Mauritius, which is one the largest sources of foreign portfolio investments (FPI) into the country, has welcomed the recent government decision to upgrade the island nation as an eligible country for Category-I FPIs.
On April 13, the government notified Mauritius as an "eligible country", enabling its investment entities to register as Category-I foreign portfolio investors, relaxing their KYC requirements.
Considering the large size of investments by entities from Mauritius into the capital markets, this is a welcome move and goes in line with protection of FPIs from such adverse tax regimes.
Category-I FPIs include government and government-related investors such as central banks, sovereign wealth funds, international or multilateral organisations or agencies, including entities controlled or at least 75 per cent directly or indirectly owned by such governments and government-related investors, pension and university funds.
The new regulation also specifies that the category-I FPIs shall include entities from the Financial Action Task Force (FATF) member-countries or from any country specified by the government by way of an agreement or treaty with other governments.
It can be noted that so far Mauritius was not eligible for Category-I status as it is not a member of the Financial Action Task Force.
Welcoming the new categorization, the Economic Development Board of Mauritius on Wednesday said the move will enhance the engagement levels of governments of Mauritius and India for trade and economic ties.
Following the government move, the markets watchdog Sebi has revised its regulation under Regulations 5 (a)(iv) of Sebi FPI regulations 2019 on Tuesday making the regulated funds from Mauritius eligible for registration as Category 1 FPIs in India.
The revised Sebi circular and the accruing benefits will bring in regulated funds from Mauritius, making them eligible for registration as Category 1 FPIs in India, the Economic Development Board of Mauritius said in a statement, adding the provision will enhance the engagement levels between the two governments.
It also opens the gateways for interactions between the Financial Services Commission of Mauritius and the Sebi as a result of which the government of Mauritius has reaffirmed its interest in creating a conducive business environment and a hub of choice for international investments, the board said.
This recognition follows fruitful engagements, at the highest level, between the two governments on further enhancing our trade and economic ties. It also follows interactions amongst the various authorities, including high-level discussions between the Financial Services Commission of Mauritius and the Sebi since October 2019, as well as the relevant ministries, the statement said.
The statement further said Mauritius has been providing a conducive business environment to the investor community, and this amendment is a key development in reaffirming Mauritius as the hub of choice for international investments. It also bears testimony to the strong relationship that exists between the two countries.
The Monday notification from the finance ministry said, the government hereby specifies Mauritius as an eligible country for the purposes of Regulation 5 (a)(iv) of the Sebi (Foreign Portfolio Investors) Regulation 2019".
Under the new regulation, even the unregulated funds whose investment manager is appropriately regulated and registered as a Category-I FPIs can operate from India if their investment managers take the responsibility for all commissions or omissions of such unregulated funds.
According to Amit Maheshwari of AKM Global, the changes are part of the budget proposal to exempt FPI Category-1 investors from indirect transfers. Through this order funds from Mauritius have been allowed to be registered as Category-1 and hence would get the benefit from indirect transfer provisions under the Income Tax Act.
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