In an article titled “Investing in India: How Recent Developments in the Cayman Islands Facilitate InboundInvestment”, Chetan Nagendra examines two recent events: Cayman Islands’ acceptance as a full member of IOSCO and its recognition in the ‘white list’ of jurisdictions that have substantially implemented the OECD tax standard. He notes that these events are likely to see a further flow of investments from Cayman Islands into India as it enables registration of Cayman funds as foreign institutional investors (FIIs) by SEBI:
[Cayman Islands Monetary Authority’ (CIMA)] admission to IOSCO demonstrates the jursidcition’s willingness to engage other regulators to facilitate cross-border information exchange and assistance. It is believed that the Indian securities regulator, the Securities and Exchange Board of India (SEBI) will treat this development positively and allow for speedier and less cumbersome registration of Cayman domiciled funds as foreign institutional investors (FIIs) in India.
Registration is mandatory for foreign institutional investors in India. Cayman Islands domiciled investment funds have historically faced challenges when seeking to invest in Indian listed securities. SEBI has previously required extensive due-diligence on funds domiciled in the Cayman Islands, citing CIMA’s lack of IOSCO membership. It is expected that with IOSCO membership, Cayman domiciled funds that invest in India can now directly register as a FII with SEBI rather than investing through intermediary funds based in another jurisdiction or through participatory notes.
The article however notes that since Cayman Islands does not have a double taxation avoidance treaty with India, funds from Cayman will still have to be routed through jurisdictions that have advantageous tax treaties with India (such as Mauritius and Cyprus).
The article is on page 68 of the World Commerce Review (Sep ’09), which can be accessed here.
Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.