Capital Allowances on Equipment and Vehicles

When a Mauritian company buys a laptop, a delivery van or a production machine, it cannot simply deduct the purchase price in the year of payment. Capital allowances in Mauritius are the tax mechanism that spreads, or in some cases accelerates, that deduction. They are set by the Income Tax Act, not by your accountant's depreciation policy.

This page explains the logic, the main asset categories, how the claim fits into the return, and the points that usually cause errors. It is general information: the exact allowance for a given asset depends on its class, its use and the year of purchase, so confirm it with an adviser before you rely on it.

Capital allowances versus accounting depreciation

Your financial statements charge depreciation, which follows the accounting policy the directors choose under the framework in use (see IFRS for SMEs and annual financial statements). The tax computation does something different:

• Accounting depreciation is added back to the accounting profit, because it is not itself deductible.
• Capital allowances are then deducted in its place, at the rates and under the rules of the Income Tax Act.
• The result is the taxable income, taxed at the standard corporate rate of 15% (First Schedule, Part IV of the Income Tax Act, for income years starting on or after 1 July 2010).

The two figures are rarely equal. A company that depreciates a vehicle over a long period for accounting purposes may still obtain a faster or slower tax deduction. The difference is a normal timing item, not an error.

Day-to-day running costs such as repairs, fuel and small consumables follow a separate logic, covered in which business expenses a company can deduct. This page deals only with the cost of acquiring the asset itself.

What counts as a qualifying asset

Capital allowances generally apply to capital expenditure incurred to acquire assets used in producing taxable income. In practice, the categories most small and mid-sized companies meet are:

The rate and method for each row are fixed by the Income Tax Act and its schedules. They change with the Finance Acts, so a figure quoted from memory or from an old guide may be out of date. Always check the version of the Act in force for the year in which the asset was acquired.

How the allowance works step by step

The qualifying cost

The starting point is the cost of acquiring the asset and bringing it into use: the purchase price, non-recoverable duties, delivery and installation. Financing charges and later running costs are not part of it. If you cannot recover VAT on a purchase, the irrecoverable part is usually part of the cost. VAT treatment itself is handled elsewhere and is not developed here.

The year of purchase and the year of sale

Allowances are tied to the period in which the asset is acquired and used. An asset bought late in the year may not give the same first-year deduction as one bought early, depending on the class. When an asset is sold, scrapped or taken out of the business, the proceeds are compared with the amount still unrelieved. Depending on the result, the company may claim a further deduction or may be taxed on a balancing amount. The register should therefore record every disposal on the day it happens.

Motor vehicles: the category that attracts most queries

Vehicles deserve their own attention because the tax result differs sharply from the accounting result.

• A vehicle used wholly for the business supports a full claim on the qualifying cost.
• A vehicle that is also used privately, for example by a director, calls for an apportionment or a taxable benefit on the individual. The related payroll questions are discussed in PAYE for employers and how to pay a director properly.
• Passenger cars may be subject to a cap on the cost that qualifies, whereas goods vehicles and vehicles used in a transport trade are usually treated differently.

If a vehicle is leased rather than bought, the lease payments are normally a running expense instead of a capital allowance claim, subject to the terms of the lease. Ask for the analysis of the contract before you decide on the treatment.

Choosing the right treatment: a short decision tree

Capital allowances and tax losses

A company can sometimes report a tax loss because the allowances are large in the year of investment. The Income Tax Act then distinguishes between losses:

• An ordinary tax loss can be carried forward for five following income years, with a restriction if the shareholding changes by more than 50%.
• Certain losses, including those arising from capital allowances, can be carried forward without a time limit.

This difference matters for a company that is investing heavily. It means the unused allowance is not lost simply because profits arrive late. For the mechanics, see carrying forward a tax loss.

Where the claim appears in the tax return

Allowances are claimed in the annual return, in the computation that links the accounting profit to the taxable income. The supporting file should contain the fixed asset register, the invoices and the depreciation add-back. If the Mauritius Revenue Authority reviews the return, it will usually ask for exactly those documents; preparing for an MRA tax review explains how to organise them. For the filing itself, read corporate income tax return filing and the walkthrough on filing with the MRA online.

Quarterly instalments under the advance payment system are based on the taxable income, so a large allowance can reduce the instalments for the following period. That is a cash-flow consideration, not a reason to claim more than the law allows.

Common mistakes to avoid

• Claiming depreciation instead of the allowance. The accounting charge is not deductible on its own.
• Treating a repair as an asset, or the opposite. The line between a repair and an improvement needs a documented reason.
• Forgetting the disposal. A sold vehicle left in the register keeps producing a claim that no longer exists.
• Ignoring private use. A mixed-use asset needs an apportionment.
• Using a rate from an old year. The classes and rates are amended by the Finance Acts.
• Missing proof of use in the business. A purchase invoice alone does not show that the asset produces taxable income.

Good records are the cheapest protection. The general rules are in company records: what to keep, and the yearly routine is in the annual compliance checklist.

Does the regime differ by type of company?

The rules above apply to a company computing tax under the standard regime. A company holding a Global Business Licence or an Authorised Company is a "global business entity" for the Income Tax Act, and its tax position follows its own conditions, including substance requirements that are outside the scope of this page. A company that is incorporated in Mauritius but centrally managed and controlled elsewhere is treated as non-resident under section 73A, yet it must still file a return under section 116. If your structure is not a simple domestic company, ask for an analysis tailored to it through the contact form.