MOST FAVOURED JURISDICTION FOR INBOUND AND OUTBOUND INVESTMENT -  Sandeep Tandon
Introduction <ul><li>Liberalization has boosted Foreign Direct Investment (FDI) in India. </li></ul><ul><li>India attracti...
OUTBOUND INVESTMENT
Outbound Investment <ul><li>Prevailing exchange control regulations permit investments in JV/WOS abroad upto 200% of net w...
Factors to be considered for outbound investment <ul><li>No double taxation of income </li></ul><ul><li>Easy access to deb...
Participation exemption <ul><li>Fiscal incentives which an Indian entrepreneur would require for locating a holding compan...
PREFERRED JURISDICTIONS FOR OUTBOUND INVESTMENT
Netherlands <ul><li>Dutch tax law provides the benefit of participation exemption; subject to following conditions: </li><...
Netherlands <ul><li>Under EU Parent-Subsidiary Directive, dividends distributed by Dutch company to qualifying entity in E...
Netherlands <ul><li>Since India is not EU Member State, dividend withholding tax of 10% to apply on dividends declared by ...
Singapore <ul><li>Tax exemption provided for foreign source dividend, foreign branch dividend and foreign source service i...
Singapore <ul><li>Foreign source income of Singaporean holding company can either be retained outside Singapore or remitte...
Singapore <ul><li>Singapore also provides tax holiday for periods from 5 to 15 years in respect of specified business acti...
Luxembourg <ul><li>Tax regime provides for 2 types of holding companies to be set up: </li></ul><ul><ul><li>Resident compa...
Luxembourg <ul><li>Exemption from tax on dividend income and capital gains is provided to a SOPARFI (or a Luxembourg branc...
Luxembourg <ul><li>Dividend withholding tax is not applicable to dividends distributed by SOPARFI, provided following cond...
Luxembourg <ul><li>Luxembourg an attractive jurisdiction for holding company for investment in EU and other countries with...
Ireland <ul><li>Participation exemption from capital gains tax introduced in 2004 making Ireland a jurisdiction to conside...
Ireland <ul><li>Foreign dividends received by Irish company are however subjected to a 25% tax, although impact is mitigat...
Spain <ul><li>Participation exemption for qualified foreign source dividend and capital gains income of holding company (E...
Spain <ul><li>ETVE can redistribute qualifying foreign source income without any incidence of withholding tax in Spain, su...
Spain <ul><li>ETVE tax regime allows Indian entrepreneurs to remit profits earned in operating companies in EU to parent i...
Limitation of benefits provision <ul><li>Use by residents of third states of legal entities established in Contracting Sta...
INBOUND INVESTMENT
Inbound Investment <ul><li>Foreign Direct Investment (FDI) under automatic route upto 100% in manufacturing sector and cap...
Major direct tax incentives available to foreign investors in India <ul><li>Tax Holiday for a specified number of years to...
Factors driving FDI in India <ul><li>No double taxation of profits </li></ul><ul><li>No withholding or other taxes on divi...
Why a holding company for investing in India is tax efficient ? <ul><li>To mitigate the Indian income tax liability on cap...
PREFERRED JURISDICTIONS FOR INBOUND INVESTMENT
Singapore <ul><li>Comprehensive Economic Co-operation Agreement (CECA) signed between India and Singapore a landmark step ...
Singapore <ul><li>Anti-abuse provisions built in the Treaty to ensure that the above benefit is denied to residents whose ...
Mauritius <ul><li>Under Mauritian tax law, Global Business License 1 (GBL1 companies) can conduct offshore  business activ...
Mauritius <ul><li>No capital gains tax in Mauritius enabling Mauritian tax residents to earn completely tax free capital g...
Cyprus <ul><li>Full exemption from tax on capital gains income accruing to a Cyprus resident from sale of shares of an Ind...
UAE <ul><li>Under the Indo-UAE Double Tax Treaty, no tax in India on capital gains income earned by a UAE resident from di...
Conclusion <ul><li>Netherlands, Singapore and Spain are tax effective jurisdictions for outbound investments from India </...
