Mauritius’ Share of FPI Assets Shrinks to 6% in March 2024, Signaling Decline in Preference as Investment Destination

Mauritius, once a favored jurisdiction for foreign portfolio investments (FPIs) into India, is witnessing a gradual decline in its share of total FPI assets. According to data sourced from the National Securities Depository Limited (NSDL), Mauritius’ contribution to total FPI assets stood at 6% in March 2024, down from 21.4% in March 2014.

The island nation, which held the top spot with a 27.5% share of total assets under custody (AUC) in 2012, has now slipped to the fourth position among the largest sources of FPI investments. The United States leads the chart, accounting for 39.2% of total foreign assets, followed by Singapore with a share of nearly 10%.

Market experts attribute Mauritius’ diminishing appeal as an investment destination to several factors, including changes to tax treaties and heightened regulatory scrutiny. Amendments to the Double Tax Avoidance Agreement (DTAA) between India and Mauritius in 2016, along with the implementation of the General Anti-Avoidance Rule (GAAR) in April 2017, have made the Mauritius route less attractive for investors seeking tax benefits.

The recent signing of a protocol to amend the DTAA between the two nations introduces a principal purpose test (PPT) to determine eligibility for treaty benefits. This move, coupled with potential changes in tax benefits for dividends, signals a shift in India’s tax policy towards foreign investors.

Pranav Sayta, Partner and National Leader of the International Tax & Transaction Services practice at EY India, believes that tax benefits on dividends for foreign investors registered in Mauritius will be subject to the PPT following the current amendment. However, he suggests that the government is unlikely to apply these amendments retrospectively.

As India continues to reform its tax framework and regulatory landscape, the dynamics of FPI investments are expected to evolve, with implications for the global investment community and the positioning of key investment hubs like Mauritius.

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