Double Taxation Avoidance Agreement (DTAA) signed between Hong Kong (HK) and Mauritius

• In an official statement by the Financial Service Commission of Mauritius, it was announced that Hong Kong and Mauritius have signed DTAA which has sought to encourage cross-border investment flows and enhance bilateral cooperation in tax matters between the two countries;
• It also seeks to eliminate double taxation of income generated through cross-border transactions and provide greater tax certainty to investors;
• The comprehensive double taxation avoidance agreement provides favourable tax treatment for HK residents investing in Mauritius by way of exemption for dividends, and to interest and capital gains subject to reasonable conditions.

Potential impact of the DTAA in relation to investments in Mauritius & India

• The HK-Mauritius DTAA may entice HK investors to channel their investments to India via Mauritius through a master feeder structure.
• At present, HK investments in India through Foreign Direct Investment or Foreign Portfolio Investment do not get any tax incentive.
• Under the India-Mauritius tax treaty, capital gains on debt and derivatives are exempt from tax, interest is taxed at 7.5% and dividend is taxed at 5%.
• Therefore, it could be better off for HK investors to invest in India via Mauritius. Needless to say that this will need to be subject to other commercial/ business considerations.