Minimising taxes for South African companies investing into Africa using Mauritius as gateway

Abstract

Investors constantly seek to secure business ventures and structures that will provide them with the most tax-efficient consequences by utilising loopholes in tax legislation and exploiting them within the legal requirements. With the recent growing interest in the undeveloped markets in Africa, many South African companies aim to invest into Africa in a tax-efficient manner. Mauritius, being a low tax jurisdiction and having a favourable tax treaty network with a large number of African countries, is an attractive choice for South African companies wishing to set up a platform for investing into Africa. The aim of this study was to address the shortcomings of efficient tax planning and the approach to invest into Africa using Mauritius as gateway for South African resident companies. The study focused on the tax implications of an offshore trust and offshore company incorporated in Mauritius for tax-efficient investing in order to minimise taxes. Therefore this study did not focus on using Mauritius for tax evasion purposes and a qualitative approach was applied, using a hypothetical case study to determine the most tax-efficient organisational structure for minimising taxes. The findings of the study revealed that, on a balance of case law and tax legislation, a tax-minimising organisational structure is largely influenced by its residency status and South Africa‟s control foreign company (CFC) legislation. Residency for an offshore trust and offshore company will be at the place where it is effectively managed. The findings revealed that the tax consequences are similar for an offshore trust and offshore company in Mauritius legislation. However, the hypothetical case study revealed that the impact of the CFC legislation can have negative consequences for a structure where only an offshore company is used, and therefore the ideal tax-minimising structure will be where a South African company uses a combination of an offshore trust and offshore company in Mauritius in order to avoid the possibility of CFC legislation having an impact on such a structure.