Invest In India: A Guide For Us And Mauritian Investors

Mauritius is the main provider of foreign direct investment (FDI) to India, contributing 34% of the total FDI inflows to India between 2000 and 2017. This is due to Mauritius's status as a tax haven, with a corporate tax rate of 15% and an effective tax rate of only 3%. Additionally, the island has no withholding tax and no capital gains tax on dividends. This makes it an attractive place for investors to reroute their investments through, in a process known as treaty shopping. However, in 2016, India amended its double tax avoidance agreement with Mauritius, and in April 2019, capital gains on investments made in India through firms in Mauritius became fully taxable.

Mauritius is a tax haven for investors

Mauritius, a small island nation in the Indian Ocean, has gained a reputation as a tax haven, offering a low-tax environment, extensive double taxation treaties, and a stable political system. Its emergence as a tax haven has attracted international corporations and wealthy individuals seeking to optimize their tax strategies. However, this reputation has also drawn criticism, with some arguing that Mauritius's tax policies divert revenue from developing countries, particularly in Africa.

Mauritius has a corporate tax rate of 15%, but this effective rate is often lowered to just 3% through various rebates and exemptions. The country also has no withholding tax and no capital gains tax on dividends, making it extremely attractive for investors seeking to minimize tax liabilities on asset disposals. In addition, offshore businesses located in Mauritius that do not conduct business with Mauritians or use the Mauritian currency are entirely exempt from local taxes.

The journey to becoming an offshore financial hub began in 1989 when Mauritius sought to diversify its economy away from agriculture. By enacting the 1992 Mauritius Offshore Business Activity Act, foreign entities could incorporate companies with limited public disclosure, extremely low or no taxation, high levels of privacy, and asset protection. This plan solidified Mauritius as a "gateway to Africa," attracting investors and multinationals seeking to invest in the continent.

Mauritius also signed double tax avoidance agreements (DTAA) with numerous countries, including 18 African nations. While these agreements encourage investment by preventing double taxation, they have also been criticized for allowing multinationals to shield their assets and profits from authorities and the public.

In recent years, Mauritius has faced increasing scrutiny from international organizations and has taken steps to enhance its transparency and meet global financial standards. For example, the country has implemented reforms to address transparency issues and strengthen its regulatory framework, demonstrating a commitment to responsible tax practices. Despite these efforts, Mauritius remains an attractive destination for investors seeking to optimize their tax strategies when investing in India and other regions.

Mauritius's FDI to India totalled $134.5 billion between 2000 and 2019

Mauritius is the main provider of foreign direct investment (FDI) to India. Between 2000 and 2019, Mauritius's FDI to India totalled $134.5 billion. In fact, from April 2000 to January 2011, 39.6% of FDI to India came from Mauritius. Nine of the ten largest foreign companies investing in India during this period were based in Mauritius.

Mauritius's liberal investment policy allows foreign investors to invest in any sector of the Mauritian economy, except for the acquisition of real estate, which is generally restricted by the Non-Citizen Property Restriction Act, 1975. However, non-citizens can acquire luxury villas or property and gain resident or citizen status in Mauritius through the Integrated Resort Schemes (IRS) and Real Estate Scheme (RES). Mauritius has also removed other foreign investment barriers by lowering taxes, simplifying administrative procedures, keeping interest rates low, investing in education and training, and lowering trade barriers.

Mauritius's economic policies are geared towards creating a stable economic environment and encouraging investment. There are no exchange controls, capital gains tax, tax on dividends, or estate duty, and free repatriation of profits is allowed. Mauritius also permits 100% foreign ownership and does not require a minimum amount of foreign capital. The taxation regime is simplified, with a flat tax rate of 15%.

Mauritius's preferential trading arrangements with the EU, the US, African countries, and others have further enhanced its attractiveness for foreign investors. The country's diverse economic base, including emerging sectors such as agro-industry, renewable energy, seafood, manufacturing, and tourism, provides numerous investment opportunities.

