Investment experts Olivier De Moor and Brett Fieldston pen an article about tax efficiency for investing in India, as published by EMPEA.
In the EMPEA Legal & Regulatory Bulletin, Fall 2017, Gump tax partner Olivier De Moor and counsel Brett Fieldston published an article titled "Structuring Funds for Investment in India: Maximizing Tax Efficiency for U.S. Investors." The article offers valuable advice for fund sponsors and their U.S. tax advisors seeking to maximize tax efficiency for U.S. tax-exempt and taxable investors in India-focused private equity funds.
The authors note that the tax treaty between Mauritius and India no longer provides an exemption from Indian capital gains tax. This change affects the cost structures, investment returns, and repatriation strategies for U.S.-based investors in Indian private equity.
To navigate this new tax landscape, the authors suggest structuring funds in a manner that takes into account the tax status of each portfolio company within the platform for U.S. tax purposes. For U.S. tax-exempt investors, any Indian tax would likely be experienced as a noncreditable/non-deductible investment expense. On the other hand, U.S. taxable investors may be subject to rules intended to dissuade them from moving capital offshore to non-U.S. corporations that invest in passive assets. Special consideration should be given to the rate at which Indian tax is imposed, as foreign tax credits may not be available for U.S. taxable investors.
The authors also highlight the importance of monitoring Indian tax developments on investment income/gains. Current key developments in India's tax landscape relevant for maximizing private equity tax efficiency focused on India for U.S. taxpayers include the ambitious Goods and Services Tax (GST) reform effective from October 2025. This reform aims to simplify the system by lowering rates on many consumption goods, boosting domestic demand, and reducing complexity.
Attention should also be paid to direct tax trends, such as a slight 4% drop in net direct tax revenues year-over-year in early 2025, and upcoming adjustments in GST rates expected around Diwali 2025. Cryptocurrency taxation tightening also affects investment returns and compliance.
The authors conclude that by staying informed about these developments and structuring funds appropriately, fund sponsors can help U.S. investors maximize tax efficiency in their India-focused private equity investments.
You can access the full article by clicking here.
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