Cross-Border Deal Structuring: Onshore vs Offshore Holding Companies
Routing an Indian acquisition through an offshore holding jurisdiction can affect capital gains tax, exit flexibility, and treaty access, but India's GAAR and treaty changes have narrowed the benefit considerably.
Structuring an Indian acquisition through an offshore holding company (historically Mauritius, Singapore, or the Netherlands) used to offer a meaningful capital gains tax advantage on eventual exit, via treaty benefits. Renegotiated treaties and India's General Anti-Avoidance Rule (GAAR) have narrowed this considerably, treaty benefits now generally require demonstrable commercial substance in the holding jurisdiction, not just a shell entity, and GAAR can disregard arrangements whose main purpose is tax benefit.
That doesn't make offshore holding structures pointless, there are legitimate non-tax reasons to use one: consolidating multiple portfolio company investments under a single holding vehicle, easier access to international financing, and cleaner exit mechanics for a future strategic sale or IPO. The tax benefit specifically just needs realistic underwriting, not the assumption it automatically applies.
Any offshore structuring decision should be modeled against current treaty terms and GAAR exposure at the time of the deal, not against historical assumptions about how these structures used to work, the rules have moved meaningfully in the last several years.