Singapore makes most of India's outward FDI

Indian corporate houses making overseas investments through big-ticket acquisitions are now quite established. But they seem to be doing so through countries that have either low tax rates or allow tax-free remittance of income.

Much of the outward foreign direct investment (FDI) by India Inc done between April and December 2007 was directed to Singapore, the Netherlands and British Virgin Islands (BVI), according to the latest Reserve Bank of India data.

These are intermediate stops before investments land in the final destination country. Singapore, which is a business and financial hub for Asia-Pacific, had 37 per cent share in FDI approvals ($5 million and above), followed by the Netherlands with 26 per cent and 8 per cent for BVI.

RBI said the actual outward FDI in April-December 2007 grew 13 per cent at $ 10.11 billion as against $ 8.97 billion in April-December 2006.

During April-December 2007, FDI inflows were estimated at $ 19.74 billion, resulting in net inflows of $ 9.63 billion compared with $ 8.48 billion (net inflows) during the corresponding period in 2006.

Pointing out the priority for redeploying money for business, PricewaterhouseCoopers (PwC) Executive Director Jairaj Purandare said apart from business and commercial reasons, many direct investments were routed in such a way that income from them faced lower tax or did not attract tax at all. This helps corporates redeploy money in business instead of paying taxes.

These are intermediate stops to derive benefits from a tax-friendly structure just as Mauritius is a favourite point for multinationals and international investors to route funds into India.

This helps them enjoy provisions of the Double Taxation Avoidance Treaty between the African nation and India, said a senior partner with a large tax consultancy firm.

Overseas investment is being driven by a host of factors including access to new markets, technology, customers and diversifying risks. These investments have already begun giving benefits to Indian corporates.

Inflows from India's outward FDI include items like dividend, royalty, licence fee, brand fee, technical know-how fee and repayment of loans. The total inflow from the outward FDI in 2006-07 amounted to $ 295 million, compared with $ 337 million in April-December 2007-08.