158 10-07-09 investing into india through mauritius

7/31/2019 158 10-07-09 Investing Into India Through Mauritius

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BERMUDABRITISH VIRGIN ISLANCAYMAN ISLANDSCYPRUSDUBAIHONG KONGLONDONMAURITIUSMOSCOWSO PAULOSINGAPOREconyersdill.com

Mauritius

is

well

known

as

an

excellent

platform

for

structuring

foreign

direct

investments into India. NotonlydoesMauritiusbenefit from a largenetworkof

double taxation avoidance agreements (DTAA), such as the India/Mauritius

DTAA, italsohas sophisticated legislationand regulations craftedwithaview to

establishing a well regulated and efficient investment funds industry. This is

reflectedintheburgeoninggrowthoftheinvestmentfundsindustrywhichnowhas

in excess of 610 funds registered with the Financial Services Commission in

Mauritius.

InvestmentfundsinMauritiusarelargelygovernedbyTheSecuritiesAct2005(the

Act)andTheSecurities (Collective InvestmentSchemesandCloseendedFunds)

Regulations2008

(the

Regulations).

The Regulations divide Investment funds into Collective Investment Schemes

(CIS)andClosedendfunds(CEF).Toqualifyaseither,thesolepurposeofthe

entityshouldbethecollectiveinvestmentoffundsinaportfolioofsecuritiesorother

financial assets, real property or nonfinancial assets approved by the FSC.

Additionally, the operation of the entity must be based on the principle of the

diversificationofrisk.

Themain distinctionbetween aCIS and aCEF is that aCIS allows investors to

redeemtheir

interests

in

the

fund

upon

notice,

while

aCEF

only

allows

redemptions

at thediscretionof theoperatorsof the fund.ACIS ismoresuited towardshedge

fundvehicles,whileprivateequity/venturecapitalfundsaregenerallystructuredas

CEFs.


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A variety of investment funds can be formed and licenced in Mauritius. The

determinationastowhattypeoffundshouldbeformedislargelydependentonthe

typeof investors that the fund is targetingand thenatureof investments that the

fundintendstomake.ThemostcommonfundsformedforinvestmentintoIndiaare

either

Professional

CIS,

Specialised

CIS,

or

Expert

Funds.

ProfessionalCISoffertheirinterestseithertosophisticatedinvestorsorasprivateplacements.

SpecialisedCISfundsinvestinrealestate,derivatives,commoditiesorotherproductsauthorisedbytheFSC

ExpertFundsareonlyavailabletoinvestorswhoeithermakeaminimuminitialinvestmentofoverUSD100,000or qualifyasasophisticatedinvestor,as

definedbytheAct.

AllofthesefundsaresubjecttovaryinglevelsofsupervisionbytheFSC.Themore

sophisticated the investor and the investment products, the lighter the level ofregulation.

HedgefundsinvestingintoIndiaarecommonlysetupaseitheraProfessionalCISor

anExpertFund.AlimitednumberarebeingsetupasaSpecialisedCIS.

Privateequity/venturecapitalfundsaregenerallylicencedasCEFsandareregulated

inthesamewayasaProfessionalCISprovidedtheymeetcertaincriteria(i.e.,they

cannotmakeapublicofferingandtheymusthave100orlessinvestors).

Whilestandalone

structures

are

common,

other

frequently

used

structures

include

masterfeederhedgefundstructures,sidebysidefeederswithmasterfundsformed

in Mauritius, closedend funds, and other investment holding structures with

underlying special purpose vehicles. Often, the feeder funds are formed in

jurisdictions outside of Mauritius, mainly in the United States, Cayman Islands,

BritishVirginIslandsandBermuda.

Mauritiuscombinesthetraditionaladvantagesofbeinganoffshorefinancialcenter

(nocapital

gains

tax,

no

withholding

tax,

no

capital

duty

on

issued

capital,

confidentialityofcompanyinformation,exchangeliberalizationandfreerepatriation

of profits and capital) with the distinct advantages of being a treatybased

jurisdictionwithasubstantialnetworkoftreatiesandDTAAs.


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Whilethefiscaladvantagesofferedbyitstaxtreatiesplayamajorroleinthechoice

ofMauritiusforcrossborderinvestment,thereareadditionaladvantages. Mauritius

is a well regulated business jurisdiction with a proud record of adherence to

internationalbestpractice standardsanda favourable timezone. Thejurisdiction

enjoys

a

sophisticated

international

telecommunication

service,

an

abundance

of

professional service providers at a relatively low cost, economic and political

stability, and an educated and multilingual workforce, with English and French

beingthemainbusinesslanguages.

Mauritiushasrapidlydevelopedasamajorfinancialservicescentreinrecentyears

and, as a result, is wellpositioned to provide high quality local services to

investmentfunds.EachofthebigfourauditingfirmshavelargeofficesinMauritius,

asdo internationalbanks, includingHSBC,BarclaysandDeutscheBank.Thereare

several large fund administrators who are also based in Mauritius and offer

accounting,shareregistrationandbackofficeservices.

