Offshore Company Setup — Mauritius, BVI, Cayman: Where It Goes Wrong
The failures on Offshore Company Setup — Mauritius, BVI, Cayman repeat, which means they are avoidable if you know what to watch. The questions below are the ones raised most often in practice; the full scope of the service is on the Offshore Company Setup — Mauritius, BVI, Cayman page.
Can an Indian resident still use a Mauritius company to avoid capital gains tax on Indian shares — as used to be possible before 2017?
No. The India-Mauritius DTAA was renegotiated and a Protocol was signed in May 2016, effective from April 1, 2017. Under the revised treaty, capital gains arising from the alienation of shares acquired on or after April 1, 2017 in an Indian company are taxable in India — not in Mauritius. A grandfathering provision applied to investments made before April 1, 2017. Similarly, the India-Singapore DTAA and India-Cyprus DTAA were amended to close similar capital gains routing. The Mauritius route for capital gains exemption on Indian securities is therefore no longer effective for new investments. Mauritius remains relevant for dividend flows (where the DTAA provides relief on withholding tax rates) and interest on debt instruments, subject to the treaty conditions.
In practice: Mauritius has not offered a capital gains shelter for Indian shares acquired after April 2017. Any advisor suggesting otherwise is relying on an outdated understanding of the treaty.
What is the difference between a Cayman Exempted Company and a Cayman Exempted Limited Partnership — which is used for funds?
Both are common Cayman Islands fund vehicles. An Exempted Company is a separate legal entity with its own legal personality — shareholders hold shares; directors manage the company. It is commonly used for single-manager open-ended or closed-ended fund structures. An Exempted Limited Partnership (ELP) has no separate legal personality — the general partner (GP) has unlimited liability and manages the fund; limited partners (LPs) contribute capital and have limited liability. The ELP structure is preferred by most PE and VC funds because it aligns naturally with the GP-LP relationship familiar to institutional investors, enables pass-through taxation in many investors' home jurisdictions, and facilitates complex waterfall distributions and carried interest arrangements. The Cayman Private Funds Act 2020 (amended 2021) introduced registration requirements for most closed-ended fund vehicles.
In practice: Indian promoters often ask which structure to use for a fund. The answer depends on the investor base: US investors prefer ELPs for tax transparency; institutional LPs generally accept either; sovereign wealth funds often require specific governance frameworks. We design the fund structure based on the specific investors the promoter is targeting.
What is FATCA and CRS — do they affect offshore structures for Indian investors?
FATCA (Foreign Account Tax Compliance Act) is a US law requiring foreign financial institutions to identify and report accounts held by US persons to the US Internal Revenue Service (IRS). CRS (Common Reporting Standard) is the OECD's global framework for automatic exchange of financial account information between tax authorities — India is a CRS participant and receives information about financial accounts held by Indian residents in participating foreign jurisdictions annually. This means: if an Indian resident holds a bank account or investment account in any CRS-participating offshore jurisdiction, the local financial institution reports the account information to the local tax authority, which exchanges it automatically with India's income-tax authorities. Undisclosed offshore accounts are therefore systematically identified. For offshore company structures, the company's bank account details and beneficial owner identity are reported by the offshore bank.
In practice: CRS has fundamentally changed the risk calculus of offshore structures. The information sharing that used to require a specific tax authority investigation now happens automatically, every year. Any offshore account or entity that is not properly disclosed in the Indian investor's income-tax return (Schedule FA for foreign assets, Schedule FSI for foreign income) is exposed. PNPC insists on full disclosure as a non-negotiable condition of engagement.
Can I use a Mauritius company to hold shares in my Indian Private Limited Company as an investment holding vehicle — and what are the tax implications?
Only within limits. An Indian promoter can incorporate a Mauritius GBC to hold shares in an Indian Pvt Ltd, but because the investment comes back into India the structure is treated as round-tripping under the FEMA (Overseas Investment) Rules 2022, which permit it only within conditions, including a limit of two layers of subsidiaries; GAAR and place-of-effective-management risk also apply, so the position should be confirmed before any step is taken. The Mauritius entity becomes the immediate parent of the Indian company, with the promoter as the ultimate beneficial owner. Tax implications: dividends from the Indian Pvt Ltd to the Mauritius GBC are subject to Indian dividend withholding tax at the DTAA rate (the India-Mauritius DTAA may provide a reduced rate subject to meeting treaty conditions, including TRC). Capital gains on sale of shares in the Indian Pvt Ltd by the Mauritius GBC are taxable in India for shares acquired after April 1, 2017 — the treaty exemption no longer applies. The Mauritius entity's dividend income may be subject to Mauritius income tax at the 15% headline rate, but an 80% partial exemption on qualifying foreign dividends generally brings the effective rate to about 3%, subject to substance conditions. The promoter's receipt of dividends from Mauritius is taxable in India at their applicable slab rate.
In practice: The total effective tax on dividends flowing from the Indian company through Mauritius to the Indian promoter needs to be modelled carefully. Indian withholding tax applies to the dividend at the applicable treaty rate, but Mauritius does not levy withholding tax on dividends paid to non-residents, so there is no second withholding layer on repatriation. The Mauritius holding layer can still be costly if its only purpose is to hold Indian shares, because of holding costs, substance requirements, and PPT and GAAR risk. The layer may still be justified for other reasons — investor preference, exit planning, inter-jurisdictional pooling.
What is the Common Reporting Standard (CRS) — and is India participating in it?
The Common Reporting Standard (CRS), developed by the OECD, is the global framework for automatic exchange of financial account information between tax authorities. Under CRS, financial institutions (banks, investment funds, brokerages) in participating jurisdictions annually identify accounts held by tax residents of other participating jurisdictions and report them to their own tax authority, which then automatically exchanges the information with the other jurisdiction. India signed the Multilateral Convention on Mutual Administrative Assistance and the CRS Multilateral Competent Authority Agreement — it has been automatically receiving financial account information from partner jurisdictions since 2017. This means Indian resident beneficial owners of offshore bank accounts and offshore entities have their financial information reported to Indian income-tax authorities annually.
In practice: CRS has removed the anonymity that historically existed in offshore financial structures. Anyone with offshore financial interests should understand CRS: what information is shared, when, and what their disclosure obligations are in India. Compliance is the only defensible position.
Where this sits in the wider engagement
Offshore Company Setup — Mauritius, BVI, Cayman rarely arrives on its own. The statutory basis and the current requirements are set out on the Offshore Company Setup — Mauritius, BVI, Cayman service page, and the related services are grouped under Business Setup.
What PNPC does
PNPC Global has practised since 1986 across India and the UAE. On Offshore Company Setup — Mauritius, BVI, Cayman we take the work end to end — reviewing the facts, preparing and filing what is required, and dealing with the authority through to closure.