Foreign investors from Mauritius remain eligible to register in India, says SEBI
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The Securities and Exchange Board of India said on Tuesday that foreign portfolio investors (FPIs) from Mauritius remain eligible to register in the country, as it sought to ease concerns after a global organisation put the island nation in a list of “jurisdictions under increased monitoring”.

“FPIs from Mauritius continue to be eligible for FPI registration with increased monitoring as per FATF norms,” SEBI said in a statement, referring to the Financial Action Task Force.

The FATF, an intergovernmental organisation to combat money laundering, had placed Mauritius in its so-called “grey list” on February 21. This raised apprehensions among investment firms, fund managers and other market participants about whether this would have an effect on the registration of FPIs from Mauritius.

When a country is placed in the “grey list”, or under increased monitoring, it means the country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring, SEBI said.

The FATF doesn’t call for the application of enhanced due diligence to be applied to these jurisdictions, but encourages its members to take into account this information in their risk analysis, SEBI added.

On Monday, Indian equity indices had slumped nearly 2% due partly to the FATF’s announcement. The BSE’s benchmark Sensex fell more than 800 points while the NSE Nifty fell over 250 points—the biggest single-day fall in a month. On Tuesday, the BSE Sensex fell 0.2%.

The sharp fall was mainly because Mauritius, as a jurisdiction, accounted for the second-highest FPI inflows to Indian capital markets with assets under custody (AUC) at Rs 4.37 trillion in January 2020, according to data by National Securities Depository Ltd.

The US ranked first, with AUC worth Rs 11.62 trillion. Luxembourg, Singapore and the UK round up the top five destinations for FPI inflows to India, NDSL data showed.

Sanjay Sanghvi, partner-tax at law firm Khaitan & Co, said there will be deeper compliance obligations related to know-your-customer norms for Mauritius-based investors without having any impact on the new SEBI categorisation of FPIs last year as well the tax treaties.

“The latest development should not impact the India-Mauritius tax treaty related to claims and entitlement of Mauritius-based investors who have invested in India,” Sanghvi said.

The tax treaty between India and Mauritius was amended in 2016. As per the original treaty, gains on the sale of shares acquired before April 1, 2017 were taxable only in the country of residence of the seller and not the source country. The treaty was amended to remove this exemption for investments made on or after April 1, 2017.

Flows from Mauritius to Indian capital markets accounted for more than 25-30% of the total. However, this has dropped to about 15-20% due to stricter regulations over taxation and money laundering.

Tejas Desai, tax partner at EY India, anticipates that SEBI may impose some enhanced KYC and documentation requirements.

“However, the view that seems to be emerging is that by placing Mauritius on the grey list, it does not tantamount to any form of a ban under the SEBI regulation…. The Mauritius-India treaty, despite the withdrawal of capital gain exemption on sale of shares, continues to give an exemption for any other form of securities. Those benefits continue,” Desai said.

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