Mauritiusalsohasahybrid legalsystemconsistingofBritishcommon lawpractice

andtheFrenchLawCodes(althoughthePrivyCouncilinLondonisthefinalcourt

of appeal). Forwardlooking legislators have created modern and flexible

company/commerciallegislation.

Mauritius has signed an Investment Promotion and Protection Agreements (an

IPPA)with Indiawhichprovides for free repatriationof investmentcapitaland

returns,guarantee

against

expropriation,

amost

favoured

nation

rule

regarding

treatmentofinvestors,andcompensationforlossesincaseofwar,armedconflictor

riot,aswellasarrangements for the settlementofdisputesbetween investorsand

thecontractingstates.

GenerallytheincomeandcapitalgainsofaMauritiuscompanyderivedfromIndian

based investments are taxable in Mauritius and not India according to the

India/MauritiusDTAA. Asfarasincometaxesareconcerned,Investmentfundsin

Mauritiusare

normally

formed

as

companies,

and

Mauritius

companies,

which

are

residentinMauritiusfortaxpurposes,aregenerallysubjecttotaxonincomeataflat

rateof15%. However,underMauritiuslaw,entitieswhichholdacategory1global

business license (GBL 1) and which are regulated by the Financial Services

CommissionofMauritiusmayclaimacreditforforeigntaxon incomenotderived


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fromMauritiusagainsttheMauritiustaxpayable. Ifnowrittenevidenceisprovided

totheMauritiusRevenueAuthorityshowingtheamountofforeigntaxcharged,the

amount of foreign tax paid is deemed tobe equal to 80% of the Mauritius tax

chargeablewithrespecttothatincome. Consequently,theeffectivetaxratewillbe

between

3%

and

nil,

depending

on

the

circumstances.

There

is

also

no

capital

gains

taxandnowithholding taxondividendsand/or interestpaid tononresidentsby

Mauritiusentities.

InAugust2009,theIndianGovernmentreleasedaDirectTaxCode(theCode)and

Discussion Paper. We understand that theCode initially provided that its terms

may override the terms of anyDTAA,whichwould include the India/Mauritius

DTAA. A revised Discussion Paper was released in June 2010 and it is now

proposed thatwhere the tax treatmentunder aDTAA ismorebeneficial to a tax

payer than the treatment under the Code, the terms of the DTAA will prevail.

However,intermsoftheCode,theCommissionerofIncomeTaxmaydeclarethetax

treatment of a tax payer under aDTAA tobe not applicable under general anti

avoidancerules.

While theseproposed changes createuncertainty as to the exactnatureof the tax

treatmentofforeignentitiesinvestinginIndia,theCodeisstillindraftformandis

thereforestillsubjecttofurthercommentandamendment. Further,weareadvised

thattherearesomeissuesasamatterofIndianLawregardingtheenforceabilityof

the provisions of the Code that seek to unilaterally amend the terms of any

bilaterallynegotiated

and

agreed

DTAA.

There

is

also

the

possibility

of

anegotiated

amended India/MauritiusDTAA.However, regardlessof theultimate outcomeof

the Code and any amendment to the India/Mauritius DTAA, there will still be

significant tax advantages to investing into India through aMauritius domiciled

vehicle.

TheLimitedPartnershipsBill,2009(theBill)isofparticularinteresttomanagersin

theprivateequity/venturecapitalworld.LimitedPartnershipsareavehicleofchoice

forprivate

equity/venture

capital

funds

due

to

their

flexible

structures

that

still

offer

limited liability for investors. Conscious of this, Mauritius has taken steps to

facilitatethecreationofsuchvehiclesinMauritius.Afterextensiveconsultationwith

thefinancialservicesindustryoverpreviousdraftsoftheBill,itisnowfinalizedand

islikelytobepresentedtotheParliamentofMauritiusforenactmentshortly.


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Head of Mauritius office

+230 464 [email protected]

This article is not intended to be a substitute for legal advice or a legal opinion. It deals in broad terms only andis intended to merely provide a brief overview and give general information.

Conyers Dill & Pearman advises on the laws of Bermuda, British Virgin Islands, Cayman Islands, Cyprus and

Mauritius. Conyers lawyers specialise in company and commercial law, commercial litigation and private clientmatters. Conyers structure, culture and expertise enable responsive, timely and thorough service. Conyersprovides clients with the highest quality legal advice from strategic global locations including offices in theworlds leading financial centres in Europe, Asia, the Middle East and South America. Founded in 1928, Conyerscomprises 600 staff including more than 150 lawyers. Affiliated companies (Codan) provide a range of trust,corporate secretarial, accounting and management services.

For more information please contact:Naomi Little+1 (441) 298 [email protected]

158 10-07-09 investing into india through mauritius

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