SA's new tax treaty with Mauritius announced

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The Anahita resort's swimming pool in Mauritius. A South African businessman is in custody after his girlfriend, Lee-Ann Palmarozza, was found dead in the pool.

JOHANNESBURG – South Africa has published plans to implement a new tax agreement signed with Mauritius.

This is aimed at preventing tax avoidance and evasion by multinational corporations in its official gazette after years of deliberations, the Treasury Department said on Friday. The tax treaty, finally published in the government’s gazette on Wednesday, will apply from January 1, 2016.

The new agreement introduces capital gains tax and will levy tax on interest and royalties earned. Authorities in both countries will, by mutual agreement, determine the tax status of companies and trusts that are registered in both countries. Tax authorities in South Africa and Mauritius will also work together to collect outstanding taxes.

The treaty introduces a 10 percent tax on gross interest and a five percent tax on royalties in the country where they are actually earned.

The agreement also makes provision for a capital gains tax when the disposed investments derive more than 50 percent of their value directly or indirectly from immovable property in one of the countries. The new treaty scraps tax sparing, which allowed for a company to be spared paying a tax, such as through tax breaks in a foreign direct investment project, as this was abused by requesting tax sparing in both countries, leading to double non taxation.

“This updated tax agreement reflects changes in the taxation policy of the two countries and is in line with the Organisation for Economic Co-operation and Development Model Tax Convention,” the Treasury said in a statement. It is also shaped by the G20 Base Erosion, Profit Shifting provisions