Mauritius tightens rules to rein in proxy investments

Mauritius, which has for long been used as a route for avoiding taxes for foreign investments into India, has tightened norms to check proxy tag on its investments.

Mauritius on Tuesday said the authorities there have put additional safeguards in place to thwart such wrong perceptions and to boost its image as a preferred global financial centre.

In order to address the issue of proxy companies acting on behalf of foreign investors, Financial Services Commission (FSC), the integrated financial sector regulator of Mauritius, has put in place 'greater substance requirements' for global business companies operating from Mauritius to ensure their substantial presence there.

Henceforth, companies investing in countries with which Mauritius has tax treaties would have to prove their substantial presence there and not just a 'proxy address' to enjoy tax treaty benefits.

The additional safeguards will lead to the creation of investors with roots in the Mauritius economy, according to the FSC.

At present, most global investors use the Global Business Category 1 route to make investments into India and other countries through Mauritius.

The new rules call for additional investment by these investors in Mauritius through renting of more offices, provision of more jobs and paying more taxes, which would involve additional spending, according to the FSC. 

Mauritius will also limit tax benefits to such investors by including a 'limitation of benefits (LOB)' clause in its revised tax treaty with India in order to thwart any attempts of round-tripping and money laundering activities.

This will limit the benefits of tax treaty to those who meet certain conditions, including those related to business, residency and investment commitments.

The two countries have also agreed on a Tax Information and Exchange Agreement (TIEA). Besides, there will be increased cooperation between financial intelligence units of the two countries.

The FSC has been working with India's capital markets regulator Securities and Exchange Board of India (SEBI) to fine tune regulatory provisions.