<ul><li>THANK YOU </li></ul>
Upcoming SlideShare
Loading in...5
×

Outside cp knowledge presentation international taxation

520

Published on

Published in: Technology, Business
0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total Views
520
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
11
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

Outside cp knowledge presentation international taxation

  1. 1. MOST FAVOURED JURISDICTION FOR INBOUND AND OUTBOUND INVESTMENT - Sandeep Tandon
  2. 2. Introduction <ul><li>Liberalization has boosted Foreign Direct Investment (FDI) in India. </li></ul><ul><li>India attractive due to its advantages of low cost of production and large size of potential markets. </li></ul><ul><li>Availability of qualified and skilled manpower prompts MNCs in IT sector, FMCG sector, service sector to set up base in India. </li></ul><ul><li>Trend of Indian companies setting up operations abroad picking up. </li></ul>
  3. 3. OUTBOUND INVESTMENT
  4. 4. Outbound Investment <ul><li>Prevailing exchange control regulations permit investments in JV/WOS abroad upto 200% of net worth of Indian Party under automatic route. </li></ul><ul><li>Why a holding company for investing out of India is tax efficient </li></ul><ul><ul><li>Dividend income of Indian corporate shareholders from foreign companies taxed in India at a high rate of 33.66%. </li></ul></ul><ul><ul><li>Long term capital gains and short term capital gains from sale of shares of foreign companies by Indian shareholders taxed at a high rate of 22.44% and 33.66% respectively </li></ul></ul><ul><ul><li>High rate of tax in India makes it imperative for Indian entrepreneurs to look for tax efficient jurisdiction to locate holding company. </li></ul></ul>
  5. 5. Factors to be considered for outbound investment <ul><li>No double taxation of income </li></ul><ul><li>Easy access to debt and equity capital from both domestic and international capital markets. </li></ul><ul><li>Proper legal and regulatory framework for commercial transactions. </li></ul>
  6. 6. Participation exemption <ul><li>Fiscal incentives which an Indian entrepreneur would require for locating a holding company in a particular jurisdiction : </li></ul><ul><ul><li>Benefit of participation exemption for income accruing to corporate shareholder from its substantial shareholding (generally between 5% to 20%) in another company. </li></ul></ul><ul><ul><li>Participation exemption provisions exempt from tax dividend income, capital gains, bonus shares etc. in the hands of the corporate shareholder. </li></ul></ul><ul><ul><li>No tax on foreign source income of holding company in holding company’s jurisdiction. </li></ul></ul><ul><ul><li>Wide double tax treaty network. </li></ul></ul><ul><ul><li>Exemption from withholding and other taxes on dividends declared by, as well as capital gains income from sale of shares of, holding company by the Indian parent. </li></ul></ul>
  7. 7. PREFERRED JURISDICTIONS FOR OUTBOUND INVESTMENT
  8. 8. Netherlands <ul><li>Dutch tax law provides the benefit of participation exemption; subject to following conditions: </li></ul><ul><ul><li>Participation of minimum 5% of paid-up capital of subsidiary which should not be held as inventory. </li></ul></ul><ul><ul><li>Subsidiary should be subject to profit tax in foreign country. </li></ul></ul><ul><ul><li>Participation should not be mere portfolio investment. </li></ul></ul>
  9. 9. Netherlands <ul><li>Under EU Parent-Subsidiary Directive, dividends distributed by Dutch company to qualifying entity in EU Member State not subject to dividend withholding tax, provided: </li></ul><ul><ul><li>Participation of minimum 20% (reduced to 15% from January 1, 2007) in qualifying entity held for uninterrupted period of 1 year </li></ul></ul><ul><ul><li>Qualifying percentage reduced to 10% for participation in countries like Austria, Finland, Germany, Ireland, UK, Luxembourg and Spain </li></ul></ul>
  10. 10. Netherlands <ul><li>Since India is not EU Member State, dividend withholding tax of 10% to apply on dividends declared by Dutch subsidiary to Indian parent </li></ul><ul><li>Advance Tax Rulings can be obtained by foreign investors on issues covering applicability of participation exemption, permanent establishment etc. which provides certainty of tax consequences </li></ul><ul><li>Foregoing advantages make Netherlands tax effective jurisdiction for routing investments to foreign countries, especially in the EU. </li></ul>
