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Major growth surge in fund flows from UAE

businesspaper Updated: Sep 01, 2016 10:33 IST
Timsy Jaipuria and Jyotindra Dubey
Timsy Jaipuria and Jyotindra Dubey

NEW DELHI: As popular foreign direct investment sources such as Singapore, Mauritius, Cyprus face the heat from recent amendments to tax laws, fund inflows from countries such as UAE— India’s top trading partner — may see a spike.

According to the department of industrial policy and promotion (DIPP), foreign direct investment (FDI) inflows into India increased by 29% to a record $40 billion in 2015-16.

UAE, which is the sixth biggest source of FDI, is catching up fast. Also experts say that, inflows from Mauritius, Singapore, Cyprus and Netherlands might soon loose sheen with the Indian government amending the double avoidance tax treaty (DTAA) with these four countries to tax investments from April, 2017.

“A lot of e-commerce companies also have carved out special entities to route investments via these nations to avoid tax incidence ... Slowly these destinations will fade away,” said a senior government official.

“Some UAE companies have been using Mauritius to invest, primarily because there was some uncertainty in the UAE-India tax treaty ,” said Suresh Swamy, partner at PwC India .“Since the India- Mauritius tax treaty will no longer be beneficial for capital gains, it is likely that firms will start investing from their home country.”

UAE-based-Etisalat and other private equity funds invest in India through Mauritius.

“Ultimately it is a question of how an investor now wants to come into India. It is likely that UAE companies will now start investing directly rather than using Mauritius,” the official quoted earlier said.