Mauritius Falls to 5th Position in FPI Asset Custody

In a significant shift in the global investment landscape, Mauritius has slipped to the fifth position in terms of assets under custody (AUC) for foreign portfolio investors (FPIs), behind Ireland, as of June 30, according to data from the National Securities Depository (NSDL).

As of June 30, Ireland boasted an AUC of Rs 4.41 trillion, slightly more than Mauritius’ Rs 4.39 trillion.

This marks a notable decline for Mauritius, which was once a preferred destination for FPIs routing funds into India.

The gap between the two jurisdictions widens when examining pure equity holdings.

Ireland saw a 26% surge in AUC for FPIs in the first half of the calendar year, while Mauritius recorded an 11% uptick.

Industry experts and custodians attributed this shift to the increasing time taken for approval for new funds in Mauritius.

The island nation has been facing heightened scrutiny of funds investing in India, leading to delays in setting up new fund structures and approvals from the Mauritius regulator.

“There has been heightened scrutiny of Mauritius-based funds investing in India leading to delays in setting up new fund structures and delays in approvals from the Mauritius regulator.

This is leading to a shift towards other countries,” said Anand Singh, founder of Elios Financial Services and member of the Capital Market Task Force, FSC Mauritius.

Singh highlighted the appeal of tax treaty benefits available in European jurisdictions like Luxembourg, Ireland, and France.

“For instance, funds based in Ireland or Luxembourg still enjoy zero tax on cash equities,” he added.

The data revealed that more than 780 FPIs are registered in Ireland compared to 595 in Mauritius.

In March, the governments of Mauritius and India signed a deal to amend the Double Taxation Avoidance Agreement (DTAA).

Mauritius aligned its norms with the Organisation for Economic Co-operation and Development’s (OECD) proposal on base erosion and profit shifting (BEPS).

The island nation introduced a Principal Purpose Test (PPT) to prevent treaty abuse by taxpayers.

The PPT stipulated that if one of the principal reasons for choosing Mauritius is tax benefit, then treaty benefits could be denied. Industry pushback on the tax treaty amendments has delayed its notification, with final approvals still pending in Mauritius.

An asset-service provider for FPIs noted that clarity is expected only after the general elections in the country, scheduled in November.

There is also uncertainty among private equity and public market funds regarding eligibility for grandfathering benefits after the implementation of the amendments.

“Grandfathering applies only to old funds and does not impact new set-ups, though scrutiny of new funds has indeed increased,” noted a legal expert.

The shift away from Mauritius is likely to continue until there is clarity on the tax treaty amendments and grandfathering benefits.

For now, Ireland has emerged as a more attractive destination for FPIs seeking to invest in India.

Source: Business Standards