  11. 11. Singapore <ul><li>Tax exemption provided for foreign source dividend, foreign branch dividend and foreign source service income received in Singapore, if the following conditions are fulfilled: </li></ul><ul><ul><li>Highest rate of corporate tax in country from which foreign income received should be minimum 15% </li></ul></ul><ul><ul><li>Foreign income should be taxed in country of source </li></ul></ul><ul><li>No withholding tax on dividends in Singapore </li></ul><ul><li>Offshore income taxed in Singapore only when remitted to Singapore </li></ul>
  12. 12. Singapore <ul><li>Foreign source income of Singaporean holding company can either be retained outside Singapore or remitted to Singapore if above conditions for availing tax exemption are fulfilled </li></ul><ul><li>Indian entrepreneur can set up a Singaporean holding company which earns dividends and capital gains income from foreign subsidiaries or income from foreign branches without any liability to tax in Singapore </li></ul><ul><li>Singaporean Holding Company can declare dividends to Indian parent without any incidence of withholding tax in Singapore </li></ul>
  13. 13. Singapore <ul><li>Singapore also provides tax holiday for periods from 5 to 15 years in respect of specified business activities under the Pioneer Scheme offered by Economic Development Board, Singapore (EDB) </li></ul>
  14. 14. Luxembourg <ul><li>Tax regime provides for 2 types of holding companies to be set up: </li></ul><ul><ul><li>Resident company (SOPARFI) which is entitled to Double tax treaty benefits and benefits of all EU Directives including Parent Subsidiary Directive </li></ul></ul><ul><ul><li>Holding 29 companies with limited activity of holding investment which are exempt from income and capital gains taxes, but cannot avail of the benefits of EU Parent Subsidiary Directive and Double Tax Treaties </li></ul></ul>
  15. 15. Luxembourg <ul><li>Exemption from tax on dividend income and capital gains is provided to a SOPARFI (or a Luxembourg branch of a company resident either in a EU Member State or country with which Luxembourg has a Double Tax treaty), subject to fulfillment of following conditions: </li></ul><ul><ul><li>Participation of minimum 10% of subsidiary’s capital or acquisition of investment at minimum cost of Euro 1.2 million (Euro 6 million for exemption from capital gains) </li></ul></ul><ul><ul><li>Participation in EU member state or country which levies corporate tax comparable to Luxembourg corporate tax at a rate of minimum 11% </li></ul></ul><ul><ul><li>Participation to be held for minimum 12 months’ period </li></ul></ul>
  16. 16. Luxembourg <ul><li>Dividend withholding tax is not applicable to dividends distributed by SOPARFI, provided following conditions are fulfilled: </li></ul><ul><ul><li>Recipient must hold minimum 10% participation in SOPARFI or has invested minimum Euro 1.2 million </li></ul></ul><ul><ul><li>Recipient should have held participation in SOPARFI for minimum 12 months </li></ul></ul><ul><ul><li>Recipient should be a company resident in EU Member State or Luxembourg branch of company resident either in EU Member State or country with which Luxembourg has a Double Tax Treaty </li></ul></ul>
  17. 17. Luxembourg <ul><li>Luxembourg an attractive jurisdiction for holding company for investment in EU and other countries with which Luxembourg has a Double Tax Treaty </li></ul><ul><li>Dividends declared by Luxembourg holding company to Indian parent would suffer withholding tax @ 20% in Luxembourg </li></ul>
  18. 18. Ireland <ul><li>Participation exemption from capital gains tax introduced in 2004 making Ireland a jurisdiction to consider for locating holding company </li></ul><ul><li>No withholding tax on dividends distributed by Irish resident company, provided recipient is: </li></ul><ul><ul><li>Company resident in another EU Member State or tax treaty country and which is not controlled more than 50% by Irish residents; or </li></ul></ul><ul><ul><li>Under ultimate control of persons resident in another EU Member State or tax treaty country; or </li></ul></ul><ul><ul><li>Company whose shares are substantially and regularly traded on a recognized stock exchange </li></ul></ul>
