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13.2. Thin-capitalization and other Restrictions to Interest Deduction

The tax deduction of financing charges is limited or disallowed under various rules. Hence, interest paid to shareholders is deductible only where the capital is fully paid up. Also, the taxpayer is required to file a copy of the loan agreement and a certificate proving that withholding tax had been deducted. Further, the deduction of interest is capped at that remunerated at variable maximum rates depending on the lender:

  • For loans granted by Mauritanian financial institutions, the maximum deductible rate is that corresponding to the rate provided for under the Mauritanian banking regulations;
  • For loans granted by foreign financial institutions, the maximum deductible rate is that provided for by the banking regulations of the foreign country without exceeding the base rate of the Central Bank of Mauritania plus 2 percentage points; and
  • For other loans, the maximum deductible rate is the base rate of the Central Bank of Mauritania plus 2 percentage points.

Effective from 2016, the deduction of financial charges was subject to limitations under thin-capitalization rules. Pursuant to those rules, where debts owed to controlling shareholders at any time during the year exceed 3 times the borrower’s equity as determined at year-end, the interest deduction is limited to 25% of the borrower's taxable income.

The thin-capitalization rules were, however, repealed and replaced by new global earnings stripping rule effective from 2018. Under the new rules, the deductibility of financing charges for any year is globally capped at 25% of EBITDA. The global cap is reduced to 15% if the taxpayer is a member of a group with consolidated annual revenues in excess of MRU 10 billion during any of the preceding 3 years. However, the reduction to 15% shall not apply if the taxpayer evidences that its net financing ratio is not higher than the group's average ratio. In that case, the cap is fixed at the lower of 25% or the group's average ratio.

Interest the deduction of which is disallowed under the new rules may be carried forward and deducted during the following 3 years subject to the same global deduction caps. However, no carry-forward of excess interest is allowed if the interest was paid to persons established in a low-tax jurisdiction.

The global earnings stripping rules do not apply to regulated banks and insurance undertakings, nor to companies whose annual turnover does not exceed MRU 30 million.