Mauritius to Tighten India Tax Treaty Loophole, Singapore to Benefit
Jul. 26 – Mauritius, long the largest sender of foreign direct investment into India thanks to a loophole in its tax treaty which allows Mauritius-based holding companies to offset capital gains taxes (CGT), is finally looking to close this loophole following pressure from the Indian government.
The Indian government has estimated that over US$74 billion of foreign money has gone through Mauritius into India since 2000 (good for an estimated 40 percent of India’s total FDI since the early 2000s), and India’s Department of Revenue estimates that it loses between US$100 million and US$500 million annually thanks to the loophole.
To fix this issue, Mauritius recently promulgated new regulations to its offshore company law, which now states that companies wishing to take advantage of its tax treaty and the corresponding CGT benefits must have “substantial” business operations in the country. This may now be additionally fortified by new requirements that would require non-financial investment companies to be listed on the Stock Exchange of Mauritius before being able to apply for treaty benefits. Administration measure could also limit the number of Mauritian companies an individual can be a director of. Meanwhile, India’s RBI has also stepped in, insisting that funds invested into India from Mauritian companies are inspected by them first.
As a result, these measures have pushed Singapore into the forefront as the new preferred offshore jurisdiction for holding investments into India, especially since India also maintains a free trade agreement (FTA) with ASEAN that covers several thousand products, and because Singapore charges zero income tax on profits realized externally from the country. India also has a bilateral DTA with Singapore.
“The days of using Mauritius companies as an offshore entry vehicle into India are now drawing to a close. Singapore is a much better option as it has a low tax structure, excellent international financial and banking services, and offers the ASEAN FTA which Mauritius cannot,” comments Chris Devonshire-Ellis, Managing Partner of Dezan Shira & Associates for India and Singapore.
Dezan Shira & Associates provided the Chinese translation of Mauritian corporate documentation and offshore company laws to the Mauritian Government in 1996.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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