The revision of the India-Mauritius Treaty Protocol in 2024 marks a significant evolution in the financial relationship between India and Mauritius. These changes will likely affect the strategic decisions of global investors. Blue Azurite gives you an insight into specific financial impacts for a deeper understanding of the treaty’s implications.
Historically, the India-Mauritius tax treaty has facilitated an estimated $8 billion annual investment flow into India, accounting for approximately 34% of FDI inflows over the past decade. The treaty’s appeal largely stemmed from Mauritius’ favorable tax regime, which has been pivotal in channeling investments into Indian markets.
What are the major changes?
Capital gains tax
With the new treaty, for shares acquired from April 2024 onwards, capital gains will be taxed in India at 10%. This change is expected to impact investment returns, as previously, such gains were potentially taxed at a much lower rate or not at all in Mauritius.
Capped tax on interest
The tax on interest earned by Mauritian banks from Indian entities will be capped at 7.5%, down from the previous 20%. This aims to stimulate more competitive investment financing options.
Sharing of information and compliance
Enhanced cooperation between the tax authorities aims to crack down on illicit financial flows, estimated at $600 million annually prior to the treaty revision.
Limitation of benefits
The new Limitation of Benefits (LOB) clause requires entities to have a minimum spending of $1.5 million in Mauritius to benefit from the treaty, aiming to curb artificial tax avoidance structures.
What this means for foreign investors
The most obvious implication concerns tax management. Indeed, foreign investors need to anticipate higher tax costs in India and adjust their financial models and return expectations accordingly.
Investors may also need to explore establishing genuine economic presences in Mauritius or consider alternative investment routes.
Furthermore, the emphasis on transparency will require enhanced due diligence and reporting, ensuring investments are compliant with both Indian and Mauritian regulations.
Overall, investors should consider diversifying their investment structures to mitigate risks associated with any single jurisdiction.
Keeping abreast of regulatory changes and engaging with professionals, such as Blue Azurite, will be crucial to navigating the complexities of the revised treaty.
Still, the reduction in interest income tax presents new financing opportunities. Investors could leverage this to fund large-scale projects in India at a reduced cost.
The bottom line
The India-Mauritius Treaty Protocol 2024 fundamentally alters the investment landscape, introducing both challenges and opportunities for foreign investors. It’s, therefore, important to understand these changes and adapt strategies accordingly in order to effectively manage risks and capitalize on new avenues for growth. Blue Azurite is here to help you navigate the possible impacts on your business venture. Contact our team of experts now for more information.