  19. 19. Ireland <ul><li>Foreign dividends received by Irish company are however subjected to a 25% tax, although impact is mitigated due to onshore single basket pooling of all foreign tax credits including foreign underlying tax </li></ul><ul><li>Attractive corporate tax rate of 12.5% applicable to trading profits </li></ul>
  20. 20. Spain <ul><li>Participation exemption for qualified foreign source dividend and capital gains income of holding company (ETVE), if the following requirements are met : </li></ul><ul><ul><li>ETVE holds direct or indirect participation of minimum 5% or investment amount is minimum Euro 6 million </li></ul></ul><ul><ul><li>ETVE must hold shares for uninterrupted period of 1 year </li></ul></ul><ul><ul><li>Foreign entity should be resident in country having double tax treaty with Spain with exchange of information provision </li></ul></ul><ul><ul><li>Foreign entity must not be resident in a tax haven and 85% of its profits must be derived from business activities in countries other than tax havens </li></ul></ul>
  21. 21. Spain <ul><li>ETVE can redistribute qualifying foreign source income without any incidence of withholding tax in Spain, subject to fulfillment of following conditions: </li></ul><ul><ul><ul><li>Existence of reasonable and adequate substance in ETVE </li></ul></ul></ul><ul><ul><ul><li>Dividends are distributed to non-resident shareholders (except those resident in tax haven) out of exempt dividend income of ETVE </li></ul></ul></ul><ul><li>Capital gains income accruing to non-resident shareholders on transfer of participation in ETVE not liable to tax in Spain to the extent gains do not exceed undistributed profits of ETVE comprising of exempt dividends, capital gains income and appreciation in value of foreign qualifying participated subsidiaries </li></ul>
  22. 22. Spain <ul><li>ETVE tax regime allows Indian entrepreneurs to remit profits earned in operating companies in EU to parent in India without any tax incidence in Spain </li></ul>
  23. 23. Limitation of benefits provision <ul><li>Use by residents of third states of legal entities established in Contracting State with principal purpose of obtaining benefits of tax treaty between that Contracting State and another Contracting State is “treaty shopping”. </li></ul><ul><li>All recent US tax treaties contain comprehensive limitation on benefits provision to ensure that source based tax benefits granted by a Contracting State are limited to intended beneficiaries i.e. residents of other Contracting State </li></ul><ul><li>Series of objective tests laid down in US tax treaties to ensure that third country residents having substantial business reasons for establishing a structure do not fall within mischief of these provisions </li></ul>
  24. 24. INBOUND INVESTMENT
  25. 25. Inbound Investment <ul><li>Foreign Direct Investment (FDI) under automatic route upto 100% in manufacturing sector and capped at levels between 26% and 74% in sectors like telecommunication, banking, insurance etc. </li></ul><ul><li>Policy relating to issue of GDRs, FCCBs etc., relaxed to allow easy access to international capital markets </li></ul>
  26. 26. Major direct tax incentives available to foreign investors in India <ul><li>Tax Holiday for a specified number of years to specified business activities in infrastructure sector, housing sector, telecom and information technology sector etc. </li></ul><ul><li>Special Economic Zones Act, 2005 provides major direct and indirect tax incentives to developers of Special Economic Zones (SEZs) and units set up in SEZs </li></ul><ul><li>Interest and capital gains income from long term investment in infrastructure projects exempt from tax </li></ul>
  27. 27. Factors driving FDI in India <ul><li>No double taxation of profits </li></ul><ul><li>No withholding or other taxes on dividend income and capital gains income derived from the operating subsidiary located in India </li></ul><ul><li>Exemption from withholding taxes in respect of dividends declared by the holding company to the ultimate parent </li></ul><ul><li>Access to capital markets </li></ul><ul><li>Proper legal and regulatory framework </li></ul>