Mauritius is the main provider of FDI to India

Mauritius is the main provider of Foreign Direct Investment (FDI) to India. Between 2001 and 2011, 39.6% of FDI to India came from Mauritius, totalling $134.5 billion since 2000. This is largely due to Mauritius's status as a tax haven, with a low 3% capital gains tax rate, no withholding tax, and no capital gains tax on dividends. This makes it an attractive place for investors to reroute their investments through, taking advantage of the lower tax rates. In fact, it is estimated that more than 90% of investments made by Mauritius are rerouted through the country by parties from elsewhere.

Additionally, Mauritius has a stringent legal and regulatory framework recognised by the International Monetary Fund, Financial Stability Board, and the Organisation for Economic Co-operation and Development (OECD). It also has a Double Taxation Avoidance Agreement (DTAA) with India, which provides specific relief to taxpayers to save them from double taxation. This makes Mauritius an even more attractive conduit for investments into India.

Furthermore, most citizens of Mauritius have an ethnic identity with India, so they feel more secure when investing in the country. The two countries also share cultural affinities and historical ties, which make Mauritius-based companies the preferred jurisdiction for Indian outward investments into Africa.

The main sectors that attract the highest foreign inflows to India include services, telecoms, trading, computer hardware and software, and automobiles.

India amended its tax treaty with Mauritius in 2016

The PPT is an anti-abuse provision that applies to both countries. It states that a benefit under the treaty will not be granted if it is reasonable to conclude that one of the main purposes of the arrangement is to directly or indirectly take advantage of the treaty to avoid taxation. This provision is designed to prevent "treaty shopping" and ensure that the common intention of both parties is to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance.

The amended treaty also includes a principle purpose test to judge whether tax benefits under the treaty will apply to investments. Tax benefits will not be granted if it is found that availing of tax benefits was one of the reasons for the transaction. This test further strengthens the treaty's anti-abuse provisions and ensures that the treaty is not used for tax evasion or avoidance purposes.

The India-Mauritius tax treaty is a Double Taxation Avoidance Agreement (DTAA) that was first signed in 1982 to prevent non-resident investors from paying double taxes. The amended treaty maintains this provision, ensuring that investors are not unfairly burdened. However, it also addresses concerns about the misuse of the treaty for tax evasion and avoidance, particularly through "investment round-tripping" and "re-invoicing" practices.

The amendment to the India-Mauritius tax treaty is a significant change that aims to curb tax evasion and avoidance while still providing protection against double taxation for legitimate investors. It is part of India's efforts to crack down on fishy FDI activities and ensure fair and transparent taxation practices.

Mauritius has a liberal investment policy

Mauritius has removed significant barriers to foreign investment by lowering taxes, simplifying administrative procedures, keeping interest rates low, investing in education and training, and lowering trade barriers. The country has also maintained preferential access to its main markets. Business activities can be started within three working days, based on self-adherence to comprehensive guidelines, and the authorities may check for compliance by exercising ex-post control.

One-shareholder companies are permissible under local laws, and registration of firms, except those dealing in financial services, need only be done with one body—the Registrar of Companies. For operation in financial services, approval is required from the Financial Services Commission (FSC) and/or the Central Bank, the Bank of Mauritius (BOM). The BOM is responsible for the licensing, regulation, and supervision of the banking sector, while the FSC is responsible for the non-banking sector.

Mauritius's economic policies are geared towards creating a stable economic environment and have placed significant emphasis on encouraging investment. Exchange controls have been removed, and there is no capital gains tax, tax on dividends, or estate duty. Free repatriation of profits is allowed, and 100% foreign ownership is permitted with no requirement for a minimum amount of foreign capital. Taxation regimes have been simplified, with a 15% flat tax rate.

Mauritius has preferential trading arrangements with the EU, the US, and several African countries. The country is also diversifying its economic base by actively promoting emerging sectors, creating more investment opportunities in various sectors like agro-industry, renewable energy, manufacturing, and tourism, among others.

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