Withholding Tax on Payments Received by an Offshore Company

Why withholding tax is a payer-side issue

Withholding tax on payments to an offshore company is not a Mauritian charge. It is a deduction made by the country where the payer is located, before the money leaves that country. The payer keeps the deducted amount and hands it to its own tax authority, and your company receives the net balance.

That point is easy to miss. A Mauritius Authorised Company can be perfectly in order with the Mauritian authorities and still receive less than the invoice total, because a client abroad applied its domestic rules. The rules differ from one country to the next, and they change. This page therefore explains the mechanism and the questions to ask, rather than quoting foreign rates.

If you are still choosing a structure, start with how a non-resident company in Mauritius works and the taxation of an Authorised Company.

Which payments are usually targeted

Countries tend to tax at source those payments that are easy to identify and hard to collect from a foreign recipient. The categories most often caught are:

• Royalties: payments for the use of software, trademarks, patents, copyright, know-how or licensed content.
• Interest: loans, shareholder advances and some financing arrangements.
• Technical, management or service fees: some countries extend withholding to fees for services performed abroad, not only to royalties.
• Dividends: covered by a separate guide on paying yourself, so not developed here.
• Rental or lease income: particularly for equipment or property located in the paying country.

Whether a given invoice falls into one of these categories depends on how the payer's law characterises it. A subscription to a software product may be a service in one country and a royalty in another. That characterisation, not the label on your invoice, decides the outcome.

Why a missing treaty matters

A double taxation treaty is the usual way to reduce or remove source-country withholding. It allocates taxing rights between two states and often caps the rate a payer may apply to royalties, interest and fees. To claim that relief, the recipient generally has to show it is a tax resident of the treaty partner.

Mauritius does have a treaty network. The Mauritius Revenue Authority (MRA) page on double taxation agreements reports 45 agreements in force, with a note dated 24 August 2021 in one section, so check the current list before relying on it. How those agreements work for Global Business Licence holders is covered elsewhere and is not repeated here.

For an Authorised Company the difficulty is residence. Under section 73 of the Income Tax Act, a company is tax resident in Mauritius if it is incorporated there or if its central management and control is there. Section 73A then provides that a company incorporated in Mauritius is treated as non-resident if it is centrally managed and controlled outside Mauritius, while still having to file an income tax return under section 116. The Income Tax Act treats both a Global Business Licence company and an Authorised Company under section 71A of the Financial Services Act as a global business entity.

An Authorised Company must have its central management and control outside Mauritius, and that is precisely what the Financial Services Act requires of it. The result is a structural trade-off: the company is not managed from Mauritius, so it is treated as non-resident for Mauritian tax, and a payer abroad has little ground to treat it as a Mauritian resident entitled to treaty rates. Treaty relief is therefore generally not something to count on. This is a general reading, and the position can differ with the specific treaty and the payer's practice, so confirm it with an adviser before you rely on it. The practical consequence is described in the limits of an Authorised Company.

The Tax Residence Certificate

Payers who apply treaty rates usually ask for a Tax Residence Certificate. In Mauritius, a person wishing to be certified as resident applies to the Director-General of the MRA, and the certificate is to be issued within 7 days of the application, provided the required return has been filed and the fee paid (section 73 of the Income Tax Act). Because that certificate attests residence, an Authorised Company treated as non-resident under section 73A should not expect to obtain one on the strength of its incorporation alone. Do not tell a client that a certificate is available unless your provider has confirmed in writing that it can be issued.

What Mauritius itself does with outbound payments

The question often comes up in reverse, so it helps to separate the two directions. The Second Schedule to the Income Tax Act provides that:

• royalties paid to a non-resident by a company out of its foreign-source income are exempt;
• interest paid to a non-resident who carries on no business in Mauritius, by a Global Business Licence company out of its foreign-source income, is exempt;
• dividends paid by a Mauritian resident company are exempt for the recipient, with no withholding provided on those dividends.

These are Mauritian rules for money leaving Mauritius. They say nothing about what a client in another country deducts when it pays you. The two sets of rules do not offset each other.

Reading the position: a summary table

A decision path for a new client contract

Who bears the deduction: contract wording

The most common practical dispute is not the deduction itself but who absorbs it. Three approaches appear in contracts:

1. Net of tax: the client pays the invoice total less withholding, and your company bears the cost.
2. Gross-up clause: the client increases the payment so that your company receives the agreed amount after deduction.
3. Price built in: you quote a higher fee from the start, knowing a deduction is likely.

A gross-up clause is common in royalty and licensing agreements, but many clients refuse it, particularly for services. Whichever route you choose, put it in writing. A contract that is silent usually leaves the loss with the recipient.

Also check how the payer will evidence the deduction. A withholding certificate or receipt from the payer's tax authority is often the only document that lets anyone claim relief elsewhere, and clients are not always quick to provide it.

Can the deducted tax be credited or refunded?

Withholding tax is a real cost unless it can be set against another tax or refunded. Three questions help:

• Does the payer's country allow a refund claim where the deduction exceeded what the law required? Procedures, deadlines and evidence differ, and a claim sometimes needs a local representative.
• Does the tax count as a credit anywhere? Mauritian credit for foreign tax depends on the Income Tax Act and the facts; ask your adviser how it applies to a company treated as non-resident. Do not assume a credit exists.
• Does the owner's home country give a credit when the profit is later taxed on the owner personally? This is a question of the owner's residence, covered in how the owner is taxed at home.

Where it bites hardest in practice

Software, licences and intellectual property

Royalty-type income is the classic target. A company that licenses code, content or a brand to customers abroad may find that each payer deducts tax on the licence fee. See holding intellectual property in an offshore company and software and SaaS businesses for the structuring questions that arise.

Consulting and services

Pure services rendered outside the client's country are often outside withholding, but not always. Some countries tax fees paid for services connected with their territory, and a person working on site can also create a permanent establishment risk. Describe the service accurately on invoices and in the contract; see invoicing clients from an offshore company.

Marketplaces and platforms

Platforms that pay sellers or creators may withhold under their own compliance process, using a tax form or residence declaration. Answer those forms truthfully, in line with where the company is managed. A declaration that does not match the facts can create a larger problem than the deduction it was meant to avoid.

Beyond withholding: other points to keep apart

Withholding is one layer among several, and the following are different issues:

• VAT or sales tax on sales to customers abroad follows its own rules; see VAT on sales to EU customers.
• Information exchange: Mauritian financial institutions report accounts held by non-residents to the MRA each year under the Common Reporting Standard, for exchange with treaty partners. Banking details are not hidden from the tax authorities of the owner's country.
• Beneficial ownership: the Registrar of Companies keeps a Beneficial Ownership Register accessible to competent authorities, which the Companies Act does not describe as public. Payers and banks may still ask you to identify the owner.
• Management location: where decisions are really taken affects residence arguments in every country; see managing an Authorised Company from abroad.

A short pre-contract checklist

• Identify the payer's country and the exact nature of the payment
• Ask the payer, in writing, whether it intends to withhold and on what legal basis
• Settle in the contract who bears any deduction
• Ask for proof of any tax withheld
• Record the facts on where the company is managed
• Ask an adviser in the payer's country about refund or credit options
• Review the contract again if the services or the delivery model change

Getting a tailored view

The answer depends on three variables: the payer's country, the nature of the payment and the owner's home country. A general page cannot resolve them. If you have a specific contract in mind, you can send a request through the contact form and have it relayed to an FSC-licensed corporate service provider (Management Licence), who can direct you to the right adviser for the paying country.