includes Offshore Banking Units) to non-residents is complex. A South African national who is non-resident in Mauritius may be able to avoid paying tax on bank interest; but he may no longer be able to avoid tax on this income in South Africa.