Mauritius Court Clarifies Tax Relief for Incidental Interest Income

Landmark Privy Council ruling confirms operating companies can still benefit from Mauritius’ partial tax exemption on qualifying interest income

This article is based on insights provided by Javed Niamut (Partner), Bowmans, on the Privy Council’s recent decision interpreting Mauritius’ substance-based tax exemption regime.

Mauritius Court Clarifies Tax Relief for Incidental Interest Income. A landmark ruling by the Judicial Committee of the Privy Council has provided greater certainty for businesses operating in Mauritius by confirming that companies do not need to be financial institutions or lending businesses to qualify for the country’s partial tax exemption on interest income.

In Alteo Energy Ltd and another v Director-General, Mauritius Revenue Authority [2026] UKPC 27, the Privy Council dismissed an appeal by the Mauritius Revenue Authority (MRA) and ruled that a Mauritius-resident operating company earning incidental interest income may still qualify for the country’s 80% partial income tax exemption, provided it satisfies the required substance conditions.

The decision offers important guidance on how Mauritius’ substance-based tax regime should be interpreted and is expected to provide reassurance to both domestic businesses and international investors using Mauritius as a regional investment hub.

Why the Case Matters

Mauritius introduced its current partial exemption regime in 2019 as part of reforms responding to the OECD’s Base Erosion and Profit Shifting (BEPS) Action 5 initiative on harmful tax practices.

The reforms replaced the country’s previous preferential tax regime with a system that grants tax exemptions only where companies demonstrate genuine economic substance within Mauritius.

Under Item 7 of Sub-part B of Part II of the Income Tax Act 1995, qualifying companies may benefit from an 80% exemption on interest income, provided they meet prescribed substance requirements.

Those conditions include:

• Carrying out core income-generating activities in Mauritius;
• Employing an adequate number of suitably qualified personnel; and
• Incurring expenditure proportionate to the level of business activities undertaken.

The same substance-based approach also applies to several other categories of exempt income under Mauritius’ tax legislation, including ship and aircraft leasing, as well as reinsurance activities.

Background of the Dispute

The dispute involved Alteo Energy Ltd, a Mauritius-incorporated company primarily engaged in electricity generation.

During the 2019/2020 tax year, approximately 95.7% of Alteo’s income came from electricity sales to the country’s Central Electricity Board.

The company also earned a relatively small amount of interest income from loans it had advanced, representing only 0.25% of its total income.

Although the interest formed only a minor part of Alteo’s overall business, the company claimed the available 80% partial exemption on that interest income.

However, the Mauritius Revenue Authority rejected the claim.

According to the tax authority, Alteo’s principal business was electricity generation—not money lending—and therefore it did not satisfy the “core income generating activities” requirement necessary to obtain the exemption.

After the Assessment Review Committee upheld the MRA’s position, the dispute progressed through the courts before ultimately reaching the Privy Council.

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The Central Legal Question

The case centred on the interpretation of one phrase within Mauritius’ Income Tax Regulations:

“Core income generating activities.”

The Privy Council was asked to determine two key issues:

• Does “income” refer to all of a company’s income or only the specific category of income for which the exemption is claimed?
• Does “core” mean the company’s principal business activity, or simply the essential activities generating the qualifying income?

The answers would determine whether companies earning only incidental interest income could still access the exemption.

Privy Council Rejects the Tax Authority’s Interpretation

Delivering the judgment, Lord Leggatt rejected the Mauritius Revenue Authority’s interpretation.

The Court held that the relevant “income” refers only to the particular category of income eligible for exemption—in this case, interest income—not the company’s total business income.

The Court also clarified that “core” modifies the activities that generate the qualifying income rather than describing the company’s overall business.

In practical terms, this means that a company does not need lending to be its primary commercial activity before qualifying for the exemption.

Instead, the relevant question is whether the activities generating the interest income are genuinely carried out in Mauritius with adequate economic substance.

Applying that reasoning to Alteo, the Privy Council found that all of the company’s operations—including those connected with the interest income—were conducted in Mauritius using appropriate staff and sufficient expenditure.

The Court therefore concluded that the statutory substance requirements had been satisfied and upheld Alteo’s entitlement to the 80% partial exemption.

Wider Implications for Businesses

The judgment is expected to have implications beyond the electricity sector.

Many Mauritius-resident companies occasionally generate interest income from shareholder loans, inter-company financing arrangements or temporary investments, even though lending is not their principal line of business.

Following the Privy Council’s decision, such incidental income may still qualify for partial exemption provided companies maintain genuine economic substance within Mauritius.

The ruling also confirms that the Mauritius Revenue Authority cannot deny tax relief solely because the qualifying income arises from a secondary or incidental activity.

Impact Beyond Interest Income

Importantly, the Court’s interpretation is expected to extend beyond interest income.

The same “core income generating activities” wording appears across several other exemption provisions within Mauritius’ Income Tax Act.

As a result, businesses involved in:

• Ship leasing;
• Aircraft leasing;
• Reinsurance; and
• Other qualifying exempt income categories

may also benefit from the Court’s interpretation when applying the substance requirements.

The ruling therefore provides broader certainty across Mauritius’ entire substance-based exemption framework.

Why the Decision Matters for Mauritius

Mauritius has positioned itself as one of Africa’s leading international financial centres.

Since introducing substance requirements in response to international tax standards, businesses have sought greater clarity on how those rules should operate in practice.

The Privy Council’s judgment reinforces the principle that the country’s tax incentives remain available to genuine businesses with real economic activity in Mauritius, while avoiding an overly restrictive interpretation that could discourage investment.

The decision also demonstrates Mauritius’ continued commitment to balancing international tax compliance with maintaining an attractive investment environment.

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