Businesses and individuals that have stashed away cash in Mauritius have won a major reprieve after Kenya reached a deal with the Indian Ocean island nation to amend the nullified double tax deal.
The expanded double taxation avoidance agreement (DTAA) now quashes the one that had been signed in April and comes with more favourable tax rates than what is applied under the domestic law of the two countries.
A protocol amending the earlier DTAA was signed in Washington on Wednesday last week by acting Treasury Secretary Ukur Yatani and Mauritius financial secretary of the Ministry of Finance and Economic Development Dharam Dev Manraj.
Mr Manraj said the DTAA would eliminate double taxation and provide greater tax certainty for business persons of both countries on all forms of income arising from cross-border activities.
“Mauritian businessmen and investors looking for opportunities in Kenya will benefit from this agreement as will the Kenyan businessmen and investors looking for opportunities in Mauritius,” said Mr Manraj in a statement.
Kenyans are believed to hold billions of shillings in Mauritian banks with unconfirmed sources indicating that the bulk of Sh800 billion that was wired back early this year under the Kenya Revenue Authority’s amnesty came from the island state.
Mr Yatani was not immediately available for comment on the specific details of the DTAA and how issues such as tax evasion will be dealt with, given that it is offering reduced taxes.
For instance, while Kenyan tax law subjects dividend paid to foreign investors to a withholding tax at the rate of 10 percent, the DTAA provides a rate of eight percent.
Interest paid to foreign investors are subjected to 15 percent withholding tax when paid by a financial institution in Kenya and at 25 percent and 10 percent respectively on bearer certificates and bearer bonds. But the DTAA offers a uniform rate of 12.5 percent for all interest income.
The DTAA also reduces withholding tax on royalties paid to foreign investors from Kenya’s current 20 percent to 12 percent for all interest income. Technical fees paid to foreign investors will be at 10 percent, down from current 20 percent.
Tax Justice Network Africa (TJNA), a pan-African research and advocacy organisation, had warned the DTAA offers potential revenue losses to Kenya.
Concerns have also been raised in the past that Mauritius, an island located off the southeast coast of Africa in the Indian Ocean, is a tax haven for some of the world’s biggest corporation.
The European Union in 2017 placed Mauritius on its top 30 tax blacklist nations while Oxfam listed it as one of the world’s worst tax havens in 2016.
The 2018 Financial Secrecy Index gave also gave Mauritius a 72.3 score out of 100 for face-lifting questionable tax avoidance tricks.