MAURITIUS Law and Practice Contributed by: Johanne Hague, Ashwin Mudhoo, Medina Torabally and Yushrah Bayjou, CMS Prism in association with CMS
4. Family Business Planning 4.1 Asset Protection
If a Mauritius resident is a trustee of a foreign trust or foundation, there should be no adverse tax conse - quences in Mauritius (assuming the Mauritius resident is not also a beneficiary). Since Mauritius taxes on the basis of residency (as opposed to citizenship), citizen - ship status (generally) does not have any impact on the taxability of an individual. If a Mauritius-resident beneficiary receives a distri - bution from a foreign trust or a foundation, the tax treatment of the distribution will (partly) depend on the treatment of the foreign trust/foundation. Any income distributions from a trust/foundation which is opaque under its law of establishment will typically be treated as a foreign-sourced dividend and be taxable in the hands of the resident beneficiary as per the applicable tax band under the progressive tax system effective from 1 July 2023. If the trust/foundation is transparent under its law of establishment, the underlying character of the dis - tribution will usually be respected in Mauritius - ie, income distributions will be taxable and capital dis - tributions will normally be treated as exempt in the hands of the resident beneficiary. 3.4 Exercising Control Over Irrevocable Planning Vehicles Mauritian trusts are considered to be irrevocable by the settlor unless the trust instrument contains provi - sion allowing for revocability. A trust may be declared void if it was established with the intent to defraud persons who are creditors of the settlor at the time when the trust property was vested in the trustee. Mauritian courts will not recognise the validity of any judgment to any claim against trust property made by another jurisdiction in respect of the personal prop - erty consequences of their desires through a letter of wishes addressed to the trustees. The letter of wishes is not binding, although the trustees would typically respect it so long as the letter is in line with the trust deed and does not have any adverse impact on the trustees’ fiduciary duties or any of the beneficiaries’ rights. Alternatively, the settlor may also be a protec - tor (thereby retaining some powers over the trust), although in practice this is less common.
The most popular method for asset protection plan - ning in Mauritius is through the establishment of trusts or foundations. For a trust to be created, the parties will be required to transfer their assets into the trust by way of a deed of settlement, and the assets will cease to form part of their estate after such transfer. A trustee will be appointed to hold the assets on behalf of the beneficiaries, the heirs of the parents. Once the property is settled into a trust, the property no longer forms part of the estate of the settlor. However, a trust may be declared void if it was established with the intent to defraud persons who are creditors of the settlor at the time when the trust property was vested in the trustee. In recent years, foundations have also become popu - lar tools of asset protection planning. 4.2 Succession Planning As well as for asset protection, trusts are commonly used for estate planning purposes. Although the distributions through a trust may still be challenged on the basis of the forced heirship rules, the risk is fairly low as opposed to other options, given that the trustee may be instructed to make the dis - tributions by ensuring that each child receives their reserved portion upon the parent’s death. In the case of families where one parent is deceased, the trustee may be instructed not to distribute the properties of the deceased spouse immediately upon their death. Instead, the instructions may require the trustee to pay each child their corresponding reserved portions in cash and subsequently distribute all properties according to the rules of succession at the time of death of the other spouse. In the case of a trust, the reserved portion of each child may be calculated at the time of death (instead of prior to death) so as to ensure a more precise cal - culation. The distributions can also be made free of any dispute, as the protected heirs would have little to no reason or motivation to challenge it. Further, the determination of the reserved portion and compensa -
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