Threefold jump in FDI from Cayman Islands to India in FY20 due to low taxes

INDIA attracted $3.7 billion Foreign Direct Investment (FDI) from from Cayman Islands in 2019-20, according to the Department for Promotion of Industry and Internal Trade (DPIIT).

With a threefold jump in FDI when compared to a year ago, Cayman Islands has emerged as the fifth largest investor in India. India received FDI worth $ one billion in 2018-19 and $1.23 billion in 2017-18 from the Islands, which is the UK Overseas Territory.

Meanwhile, FDI from Cyprus too increased by about three-times to $879 million in FY20 from $296 million in 2018-19. It was $417 million in 2017-18, the DPIIT data showed.

According to experts, Cayman Islands has become one of the most preferred jurisdictions for routing investments due to the absence of direct taxes costs.

"In fact, three times year-on-year leap in FDI inflows from Cayman Islands must be viewed as an indicator of how this small offshore tax haven has emerged as a favourite intermediate investment holding jurisdiction by investors across the world rather than India gaining higher popularity as an Investment destination," Nischal Arora, Partner- Regulatory, Nangia & Co LLP said.

"Investments from tax havens do carry a comparatively higher perceived risk of laundered money, round tripping issues etc, again, which is bound to make the regulators wary of this new trend. In light of (certain) gaps in ascertaining complete beneficiary details, one may expect the government to come out with measures relating to carrying out additional scrutiny or monitoring of investments from such tax neutral jurisdictions."

Experts point out that high FDI from Cyprus is possibly due to the jurisdiction emerging as the lowest tax rate country in Europe.        Singapore is the top investor in India followed by Mauritius, Netherlands, and the US.

FDI in India increased by 13 per cent to $50 billion during the period under review.