The Mauritian Cabinet approved in July 2026 the ratification of a protocol amending its Double Tax Avoidance Agreement (DTAA) with India. The introduction of a Principal Purpose Test (PPT) clause ends decades of tax exemptions on Indian share sale gains routed through Port Louis. Mauritius's financial hub — a cornerstone of the national economy — is entering a major transformation.
Two decades of tax advantage called into question
Since the early 2000s, Mauritius has been the primary gateway for foreign investment into India: investment funds, venture capital firms and offshore vehicles enjoyed exemptions on capital gains from shares listed in Mumbai and Delhi. This mechanism made the island one of India's leading foreign direct investment sources for two decades.
The new protocol, ratified in July 2026, introduces a PPT clause requiring Mauritius-based structures to demonstrate a genuine, non-tax primary purpose to access treaty benefits. Investments made before April 1, 2017 remain protected — India explicitly confirmed this safeguard in April 2026. More recent vehicles are directly exposed.
Offshore sector hit by a «double penalty»
The financial sector responded swiftly. Defimedia documented what it called the «double penalty» facing Mauritius's offshore industry: the PPT on one side, a simultaneous increase in Financial Services Commission (FSC) fees on the other. The sector is calling for urgent renegotiation and a clear transition roadmap.
According to the KPMG Tax Alert of August 2026, Global Business Companies (GBCs) in Mauritius must now rigorously document genuine local substance — a requirement already introduced in 2018-2019, now tightened further. India's Supreme Court also ruled in 2026 that the Indian tax authority can challenge treaty benefits where Mauritius interposition is primarily tax-driven.
Why it matters
For regional decision-makers, this shift sends a clear message: the pure tax-hub model is definitively over. Mauritius must accelerate its transition to a substance hub — where funds, family offices and investment structures operate genuinely, with local teams and expertise. Port Louis and New Delhi have simultaneously strengthened cooperation on fiscal transparency. The strategic imperative now is to offset pressure on India-facing flows by developing new routes: Sub-Saharan Africa, the Middle East, Southeast Asia. Mauritius's strategic response in the coming months will be closely watched by every African financial centre.
Sources: Defimedia.info, KPMG Tax Alert August 2026, EY Tax Alert July 2026, Maurice-Info, Sovereign Group, IonNews.mu — 2026.