This growth is supported by a wealth of natural resources, particularly in the mining sector, which accounts for the majority of its export earnings. The emerging oil and gas industry is also spearheading the overall economic growth in the country with multiple discoveries of oil and gas sources led by the considerable natural gas deposits in the offshore field of Banda.
With the aim of maintaining the expeditious growth of Mauritania’s economy, a series of amendments were implemented to the tax legislation throughout the past few years in order to simplify the tax system and prevent tax evasion and erosion of the tax base. One of the main changes to the tax law occurred three years ago, when the local government introduced a simplified taxation regime for non-resident entities which do not have operations lasting for more than six months in the country, and thus do not require a local establishment. Even though this new regime was not explicitly communicated in the law, it made a significant difference for investors by limiting the administrative burden associated with the registration of a local presence.
The tax reform has continued in 2016 with the implementation of the Finance Act 2016, which focuses on this issue of transfer pricing. Whilst Mauritania does not have formal transfer pricing requirements, under the Mauritanian general anti-avoidance rules (GAAR), the tax authorities are entitled to adjust the prices applied for related party transactions to ensure that intercompany transactions are at arm’s-length. The Finance Act 2016 provides more clarification around the key concepts in respect to this issue. It has, inter alia, introduced a definition of ‘related parties’ which states that two enterprises are deemed to be related parties if an enterprise owns the majority of the shareholding capital / voting rights of another enterprise or when two enterprises are placed under the control of another enterprise.
In addition, the Finance Act has defined a thin capitalisation ratio of 25:75 (debt-to-equity), limiting the capacity to deduct interest against taxable profits. It has also introduced a similar provision into the controlled foreign company (CFC) rules preventing erosion of the domestic tax base by discouraging residents from shifting income to jurisdictions that do not impose tax, or that impose taxes at rates lower than 50% of the Mauritanian corporate income tax rate which is at 12.5%.
Mauritania’s investment in developing and improving its tax system is seen as an important measure to ensure continuous economic growth through promoting foreign investments, combatting tax evasion and limiting the burden on both taxpayers and the tax collectors.
This update was prepared by Khadija Idboujnane (khidboujnane@deloitte.com) of Deloitte in the Middle East.
