InvestorQ : Is it true that some of the FIIs are looking to invest in India from Singapore and not from Mauritius?
Aditi Sharma made post

Is it true that some of the FIIs are looking to invest in India from Singapore and not from Mauritius?

Answer
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Aashna Tripathi answered.
7 months ago


That is absolutely correct that FPIs are looking to shift from tax havens like Mauritius and Cayman Islands and are looking to register new entities in Singapore to hold Indian stocks. This is in the light of the proposed change in rule to tax indirect transfer of shares. FPIs may actually sell all their exiting investments and then buy them back through entities registered in Singapore. The reason is quite simple. Budget 2020 had said that only those FPIs registered under the SEBI Category-1 scheme would be exempt from tax in India. Category-1 funds comprise foreign portfolio investors and fund managers that are from countries compliant with the Financial Action Task Force (FATF) rules like Singapore. Category-2 investors comprise funds from Mauritius or Cayman Islands. This will mean that Category-2 FPIs could end up paying tax of as high as 40% on their returns from transfer of shares. However, they can get upgraded to Category 1 if they comply with conditions like shifting to a FATF-compliant jurisdiction. One option was to just move the fund managers from Mauritius to Singapore but that would attract penalties under the GAAR.