Termination of DTA between Zambia & Mauritius
By Graeme Saggers, Nolands
The Zambian Government announced the termination of the Double Taxation Agreement (“DTA”) between the Government of the Republic of Zambia and the Government of the Republic of Mauritius on the 22nd of June 2020 by way of a written notice of termination given to Mauritius.
In terms of clause 1 of Article 28 of the DTA, the parties to the agreement are required to give notice to terminate by 30 June of the calendar year, provided that the treaty has been in force for a minimum of five years. In terms of clause 2 of Article 28, the DTA will cease to apply on the last day of the calendar year of the country. Thus, the treaty would cease to apply from 01 January 2021 in Zambia and 01 July 2021 in Mauritius.
The reasons for termination
The current DTA, which came into force on 15 June 2012, gives full taxing rights to the country of residence of the receipt of income. It covers income from various specific sources and provides for a reduced rate of withholding tax on dividends (5% if the beneficial owner is a company which holds at least 25% of the capital of the company paying dividends, otherwise 15%), interest (10%) and royalties (5%). With the unbalanced treaty in place, the Zambian Government appeared to be “losing” taxing rights on cross-border payments of dividends, interest and royalties to residents of Mauritius.
Further reasoning is that management fees are not specifically covered by the DTA and therefore Zambia is not allowed to charge a withholding tax fee on management fees where there is no physical presence in Zambia.
New DTA prospects
The Zambian Government indicated that they intend to initiate negotiations with Mauritius of a new DTA. It is anticipated that the new DTA will include higher withholding tax rates, more balanced shared taxing rights, and provide for inti-abuse clauses to prevent the benefits of the DTA being used solely to avoid tax.
Graeme SaggersGGI member firm
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Nolands is an international auditing firm located in 11 offices in all major centres in Africa. Nolands employs almost 200 people and focuses on providing the best possible solutions for its clients. The company prides itself on being “not ordinary” and on its ability to integrate services and respond rapidly to clients’ needs.
Graeme Saggers is the Tax Director for Nolands. He holds a BCom (Hons) degree from Rhodes University and an MCom (Tax) degree from the University of Cape Town. Graeme qualified as a chartered accountant in 2009 after completing his articles at KPMG. He joined Nolands in 2011 as an audit manager and was appointed as a tax partner at Nolands in September 2014. Graeme is Regional Chairperson Middle East Africa of GGI’s ITPG.
Published: International Taxation Newsletter, No. 13, Autumn 2020 l Photo: Arnold - stock.adobe.com