Tax benefits for South African buyers

There are potential downstream benefits to South Africans considering an investment in the Mauritian property market in terms of their Tax regime. This is not an automatic progression from the purchase of an IRS or RES property, but the opportunity exists for SA buyers to take advantage of Mauritius’ lower taxation rates.

In order for SA buyers to make use of their SADC property allowance to externalise the purchase consideration of the property, they must be investing as individuals, and as all of these buyers fall into the top Income Tax bracket in South Africa, they are taxed on their income at 40%. In addition, any assets disposed of with a Capital Gain are taxed at 25% of net gains realised.

In contrast, the Mauritian tax regime provides for both individuals and corporate entities to be taxed at only 15%, and has no Capital Gains Tax.

Furthermore, Mauritian authorities do not require that any Estate Duty is payable should an owner pass away, another contrast to the current SA situation.

In order to qualify as a Mauritian Tax Resident, an IRS or RES property owner must declare their intention to become such to the South African and Mauritian Revenue Services at the start of the Tax year, thereafter must spend a minimum of 183 days per calendar year on the island. Buyers are encouraged to work closely with their Tax Consultants in determining exactly what the right domicile is for them, and whether they can benefit in a real sense from altering their current Tax regime.

Externalising your Rands – Utilising the SADC Property Allowance

South Africans are restricted in terms of the flow of their funds to and from SA by an offshore allowance, the value of which is determined by local authorities.

Currently, South Africans can have a maximum of R4m per person out of the country at any one time. Investing in Mauritius, however, provides a unique opportunity for buyers to externalise the full purchase consideration of an IRS or RES property without impacting on the designation or extent of their offshore allowance.

Basically, South Africans are entitled to invest in holiday properties in Mauritius in their individuals capacities, thus using their Rands (ZAR) to invest in a Dollar (USD) based property market. This externalisation includes the property land price, construction, furnishings, swimming pool, landscaped gardens, as well as all taxes and fees applicable, thus maximising the currency–hedge aspect of the investment.

In pure property terms, the Mauritian IRS and RES developments have proven remarkably resilient, with Finweek reporting in December 2009 that “….not one of the 400 odd overseas buyers who have bought into an IRS scheme since 2005 has resold at a loss. In fact, finding show IRS property values have increased by an average 35%/year over the past two years.

“Effectively, the SADC Property Allowance gives South Africans the opportunity and ability to invest in an emerging property market that has outperformed the world’s best established destinations over the last 24 months.

When one considers the stability of both the Mauritian political situation, and property market during the worst of the international recession, the island begins to look like an investor’s paradise in more ways than one…