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PE funds look to shift from Cyprus to Mauritius

22 Jul 2016

These funds invested mainly in debt and are looking to set up new investment vehicles in a way that the income from indian investments is taxed as in per the treaty. Mumbai: About a fortnight after india renegotiated its tax treaty with cyprus many private equity funds with investments in indian real estate and infrastructure are seeking to realign investments and shift base to Mauritius specially to avail of a 2.5 per cent discount in tax on interest income. Those funds invested especially in debt and are looking to set up new investment vehicles in a way that the income from indian investments is taxed as per the india Mauritius treaty.Private Equity Funds in India - AHI This, say many industry trackers, can be the beginning of a flight towards Mauritius for the debt funds which have historically favored cyprus. This is also a result of the india mauritius treaty that was renegotiated recently. As the things stand, the shift from cyprus to mauritius could save theses private equity funds Cyrups 2.5 per cent in taxes paid in india. "As per the recent modification to the indian mauritius treaty, mauritius is expected to overtake cyprus for structuring debt investments as the tax rate under the amended india mauritius treaty is 7.5 per cent as compared to 10 per cent with cyprus," stated amit maheshwari, partner, Ashok Maheshwary & Associates LLP. Lots of those debt price range are consulting tax professionals in india to restructure their investments. Enterprise specialists say many funds could switch of debentures from one investment arm to some other. As part of the restructuring, these funds would open a brand new investment arm in mauritius and transfer debentures that they hold in indian businesses from their cyprus investment arm. Because the ownership is transferred and no longer changed, this would now not be taxed in india. And the interest profits from indian investments might now go to mauritius and get taxed as in keeping with india-mauritius treaty and now not india-cyprus treaty. Yes, a few budget are nevertheless hoping that inside the best print of the india-cyprus treaty the indian government carry taxation on interest component with mauritius to 7.5 percent from 10 percent. "if the renegotiated treaty among india and cyprus does not alternate the taxability of interest, then mauritius turns into appealing because of 7.5 percent tax on withholding and debt finances may additionally remember migrating to mauritius for availing the advantage. However, we will have to wait and watch if the amended tax treaty will have a discounted tax rate," said Punit Shah, associate at a tax consultancy Dhruva advisors. All of the funds that have invested in india via the cyprus route had been subjected to a higher price of taxation after india blacklisted cyprus in november 2013 for refusing to proportion information of indian tax evaders. The renegotiated treaty reinstated the unique rate of taxation around 10 per cent. As soon as the earlier treaty elapsed, the investments have been taxed at 30 per cent, the home marketplace costs by way of the tax authorities.

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