Termination of DTA between Zambia & 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.

Published: International Taxation Newsletter, No. 13, Autumn 2020 l Photo: Arnold - stock.adobe.com