The closure of a tax loophole could hit UAE firms planning to invest in India through Mauritius.
The Indian government this week amended a long-standing treaty that helped foreign investors to avoid capital gains tax by routing their investments through Mauritius.
Mauritius is the biggest source of foreign direct investment (FDI) in India. It accounted for 34 per cent of more than US$93 billion in FDI between April 2000 and December last year, data from the Indian government show.
It was followed by Singapore in second place, which made up 15.53 per cent of FDI in India. These destinations are said to have been used as tax havens because investments from these countries have been exempt from capital gains tax.
But the Indian government last week amended the more than three-decade old tax treaty with Mauritius to introduce the tax on investments from the island starting April onwards.
Arun Jaitley, India’s finance minister, this week said that the tax treaty with Singapore will also be changed.
“The tax could lead to lower expected returns for investors, which in turn could cause inflows from Mauritius to slow,” said Shilan Shah, the India economist at Capital Economics. “This could have a significant impact, particularly given that Mauritius is the dominant source of FDI into India.”
Investment through such countries has came under scrutiny in India amid concerns about “round tripping”, whereby Indian investors and companies have routed their money through countries such as Mauritius to reduce tax liabilities.
At the same time, the Indian government also wants to reduce lost revenues from foreign investors who simply use offshore centres as a means of avoiding tax.
“Some UAE companies have been using the Mauritius platform to invest in India, primarily because there was some uncertainty as far as the UAE-India tax treaty was concerned earlier,” said Suresh Swamy, a partner at PwC India. “The UAE-India tax treaty was amended to provide certainty to investors coupled with taking away the capital gains exemption on sale of shares.”
Companies including private equity funds in the UAE and Etisalat have invested in India through Mauritius.
“Since the India-Mauritius tax treaty will no longer be beneficial for capital gains on sale of shares, it is likely that companies will start investing from their home country,” Mr Swamy said.
“Ultimately it is a question of how an investor is coming into India vis-à-vis its competitors, so no one is getting an undue benefit. It is likely that UAE companies will now start investing directly rather than using the Mauritius platform.”
Investing through offshore centres can be a legitimate process for many companies and investors.
Kartick Maheshwari, a partner at Khaitan and Co, a law firm in India, said the move was positive because it created “more certainty in the tax regime”.
Because the tax on investment from Mauritius will not come into effect until April, and because investments made before that would receive the benefits of the old treaty, some have speculated that there could be a spike in FDI into India from Mauritius over the coming months.
“By imposing the tax, the government could actually be making steps towards improving investor sentiment towards India,” Mr Shah said. “The former tax treaty between India and Mauritius has raised frequent concerns that Indian companies are funnelling money through Mauritius and back into India to avoid paying domestic taxes. Given this, the imposition of the new capital gains tax provides a clear indication that the Modi administration is attempting to root out corruption.”
business@thenational.ae
Follow The National's Business section on Twitter
How to wear a kandura
Dos
- Wear the right fabric for the right season and occasion
- Always ask for the dress code if you don’t know
- Wear a white kandura, white ghutra / shemagh (headwear) and black shoes for work
- Wear 100 per cent cotton under the kandura as most fabrics are polyester
Don’ts
- Wear hamdania for work, always wear a ghutra and agal
- Buy a kandura only based on how it feels; ask questions about the fabric and understand what you are buying
Other workplace saving schemes
- The UAE government announced a retirement savings plan for private and free zone sector employees in 2023.
- Dubai’s savings retirement scheme for foreign employees working in the emirate’s government and public sector came into effect in 2022.
- National Bonds unveiled a Golden Pension Scheme in 2022 to help private-sector foreign employees with their financial planning.
- In April 2021, Hayah Insurance unveiled a workplace savings plan to help UAE employees save for their retirement.
- Lunate, an Abu Dhabi-based investment manager, has launched a fund that will allow UAE private companies to offer employees investment returns on end-of-service benefits.
The specs
Engine: Four electric motors, one at each wheel
Power: 579hp
Torque: 859Nm
Transmission: Single-speed automatic
Price: From Dh825,900
On sale: Now
Milestones on the road to union
1970
October 26: Bahrain withdraws from a proposal to create a federation of nine with the seven Trucial States and Qatar.
December: Ahmed Al Suwaidi visits New York to discuss potential UN membership.
1971
March 1: Alex Douglas Hume, Conservative foreign secretary confirms that Britain will leave the Gulf and “strongly supports” the creation of a Union of Arab Emirates.
July 12: Historic meeting at which Sheikh Zayed and Sheikh Rashid make a binding agreement to create what will become the UAE.
July 18: It is announced that the UAE will be formed from six emirates, with a proposed constitution signed. RAK is not yet part of the agreement.
August 6: The fifth anniversary of Sheikh Zayed becoming Ruler of Abu Dhabi, with official celebrations deferred until later in the year.
August 15: Bahrain becomes independent.
September 3: Qatar becomes independent.
November 23-25: Meeting with Sheikh Zayed and Sheikh Rashid and senior British officials to fix December 2 as date of creation of the UAE.
November 29: At 5.30pm Iranian forces seize the Greater and Lesser Tunbs by force.
November 30: Despite a power sharing agreement, Tehran takes full control of Abu Musa.
November 31: UK officials visit all six participating Emirates to formally end the Trucial States treaties
December 2: 11am, Dubai. New Supreme Council formally elects Sheikh Zayed as President. Treaty of Friendship signed with the UK. 11.30am. Flag raising ceremony at Union House and Al Manhal Palace in Abu Dhabi witnessed by Sheikh Khalifa, then Crown Prince of Abu Dhabi.
December 6: Arab League formally admits the UAE. The first British Ambassador presents his credentials to Sheikh Zayed.
December 9: UAE joins the United Nations.
One in nine do not have enough to eat
Created in 1961, the World Food Programme is pledged to fight hunger worldwide as well as providing emergency food assistance in a crisis.
One of the organisation’s goals is the Zero Hunger Pledge, adopted by the international community in 2015 as one of the 17 Sustainable Goals for Sustainable Development, to end world hunger by 2030.
The WFP, a branch of the United Nations, is funded by voluntary donations from governments, businesses and private donations.
Almost two thirds of its operations currently take place in conflict zones, where it is calculated that people are more than three times likely to suffer from malnutrition than in peaceful countries.
It is currently estimated that one in nine people globally do not have enough to eat.
On any one day, the WFP estimates that it has 5,000 lorries, 20 ships and 70 aircraft on the move.
Outside emergencies, the WFP provides school meals to up to 25 million children in 63 countries, while working with communities to improve nutrition. Where possible, it buys supplies from developing countries to cut down transport cost and boost local economies.
Our legal consultant
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
Guide to intelligent investing
Investing success often hinges on discipline and perspective. As markets fluctuate, remember these guiding principles:
- Stay invested: Time in the market, not timing the market, is critical to long-term gains.
- Rational thinking: Breathe and avoid emotional decision-making; let logic and planning guide your actions.
- Strategic patience: Understand why you’re investing and allow time for your strategies to unfold.
The Sand Castle
Director: Matty Brown
Stars: Nadine Labaki, Ziad Bakri, Zain Al Rafeea, Riman Al Rafeea
Rating: 2.5/5
THE LIGHT
Director: Tom Tykwer
Starring: Tala Al Deen, Nicolette Krebitz, Lars Eidinger
Rating: 3/5
The specs
Engine: Direct injection 4-cylinder 1.4-litre
Power: 150hp
Torque: 250Nm
Price: From Dh139,000
On sale: Now
