Everything You Need to Know About the Mauritian Economy
Category All about Mauritius
Mauritius, the beautiful island nation spanning 2 050 square kilometres, has a thriving and fast-growing economy by African and international standards. Situated just off the East coast of Africa, many people around the world have flocked to Mauritius and continue to do so for the lifestyle, the safety, the well-functioning government, and more particularly the potential for economic opportunity. One of the defining features of the economy is the government's openness to trade. Among several economic strategies is this openness to trade and it's welcoming of foreign investment that sets the country up for great growth opportunities.
Political Climate
Gaining independence in 1968 from the United Kingdom, Mauritius has seen incredible growth since then. The island is a multiparty parliamentary democracy and has about 1.3 million people as of the 2018 census. The political system is stable despite some shifting coalitions between opposing political parties. The country is run by both the Prime Minister who heads the government and has full executive powers and the President who is both the head of state and the acting commander in chief.
There is a national election every five years where the National Assembly elects a president and vice-president. On the regional level, there are municipal elections every 6 years to appoint civil servants for each district. Since independence, Mauritius has held 12 free and fair democratic general elections, and the country is one of the most politically stable in the entire African region.
Trade
Classified as a high-income country, Mauritius has a small domestic trade market. It is reliant on imports from the global economy for many of the basic resources needed for day-to-day living. However, it also has a strong export market centred mainly around fish, clothing and sugar. The primary agricultural product in Mauritius is sugarcane.
Mauritius's primary industries are service-based industries such as tourism, financial services, and business process outsourcing. These industries are dependent on business from foreign nationals and visitors to the island. In 2019, a whopping 75% of the country's GDP was made up by the services industries alone.
Agriculture is also thriving, and sugarcane makes up around 85% of Mauritius' cultivated and arable land. Major exports for sugarcane products are Europe, Madagascar and South Africa. Seafood and textiles products are also a major export.
Economic Developments
The island has seen an incredible economic transformation. It has moved away from a low-income, agricultural dominated economy towards a more elegantly diversified one. This change has garnered significant foreign investment crowning it one of the highest per capita GDPs in the African region.
In 2019, the gross domestic product (GDP) grew by 3.6%, mostly based on the service sectors, banking, agriculture, and the construction industry. Manufacturing has taken a knock as global demand has dipped in recent years but designated by the World Bank. Based on the economic data for 2019, the island nation was classified as a high-income country in July 2020, a first for Mauritius.
Knowledge, intensive services sectors, are seeing rapid growth while historically successful sectors providing low-skilled employment are stagnating. In light of this, some of the country's critical issues are adapting to the increasing consequences of global climate change and the current transition to a knowledge-based economy.
The service and hospitality industry remain some of the chief economic drivers, but the government is increasing its efforts to modernize traditional industries like maritime security, textiles and sugar. All in all, there are some exciting developments on the horizon as the country diversifies into information technology and financial services.
Taxation in Mauritius
The legal and economic structure in Mauritius encourages foreign investment and entrepreneurship, and the taxation laws alone provide great advantages.
In Mauritius, there are several benefits to being a fiscal resident and/or running a business - these include:
- Capital gains (when re-selling a property) and dividends are not taxable,
- Exemption from paying property tax,
- No customs duty for traders on certain products imported through the Mauritian Freeport - a duty-free logistics, distribution and marketing hub for the region.
- No restriction on the repatriation of profits obtained from companies outside of Mauritius.
- Exemption from tax on inheritance.
- Value Added Tax (VAT) on products and services is 15% like South Africa.
- Salary taxes and profits made by a company are levied at 15%.
The Double Taxation Law
There is a law known as the 'Double Taxation Law' which makes provision for foreigners from certain countries who are trading or working in Mauritius to pay tax only to one government. Mauritius has signed a Double Taxation treaty with forty six countries that allows non-Mauritian businesses and individual entrepreneurs to pay tax to either their country of origin or Mauritius but not both. These fiscal laws provide a favourable environment for foreigners to take advantage of.
Real Estate and Commercial Investment
Real Estate and Property Development in Mauritius is a thriving industry supported by the forward-thinking property and taxation law. Conveniently South Africa is a mere 4 hour flight from Mauritius and this beautiful island has become an attractive destination for South African's to holiday, invest, retire, and those looking to gain permanent residency.
The Mauritian prime lending rate is an astonishing 3.35%. There are fairly strict qualification criteria for property loans by Mauritian banking institutions, but local banks are favourable to foreign investors, and there is a generous annual investment allowance of R10 million. Investors must be 18 years and older, have the SA Reserve Bank approve their transfer of funds, and they will need to acquire a tax clearance certificate from SARS. There is also always the option of financing through South African banks. Note that most loans are approved as long as the investor can put up at least 40% of the total costs.
Business and personal tax rates are attractive at a flat rate of 15%, and there's the added benefit of no property, inheritance or capital gains tax. Full expatriation of any profits is ensured, and the progressive property laws ensure robust property ownership rights.
The Mauritian governments real estate legislation and their robust strategy to encourage foreign investment make it incredibly attractive for offshore property investment for South Africans. In light of this, the island has solidified itself as one of Africa's top luxury destinations for property and business investment and a practical alternative for South African buyers seeking residency elsewhere. With all that the Mauritian economy has to offer and an attractive fiscal regime, it's no wonder there is a thriving ex-pat community on the island.
Author: Jess Klette - Rawson Property Group