Investing Into India: Mauritius And Beyond

Author:Mr Mahesh Kumar
Profession:Withers LLP
 
FREE EXCERPT

Mauritius and India recently signed a protocol phasing out the Capital Gains Tax exemption available under their double-tax treaty with respect to the sale of Indian securities. This is a major development impacting both Mauritian and Singapore investment structures which currently contribute around 50% of the foreign direct investment into India.

India's GDP is forecast to grow at around 7.5% this year, placing it well ahead of the other BRIC economies. Such a positive macro-economic trend, backed by its robust market and reform oriented Government, has made India a desirable destination for global investors.

Investments by Mauritian investors prior to April 1, 2017 are grandfathered and can continue to avail themselves of the Capital Gains Tax exemption. In the future, Dutch structures are likely to become more attractive for equity investments in India. However, with the lower 7.5% withholding tax on interest offered by the amended treaty, Mauritius may emerge as a preferred option for India-focused debt investments.

These structures will continue to be influenced by global developments, such as the BEPS initiative, and the growing consensus against aggressive tax-driven structures not justifiable by economic substance.

The amendment to the India-Mauritius treaty presents challenges as well as new opportunities − clearly a good reason to review and revisit structures and strategies for investing in India.

Why Mauritius?

There are both commercial and tax-driven reasons for investing in India from Mauritius. Global investors consider Mauritius to be a stable and established holding company jurisdiction with advanced corporate laws and an efficient legal system. It offers unique hybrid vehicles such as the protected cell company, significant corporate flexibility and permits cross-border mergers.

The wide network of Bilateral Investment Protection Treaties ('BIT') signed by Mauritius is also an important benefit available to Mauritius based entities. The relevance of BITs, especially in the India-Mauritius context is discussed below.

Mauritian residents have benefited from the India-Mauritius tax treaty which exempts Indian Capital Gains Tax payable on the sale of Indian securities. In the absence of treaty relief, the tax liability ranges from 10% to 40%[1]  of the capital gains depending on the nature of the investment and the holding period.

To date, the Capital Gains Tax exemption has not been subject to any expenditure threshold, 'substance', limitation or relief criteria. Further, an Indian Revenue Authority circular[2]  states that the exemption...

To continue reading

REQUEST YOUR TRIAL