Every fifth FII dollar comes via Mauritius

Mauritius — the most favoured tax haven for international firms—accounts for over 20 per cent of the foreign institutional investors' investment in the Indian equity market.

This number is arrived at after taking into consideration the operations of those FIIs that operate via Mauritius and hold at least 1 per cent stake or more in listed Indian companies.

The total market value of FII investment in India currently stands at around Rs 350,000 crore, of which Mauritius accounts for Rs 70,700 crore. This could easily cross 20 per cent if one considers less than 1 per cent stake of FIIs in India Inc. However, the bourses do not make this data public.

"As a percentage of total FII inflows into India this is not too high, particularly if one considers the fact that the FIIs have had the tradition of routing money through Mauritius for the past 13 years. This trend will continue as it is natural that the fund houses will try to take the tax advantage while investing in any market," said a fund manager with a foreign brokerage.

Mauritius enjoys an advantage over other tax havens like Cyprus and the UAE on account of better infrastructure. FIIs set shops there as the regulatory clearances in Mauritius move at a faster pace than its peers.

Off late, a lot of American funds have started investing directly in India. The income of the US mutual funds from India were not subject to any additional tax beside the local taxes, said another fund manager.

The list of FIIs that have preferred to invest in India via Mauritius includes Aberdeen Asset Management, Citi Group Global, CLSA Merchant Bankers, Deutsche Securities, Emerging Markets Management LLC, Fidelity Assets Management, Golden Sachs Investments, HSBC Global Investment, JP Morgan Fleming Asset Management, Merrill Lynch Investment Managers and UBS Securities Asia.

These FIIs have set up their equity funds in Mauritius where the government does not levy any tax on capital gains. Foreign firms, including institutional investors, operate out of Mauritius as they do not have to pay any tax on profits earned by transacting in shares in India.