India-Mauritius Tax Treaty: A Comprehensive Guide for Enhanced Cross-Border Tax Savings

Introduction

The India-Mauritius Tax Treaty, also known as the Double Taxation Avoidance Agreement (DTAA), is a crucial instrument that enhances bilateral economic cooperation and facilitates cross-border investments between India and Mauritius. The treaty aims to prevent double taxation on income and capital gains earned in either jurisdiction and promotes transparency and stability in tax matters.

Historical Background

The DTAA between India and Mauritius was first signed in 1982 and has been amended several times over the years to keep pace with changing business practices and international tax regulations. The latest amendment, signed in 2016, introduced significant revisions to the treaty, including a reduction in the withholding tax rate on dividends and interest payments.

Key Features of the India-Mauritius Tax Treaty

Article 10: Dividends

• Withholding tax rate on dividends reduced from 15% to 10%
• Exemption from withholding tax on dividends received by companies holding at least 50% of the capital of the dividend-paying company for more than 182 days
• No withholding tax on dividends received by certain eligible pension funds

Article 11: Interest

• Withholding tax rate on interest payments reduced from 20% to 10%
• Exemption from withholding tax on interest payments received by banks, financial institutions, and government entities

Article 12: Royalties

• Withholding tax rate on royalties remains unchanged at 10%

Article 13: Capital Gains

• Exemption from capital gains tax on sale of shares and other securities, if certain conditions are met
• Capital gains on immovable property taxable in the country where the property is located

Article 24: Non-Discrimination

• Both India and Mauritius must not discriminate against each other's citizens or companies in the imposition of taxes

Benefits of the Tax Treaty

The India-Mauritius Tax Treaty provides numerous benefits for businesses and investors, including:

• Reduced withholding taxes on dividends, interest, and royalties
• Exemption from capital gains tax on sale of shares and other securities
• Non-discrimination clause ensures fair treatment of both Indian and Mauritian companies
• Enhanced transparency and predictability in tax matters

Impact of the Tax Treaty on India

The DTAA has played a significant role in attracting foreign direct investment (FDI) into India from Mauritius. In 2021-22, Mauritius emerged as the fifth-largest source of FDI for India, accounting for over 11% of total FDI inflows.

Impact of the Tax Treaty on Mauritius

The treaty has also benefited Mauritius by providing a stable and favorable tax regime for companies operating in India. Many multinational corporations have established holding and investment companies in Mauritius to take advantage of the treaty's benefits.

Effective Strategies for Utilizing the Tax Treaty

To effectively utilize the India-Mauritius Tax Treaty, businesses and investors should consider the following strategies:

• Establish a holding or investment company in Mauritius
• Ensure compliance with the minimum shareholding and holding period requirements
• Obtain a Tax Residency Certificate (TRC) from Mauritius
• Utilize the treaty's non-discrimination clause to seek fair treatment from tax authorities

Tips and Tricks

• Consider using Mauritius as a gateway for investments into other countries in the African region
• Explore the possibility of obtaining a Mauritius residency permit for increased tax benefits
• Consult with tax experts to optimize tax planning and minimize tax liabilities

Conclusion

The India-Mauritius Tax Treaty is a valuable tool for businesses and investors looking to enhance their cross-border tax savings and facilitate investments in both jurisdictions. By understanding the treaty's key provisions, implementing effective strategies, and seeking professional guidance when needed, businesses can maximize the benefits offered by the treaty and achieve significant tax savings.

Call to Action

If you are considering investing in India or Mauritius, or are looking to optimize your tax planning, we encourage you to contact our team of tax experts for a comprehensive assessment of your specific needs. We can provide tailored guidance and assistance to help you navigate the complexities of the India-Mauritius Tax Treaty and achieve your financial objectives.

Additional Information

Table 1: Withholding Tax Rates under the India-Mauritius Tax Treaty

Table 2: Exemption from Withholding Tax on Dividends

Table 3: Benefits for Businesses and Investors