By Disha Gupta
Indian businesses are increasingly investing in foreign nations with lower tax rates, referred to as tax havens. This enables them to expand their presence globally while enjoying tax savings, said data from specialists and the Reserve Bank of India (RBI).
In 2023-24, Indian firms invested ₹3,488.5 crore in foreign countries. Of this amount, approximately ₹1,946 crore, or nearly 56%, were invested in low-tax nations like Singapore, Mauritius, the United Arab Emirates (UAE), the Netherlands, the United Kingdom, and Switzerland.
Of these nations, three were the greatest recipients: Singapore took in 22.6% of India’s outward foreign direct investment (FDI), Mauritius took in 10.9% and UAE took in 9.1%.
Altogether, these three nations contributed to more than 40% of India’s overall outward FDI in the fiscal year 2023-24. Furthermore, during the first quarter of the ongoing financial year, the proportion of FDI flowing into these low-tax countries went higher at 63%.
Vaibhav Luthra, EY India Tax Partner, says that the RBI figures reflect only the first leg of outward investment. The ultimate investment location of Indian businesses is usually different. The low-tax nations serve as a midway station. These locations provide not only tax advantage but also tax stability, that is, the businesses can organize their finances in a less uncertain manner.
Mr. Thingna, an expert in the market, opines that these high tariffs might drive Indian businesses to offshore some of their business. If this is done, firms could establish subsidiaries in other countries where they will add value to their products. In this manner, they will be able to sell into the U.S. without incurring burdensome tariffs imposed on Indian markets.
With an intermediate firm in such countries, Indian firms can also better shield their core business from risks such as political shifts or oppressive regulations within India or other nations.
Low-tax nations such as Singapore, Mauritius, and the UAE are being employed by Indian firms as strategic hubs for international expansion. This serves not only to save them money on taxes but also allows them to raise capital, seek investors, and circumvent high trade tariffs.
This trend will probably be sustained, particularly as international trade policies shift and businesses seek smarter ways to operate around the world.