India’s revised tax treaties give Mauritius edge over Singapore, say experts

The tax rate on interest payments made by Indian entities is 7.5% under the Mauritius treaty, while it is 15% under the recently negotiated India-Singapore treaty


In line with the Mauritius treaty, India has got the right to levy capital gains tax from 1 April 2017 for investments routed through Singapore. Photo: AFP
In line with the Mauritius treaty, India has got the right to levy capital gains tax from 1 April 2017 for investments routed through Singapore. Photo: AFP

New Delhi: The revised tax treaties negotiated by India give Mauritius a slight edge over Singapore as an investment destination, analysts said.

While the tax rate on interest payments made by Indian entities is 7.5% under the Mauritius treaty, it is 15% under the recently negotiated India-Singapore treaty.

Analysts said the fine print of the revised tax treaty between India and Singapore does not make any change in the existing tax rates on interest payments though it was lowered in the Mauritius treaty.

Necessitated by the amendments to the India-Mauritius treaty, India recently concluded negotiations for amending the India-Singapore treaty and signed the protocol on 30 December.

In line with the Mauritius treaty, India has got the right to levy capital gains tax from 1 April 2017 for investments routed through Singapore. Further, a 50% concessional tax rate will be applicable for two years to help investors make a smooth transition.

“The Singapore Protocol does not propose to amend the interest clause of the Singapore tax treaty. This implies that the tax rate under the India-Singapore tax treaty on interest derived from India will carry 15% (except payable to Singapore bank) as compared to 7.5% rate under the Mauritius tax treaty. This may provide an advantage to Mauritius. However, this will be subject to the GAAR (general anti-avoidance rules) test,” said Amit Singhania, partner at law firm Shardul Amarchand Mangaldas & Co.

“Further, as expected, the Singapore Protocol is at par with the Mauritius tax treaty in terms of capital gains taxation. In terms of taxation of indirect transfers, gains derived by a Singapore company will be taxable only in Singapore if the company whose shares are transferred does not qualify as a resident of India,” he said.

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