Should you set up a holding firm in Mauritius or Singapore?

 

Should you set up a holding firm in Mauritius or Singapore?

Published: Sun 16 Jun 2019, 5:22 PM

Last updated: Sun 16 Jun 2019, 8:16 PM

Q: A British firm for whom I am working in the Gulf wants to invest in India by setting up a research and development centre. This company may first invest in a Mauritian or Singaporean company as it would like to invest in other Asian countries in addition to India. I want to know which would be a better location for setting up the investment company, should it be in Mauritius or Singapore? Conflicting views are being expressed.
A: When investments were made in India prior to April 2017, most companies preferred to set up the investment company in Mauritius. The advantage of this was that when the shares in the Indian company were sold, the Mauritian company did not have to pay tax in India on the capital gains arising from sale of shares of the Indian company. However, the double tax avoidance agreement between India and Mauritius which earlier gave this tax exemption has been amended. For shares acquired in India after March 31, 2017, capital gains tax is payable in India on transfer of Indian shares.
After the amendment, both Mauritius and Singapore jurisdictions have identical tax provisions. With parity in tax treatment, investors are looking at advantages under local laws before deciding whether to set up a Mauritian company or a Singaporean company. Foreign direct investment (FDI) in India from Singapore-based companies has increased dramatically during the last few months. This may be partly on account of the presence of a large number of private equity investors in Singapore. Singapore also offers tax incentives by charging a lower tax rate if the regional headquarters are located there. Hence, it is the preferred destination for setting up holding companies.
Q: My mother in India earns income from bank interest as well as from deposits with private companies. Since tax is deducted at source, she has to file a return of income in order to get a refund. Is there any way of avoiding deduction of tax at source? Her income is around ?40,000 a month.
A: The tax law has been amended with effect from the current financial year, which began on April 1, 2019, whereby a person would not be required to pay tax if his total taxable income is within the limit of ?500,000 a year. The law has also been amended to provide that senior citizens who are more than 60 years old can submit Form 15-H to banks, private companies and post offices where they have a deposit. On submission of this form, no tax would be deducted at source at the time the interest is paid.
Your mother should therefore file this form with each bank or private company where she has a fixed deposit. Once the form is received by the bank or company, it would be duty bound to grant exemption from the withholding tax and pay the full amount of interest on the due dates. Hence, from the current financial year, her full income of around ?40,000 per month would be exempt from tax if she furnishes the form to the bank/company before the interest becomes due. If no tax is deducted at source, return of income need be filed for the assessment year 2020-21 and subsequent years.
Q: In order to ensure greater security and avoid market volatility, my friends and I had decided last year to invest in listed bonds of companies in India. However, we have reports that payment of interest on these listed bonds has been delayed or deferred by companies which have reputable promoters. Is anything being done by the government to protect the interest of investors? I believe that many mutual funds also invest in bonds of listed companies to assure a reasonable return on investments.
A: It is true that some listed companies having well-known promoters have delayed payment of interest. The Securities and Exchange Board of India has now stepped in to ensure that investors in bonds of listed companies are protected to some extent. It has been decided that where there is a delay in the payment of interest and/or the principal amount at the time of redemption of the bonds, additional interest of 2 per cent per annum over the coupon rate will be payable by the company for the period of delay. Debenture trustees are now required to inform the bond holders about such delay in payment of interest and ensure that the security provided for the bonds is not depleted.
Where there is a delay in listing the bonds or debt securities beyond 20 days from the date of allotment, the company is required to pay penal interest of 1 per cent per annum over the coupon rate. Such additional interest will be calculated after the expiry of 30 days from the date of allotment until the date of listing of the bonds or securities. It is also made mandatory by Sebi for companies to disclose remuneration paid to debenture trustees. A note will have to be given by the company justifying the quantum of remuneration, which has been agreed to be paid to the debenture trustees.
- The writer is a practicing lawyer specialising in tax and exchange management laws of India.

By H.P. Ranina
 NRI Problems

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