  28. 28. Why a holding company for investing in India is tax efficient ? <ul><li>To mitigate the Indian income tax liability on capital gains income arising on sale of unlisted shares of an Indian Company, foreign investors need to locate holding company in tax efficient jurisdiction </li></ul><ul><li>Double Tax Treaties entered into by India with various countries to be analyzed to identify tax efficient jurisdiction </li></ul>
  29. 29. PREFERRED JURISDICTIONS FOR INBOUND INVESTMENT
  30. 30. Singapore <ul><li>Comprehensive Economic Co-operation Agreement (CECA) signed between India and Singapore a landmark step </li></ul><ul><li>Under the amended Double tax treaty between India and Singapore, capital gains income accruing to a Singaporean company in respect of sale of shares of an Indian company are fully exempt from tax in India </li></ul><ul><li>Capital gains tax exemption to continue to be in force so long as a similar provision exists in Indo-Mauritius Double Tax Treaty </li></ul>
  31. 31. Singapore <ul><li>Anti-abuse provisions built in the Treaty to ensure that the above benefit is denied to residents whose affairs are primarily arranged to take advantage of above provisions </li></ul><ul><li>No tax on capital gains income in Singapore </li></ul><ul><li>Complete exemption from capital gains tax both in India and Singapore coupled with the fact that Singapore has highly developed financial markets makes Singapore attractive for investment into India </li></ul>
  32. 32. Mauritius <ul><li>Under Mauritian tax law, Global Business License 1 (GBL1 companies) can conduct offshore business activities and are entitled to lower corporate tax-incentive rate of 15% </li></ul><ul><li>Deemed foreign tax credit equal to 80 per cent of Mauritian tax chargeable on foreign source income is allowed bringing the effective rate of corporate tax for GBL1 companies down to 3% </li></ul><ul><li>GBL1 companies can claim benefits of India-Mauritius Double Tax Treaty which provides complete tax exemption to Mauritian tax residents in respect of capital gains income arising on sale of shares of an Indian company </li></ul>
  33. 33. Mauritius <ul><li>No capital gains tax in Mauritius enabling Mauritian tax residents to earn completely tax free capital gains income from sale of shares of Indian company </li></ul><ul><li>Indian Supreme Court’s ruling in Azadi Bachao Andolan’s case has laid down the clear law that where a Mauritian entity has been issued “tax residency certificate” by Mauritian tax authorities, benefits of Indo-Mauritian tax treaty would be available </li></ul><ul><li>No withholding tax on distribution of dividends to parent </li></ul>
  34. 34. Cyprus <ul><li>Full exemption from tax on capital gains income accruing to a Cyprus resident from sale of shares of an Indian company under the Indo-Cyprus Double Tax Treaty </li></ul><ul><li>No withholding tax on distribution of dividends to parent </li></ul><ul><li>Corporate rate of tax of 10 per cent </li></ul><ul><li>No major investment into India from Cyprus due to lack of advanced regulatory and financial controls and political climate </li></ul>
  35. 35. UAE <ul><li>Under the Indo-UAE Double Tax Treaty, no tax in India on capital gains income earned by a UAE resident from disposal of shares of Indian company </li></ul><ul><li>No corporate tax and capital gains tax in UAE </li></ul><ul><li>No withholding tax on distribution of dividends to parent </li></ul><ul><li>Advance Ruling in Cyril Eugene Pereira’s case has created uncertainty as to whether holding company in UAE, which has no tax liability in UAE, would be entitled to the benefit of the Indo-UAE Double Tax Treaty </li></ul>
  36. 36. Conclusion <ul><li>Netherlands, Singapore and Spain are tax effective jurisdictions for outbound investments from India </li></ul><ul><li>Singapore and Mauritius are tax effective jurisdictions for inbound investments into India </li></ul><ul><li>Urgent need to review current Indian tax laws relating to taxability of income earned by Indian resident from overseas investments </li></ul><ul><li>Concept of participation exemption should be introduced in India </li></ul>
  37. 37. <ul><li>THANK YOU </li></ul>
  1. A particular slide catching your eye?

    Clipping is a handy way to collect important slides you want to go back to later.

×