top of page

Tax and Penalties

Writer's picture: Tristan Doger de SpevilleTristan Doger de Speville

TAX. Every citizen's favourite word.

It is a complex matter guided by legal legislation which always affects property transactions. This article will explain the basics of property taxation in Mauritius and how it impacts market participants, real estate agents, notaries, and property valuers.


First, we have to understand that property taxation involves various aspects of the law. We will give a brief overview of what happens when real estate property transacts from a seller to a buyer. We will not cover transactions through companies or transfer of shares. The two primary legal documents involved are 1) The Land (Duties and Taxes) Act 1984 & 2) The Registration Duty Act 1804. For more detail, please refer to these documents.


Property taxation is divided into two sections:


The land Transfer (LTT) tax paid by the seller

The registration duty (RD) paid by the buyer



Example 1


Freehold: Mrs A sells Mr B a house with a market value of MUR 10,000,000.00.

  • Mrs A has to pay LTT at 5 % of market value = MUR 500,000.00

  • Mr B has to pay RD at 5 % of market value = MUR 500,000.00


Example 2


Share in Society: Mrs A sells Mr B shares in 'Societe d'attribution', giving private enjoyment of a specific unit. The unit to which the shares give private ownership or enjoyment has a market value of MUR 10,000,000.00.

  • Mrs A has to pay LTT at 5 % of market value = MUR 500,000.00

  • Mr B has to pay RD at 5 % of market value = MUR 500,000.00


Example 3


Leasehold: Mrs A sells Mr B a house located on a leasehold portion of beachfront land (Pas Geometriques) with a market value of MUR 10,000,000.00. This number is split into MUR 7,000,000.00 for the leasehold interest over the land and MUR 3,000,000.00 for the house.

  • Mrs A has to pay

1 - LTT at 5 % of overall market value = MUR 500,000.00 +

2 - 10 % tax of the leasehold interest over the land only = MUR 700,000.00.

  • Mr B has to pay

1 - LTT at 5 % of overall market value = MUR 500,000.00 +

2 - 10 % tax of the leasehold interest over the land only = MUR 700,000.00.



Example 3 (2)


Second leasehold example: Mrs A sells Mr B an apartment located on a leasehold (Pas Geometriques) portion of land. The apartment has a market value of MUR 10,000,000.00 and possesses 20/100eme rights in the common parts of the complex. The leasehold interest over the land on which the complex is built has a market value of MUR 20,000,000.00.


  • Mrs A has to pay

1 - LTT at 5 % of overall market value of the apartment = MUR 500,000.00 +

2 - 10 % tax of the shares the apartment has over the leasehold interest over the land only based on the shares of the common part. This tax equals 10 % of the share the apartment has over the leasehold right of the land. The calculation will be : 10% of 20 % of MUR 20,000,000 or: 10% * ( 20,000,000.00 * 20%) = MUR 400,000.00


  • Mr B has to pay

1 - RD at 5 % of overall market value of the apartment = MUR 500,000.00 +

2 - 10 % tax of the shares the apartment has over the leasehold interest over the land only based on the shares of the common part. This tax equals 10 % of the share the apartment has over the leasehold right of the land. The calculation will be : 10% of 20 % of MUR 20,000,000 or: 10% * ( 20,000,000.00 * 20%) = MUR 400,000.00


You might be wondering how a property valuer is involved in the legal aspects of the property. In property, each profession has a specific role:

  1. Sale Agent: their role is to reach an agreement between two market participant over a property, disregarding taxation matter. As long as both parties are satisfied over a transaction price, their duty is completed. They will raise awareness about taxation but are not liable in any ways regarding the matter.

  2. Notary: their role in a property transaction is to draw the deed legally acknowledging the transfer of ownership between the parties. A section of the deed report the agreed transaction price and reflect if the transaction price is the property's real value. They will also explain the tax consequences of under-declaration to the parties.

  3. Valuer: their role is to express the property's market value so that the market participant knows if their agreed price is below, equal or higher than the market value. They advise the seller and buyer on what value should be declared in the deed to avoid tax penalties.



When property transacts, taxes (LTT and RD) are paid to the government. It is the amount of taxes that are important to the government. The price agreed upon between the buyer and seller is not essential to the government as long as taxes are calculated on the property's actual market value.


So when property transacts, this is what happens:

  • Buyer and seller agree on a price

  • Notary draws and registers the deed. There is the actual transaction price and the declaration that the transaction price is the real market value of the property in the deed. If not, the real market value should be stated as taxation will be calculated on this amount. The registration date is essential.

  • When the government receives the deed, the valuation department will assess it. If they believe the value declared is up to market value, then all good. Suppose they believe the value declared is below market value. In that case, they will reassess the property to its real market value and require further taxes to be paid on the difference between declared price and assessed market value + penalties.


The declaration amount is where valuers have an essential role. Before registering the deed, they can advise if the transaction between the buyer and seller is up to market value and, if not, what is the correct market value to avoid tax penalties.


Example: Two parties agreed on a price over a portion of land for MUR 5,000,000.00. This price will be registered in the deed, and if the parties declare it is the real market value of the land, then the taxes will be calculated on 5 million.

If the government believes, based on evidence, that the land market values is MUR 8,000,000.00, they will reassess and require additional tax at the standard rate to be paid on the difference between 5 and 8 million + penalties.



Penalties are as follow:

  • If 10 % - 50% difference between market value and value declared, a penalty representing 10 % of the additional tax

  • If 50% and more difference, a penalty of 25% of the additional tax.

In our example, the parties will each have to pay additional tax at 5% of the difference (3 million) + 25% of the additional tax as penalty (or 25% of 5% of 3 million).



Comments


bottom of page