Tax Havens Accounted For More Than Half of Outward Investments Made by Indian Companies in 2023-24: Report
New Delhi: Around 56% of outward investments by Indian companies in 2023-24 were made in tax havens such as Singapore, Mauritius, the United Arab Emirates, the Netherlands, the United Kingdom, and Switzerland.
The use of low-tax jurisdictions abroad is done by the companies to channel their foreign investments in a bid to increase their global presence. Of the total Rs. 3,488.5 crore of outward foreign direct investment (FDI) by India in 2023-24, about Rs. 1,946 crore landed in these low tax jurisdictions, reported The Hindu.
An analysis of data from Reserve Bank of India (RBI) done by the newspaper reveals that just three of these countries – Singapore (22.6%), Mauritius (10.9%), and the UAE (9.1%) – accounted for more than 40% of India’s outward FDI in 2023-24.
The trend appears to also have increased in the current financial year, as just by the first quarter, such low tax jurisdictions accounted for 63% of India’s total outward FDI.
“If Indian companies are making investments outside India, then having them through a company set up in one of these jurisdictions makes a lot of sense,” to Riaz Thingna, Partner, Grant Thornton Bharat told The Hindu.
Thingna added that if an Indian company wants to set up a subsidiary in Europe, the US, or any other country, then doing it through a special purpose vehicle in countries such as Singapore or other low tax jurisdiction will help them in getting strategic investors, and in providing better tax positioning at the time of stake dilution.
“These jurisdictions are also more flexible in transferring funds and investments on a day-to-day basis. So, very often, these investments are not being made only to evade, avoid or reduce tax. They are often made because these jurisdictions form platforms for investment in third countries,” he said.
In June this year, the outward foreign direct investment (FDI) of India increased to $5.03 billion on a year-on-year basis, which is more than $2.9 billion, the figure for the same month last year.
When expressed as a financial commitment, outbound FDI comprises of equity, loans, and guarantees.
The Wire is now on WhatsApp. Follow our channel for sharp analysis and opinions on the latest developments.
