{"id":17299,"date":"2022-06-29T06:37:52","date_gmt":"2022-06-29T06:37:52","guid":{"rendered":"https:\/\/www.africa-press.net\/mauritius\/all-news\/foreign-investors-worried-over-new-mauritius-tax-angle-on-pe-funds"},"modified":"2022-06-29T10:07:30","modified_gmt":"2022-06-29T10:07:30","slug":"foreign-investors-worried-over-new-mauritius-tax-angle-on-pe-funds","status":"publish","type":"post","link":"https:\/\/www.africa-press.net\/mauritius\/all-news\/foreign-investors-worried-over-new-mauritius-tax-angle-on-pe-funds","title":{"rendered":"Foreign investors worried over new Mauritius tax angle on PE funds"},"content":{"rendered":"

Africa-Press – Mauritius. <\/strong><\/span>Foreign investors<\/a> betting on India by putting money into private equity (PE) funds here are taken aback by a recent observation by the Mauritius Revenue Authority<\/a> (MRA), raising a hitherto ignored angle on tax<\/a> \u2013 and in the process questioning investment structures that have been in vogue for years.
\nAccording to a private ruling by MRA, investment vehicles in Mauritius, used by global investors to enter India, will have to pay tax in Mauritius<\/a> on \u2018capital gains\u2019 they receive from a PE or debt fund in India when the latter exits an investment.
\nTill now, a Mauritius entity paid tax to the Mauritius government only on \u2018income flows\u2019, like dividends and interest distributed by funds in India — but not on capital gains booked in India.
\nHowever, MRA, in a matter related to a global investor, has ruled that \u201call income distribution\u201d made by AIF (alternative investment funds) Category II and III \u201cwill be treated as dividend income and therefore not retain their initial characteristics\u201d.
\nAIFs are privately pooled vehicles incorporated in India, like a PE fund, collecting money from savvy Indian and offshore investors. Category II AIFs are usually PE funds<\/a> while Category III funds are allowed leverage and employ complex trading strategies.<\/p>\n

The MRA ruling boils down to a position where capital gains would be taxed in Mauritius, just as income distributions like dividends. It has taken experts by surprise.
\nBijal Ajinkya, partner at law firm Khaitan & Co, said it can put off foreign investors who typically invest in a Mauritius entity which further invests into an Indian AIF that is formed as a trust in India.<\/p>\n

\u201cThe characterisation of income received from a trust as dividend income, subject to a levy of tax in Mauritius, irrespective of its underlying character has shocked fund managers who have set up such structures,\u201d she said.<\/p>\n

\u201cThe fact that such a position would lead to unavailability of a capital gains tax exemption in Mauritius and treat such income as dividends is something which fund managers may not have accounted for in their fund returns. Further, funds which have already wound up and have distributed proceeds to investors would find it difficult to collect such taxes.
\nAnother question crops up: Would this encourage foreign investors to directly invest into a GIFT AIF so as to avoid the costs?\u201d An investment entity in Mauritius has to pay 10% tax in India on long-term gains (for stocks held over two years) when an AIF (where the investor has put money) books capital gains.
\nFor short-term gains, the tax in India could be 40% or 30% depending on whether the entity in Mauritius is a company or a partnership. Now, over and above this tax paid on capital gains to the Indian government, foreign investors would have to fork out at least an extra 3% tax in Mauritius.
\nSince the Mauritius tax law concerns distribution from a trust, this will apply particularly if a PE fund in India is set up as a trust. Most funds are set up as trusts as investors in a fund prefer not to disclose their identities, which they have to if the PE is formed as a limited liability partnership (or, LLP).<\/p>\n

The MRA ruling, posted on its website, does not disclose the identity of the foreign investor whose query seeking a clarification to revenue authority has opened a Pandora\u2019s box.<\/p>\n

Interestingly, though such a stand always existed in the Mauritian tax laws, fund managers somehow interpreted that capital gains in India would not be taxed in Mauritius \u2013 a position that was never questioned by authorities in Mauritius.
\nTill now. \u201cThis ruling is set to impact the investment to India as today the established rule is that AIF category 2 is a pass through while dividend is tax free under category 3.
\nThe ruling would put a question mark on how the credit mechanism will work in case of foreign investments through Mauritius,\u201d said Girish Vanvari, founder of tax advisory firm Transaction Square.
\nThe Mauritius vehicle in question has a global business licence and a collective investment scheme licence with the country\u2019s Financial Services Commission. Its investment manager is a Singapore company regulated by the Monetary Authority of Singapore.
\nThe question it posted before MRA was: Whether capital gains accrued by the AIF trust and distributed to L will be considered as capital gains for income tax purpose?<\/p>\n

For More News And Analysis About Mauritius<\/a> Follow Africa-Press<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Africa-Press – Mauritius. Foreign investors betting on India by putting money into private equity (PE) funds here are taken aback by a recent observation by the Mauritius Revenue Authority (MRA), raising a hitherto ignored angle on tax \u2013 and in the process questioning investment structures that have been in vogue for years. According to a […]<\/p>\n","protected":false},"author":84,"featured_media":17298,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2,5,8,16],"tags":[233,245,241],"class_list":["post-17299","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-all-news","category-economy","category-homepage-english","category-twitter","tag-africa-press","tag-africa-press-mauritius","tag-mauritius"],"yoast_head":"\nForeign investors worried over new Mauritius tax angle on PE funds - Mauritius<\/title>\n<meta name=\"description\" content=\"<a href="https:\/\/economictimes.<br><\/p><p>indiatimes.<br><\/p><p>com\/topic\/foreign-in ...\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.africa-press.net\/mauritius\/all-news\/foreign-investors-worried-over-new-mauritius-tax-angle-on-pe-funds\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Foreign investors worried over new Mauritius tax angle on PE funds\" \/>\n<meta property=\"og:description\" content=\"<a href="https:\/\/economictimes.<br><\/p><p>indiatimes.<br><\/p><p>com\/topic\/foreign-in ...\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.africa-press.net\/mauritius\/all-news\/foreign-investors-worried-over-new-mauritius-tax-angle-on-pe-funds\" \/>\n<meta property=\"og:site_name\" content=\"Mauritius\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/AfricaPressTunisiaa\" \/>\n<meta property=\"article:published_time\" content=\"2022-06-29T06:37:52+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2022-06-29T10:07:30+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/static.africa-press.net\/mauritius\/sites\/61\/2022\/06\/postQueueImg_5-62bc2447863b0.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"400\" \/>\n\t<meta property=\"og:image:height\" content=\"283\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"cfeditoren\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"cfeditoren\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/www.africa-press.net\/mauritius\/all-news\/foreign-investors-worried-over-new-mauritius-tax-angle-on-pe-funds#article\",\"isPartOf\":{\"@id\":\"https:\/\/www.africa-press.net\/mauritius\/all-news\/foreign-investors-worried-over-new-mauritius-tax-angle-on-pe-funds\"},\"author\":{\"name\":\"cfeditoren\",\"@id\":\"https:\/\/www.africa-press.net\/mauritius\/#\/schema\/person\/068c7ab4e9634ae78ec5d54ec46598bb\"},\"headline\":\"Foreign investors worried over new Mauritius tax angle on PE funds\",\"datePublished\":\"2022-06-29T06:37:52+00:00\",\"dateModified\":\"2022-06-29T10:07:30+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/www.africa-press.net\/mauritius\/all-news\/foreign-investors-worried-over-new-mauritius-tax-angle-on-pe-funds\"},\"wordCount\":748,\"commentCount\":0,\"image\":{\"@id\":\"https:\/\/www.africa-press.net\/mauritius\/all-news\/foreign-investors-worried-over-new-mauritius-tax-angle-on-pe-funds#primaryimage\"},\"thumbnailUrl\":\"https:\/\/static.africa-press.net\/mauritius\/sites\/61\/2022\/06\/postQueueImg_5-62bc2447863b0.jpg\",\"keywords\":[\"Africa Press\",\"Africa Press-Mauritius\",\"Mauritius\"],\"articleSection\":[\"all news\",\"economy\",\"homepage-english\",\"twitter\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/www.africa-press.net\/mauritius\/all-news\/foreign-investors-worried-over-new-mauritius-tax-angle-on-pe-funds#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.africa-press.net\/mauritius\/all-news\/foreign-investors-worried-over-new-mauritius-tax-angle-on-pe-funds\",\"url\":\"https:\/\/www.africa-press.net\/mauritius\/all-news\/foreign-investors-worried-over-new-mauritius-tax-angle-on-pe-funds\",\"name\":\"Foreign investors worried over new Mauritius tax angle on PE funds - 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