Double Taxation Avoidance Agreements (DTAAs) help investors domiciled in one country understand their tax liabilities when they make investments in the other. Since a DTAA ensures tax is not charged twice, it immediately improves the tax-adjusted returns for investors.

Hong Kong has always held a place of pride among global financial centres as the leading financial centre of Asia. Hong Kong also acts as the gateway to China, which means a substantial amount of capital heading to China finds its way through its system. Of late, Singapore has risen as a strong alternative Asian financial centre with several European investors using Singapore to route their Asia investments.

One of the reasons for the emergence of Singapore is the 70-plus DTAAs that it has entered into. In contrast, Hong Kong’s 32 DTAAs appears to have been a constraining factor. To address this situation, The Hong Kong Government has vigorously pursued the execution of DTAAs and other bilateral trade agreements with several countries. The execution of the DTAA with India and a Free Trade Agreement with ASEAN nations are steps taken in the same direction.

With their shared British colonial past, India and Hong Kong have long enjoyed strong trading relations. According to the Hong Kong Trade Development Council data, India was its 7th largest trading partner with around $28 billion worth of bilateral trade in the 10 months to October 2017. Last year Hong Kong’s exports to India grew by almost 35%, making it the 3rd biggest export destination for Hong Kong. However, one may get an impression that the cross border Investment volumes are not commensurate with the depth of the strong business relations. The absence of DTAA between Hong Kong and India previously was cited as one of the main reasons contributing to this anomaly.  

Back in 2003, Hong Kong and India signed a limited DTAA exclusively to the benefit of shipping companies and airlines. Since then, businesses and investors have been anxiously waiting for their governments to put a comprehensive DTAA in place. Almost 15 years later, in November 2017, the Press Information Bureau announced that the Indian Cabinet had given its approval to a DTAA with Hong Kong. This has led to palpable excitement in the business community, especially the financial world as the agreement may help achieve the true potential of investment and trade between both nations. Indian projects in growing sectors like infrastructure, transport, and e-commerce will gain access to fresh funds. Hong Kong-based investors and Chinese investors investing through Hong Kong will find lucrative opportunities in India that will help them achieve the twin objectives of portfolio diversification and tax-protected returns.

The Indian government is working hard to boost India’s image as an investment destination globally and has made concerted attempts to achieve that. Hong Kong has already realised the DTAA details wherein the Indian government too will be releasing the same after completing the process. Structural reforms coupled with a positive tax treaty between Hong Kong and India could will result in a substantial amount of global capital flowing into India through Hong Kong. Further, the massive opportunity in India’s economy with its rising middle class and its million millennials joining the workforce every month, is something that is exciting consumer goods companies in China. A simplified tax treaty could will see a larger number of such entities enter India through Hong Kong. Because the DTAA will bring clarity on how investments in such projects will play out in the medium to long term, with regard to returns and repatriations, significant inflows are expected. That will come from China and also from Chinese investors, using Hong Kong as their preferred financial hub.

IL&FS is extending its reach to new investors and lenders, who do not have a presence in the country today but would like to explore the India opportunity. We are increasing our coverage among professional firms in the Greater China region to leverage our India connect. Following this, we will explore cross-border M&As and other corporate finance opportunities that may arise with the formalization of the DTAA.

IL&FS has a rich pedigree and deep presence in India’s Infrastructure sector. We occupy a unique position in the sector after having donned simultaneous hats of a Project Developer / Investor and a Project Lender. This capability gives us unique insights in the entire life cycle of Infrastructure projects in India. Pioneering IL&FS projects include the first privately operated metro project that is Rapid Metro Rail in Gurgaon and the engineering marvels of Chenani-Nashri Tunnelway in Kashmir. IL&FS can provide an enabling platform to anyone keen on gaining an exposure to the Indian Infrastructure space either as a financier or as a developer.  

The Indian Infrastructure sector will continue to provide tremendous opportunities for investors across the project lifecycle and satisfy the spectrum of investor appetite. The India opportunity ranges from greenfield projects to operational projects. India’s infrastructure needs are estimated to be a total of USD 733 billion between fiscal years 2018-2022. The table below captures this trend.

India’s Infrastructure Needs in the Next 5 Years

Infrastructure Component

Project Time Frame

Estimated Amount
(In US$)


2018- 2022

117 billion

Urban Infrastructure

2018- 2022

80 billion

Airports and ports

2018- 2022

14 billion


2018- 2022

140 billion


2018- 2022

205 billion

Based on S&P Global, Crisil Infrastructure Yearbook 2017

Source: Crisil Infrastructure Yearbook 2017 (S&P Global)

Another largely untapped area is India’s stressed assets opportunity. Like any other large and growing economy, India also has its fair share of stressed businesses that provide a great opportunity for specialty funds to acquire fundamentally strong businesses at much lower valuations for turning them around. The recent enactment of the Indian bankruptcy law that is The Insolvency and Bankruptcy Code, 2016 consolidates the existing framework by creating a single law for insolvency and bankruptcy. It is working as a catalyst for the same. IL&FS is partnering with the Hong Kong office of Lone Star, a leading private equity fund manager, to form a fund that will buy stressed assets from the Indian banking system.

Formalization of the DTAA and policy developments in India will provide an impetus to stressed credit. Different pool of capital could open up to explore Indian opportunities. All major financial entities, including asset management and investment firms, pension and private equity funds, have a major presence in Hong Kong. Some, such as SSG, CPPIB, Pacific Alliance, and Blackrock have already made their India plans public. The DTAA could will be an additional incentive for more players to explore the Indian stressed asset opportunity.

The emergence of several technology giants in China such as Alibaba and Tencent has been accompanied by investments of risk and/or growth capital into Indian technology firms from entities based out of China and Hong Kong. The equity side of the fund flow is also gaining strength and achieving critical mass.

Though the specifics of the DTAA are still awaited, The biggest advantage will be the withdrawal and rationalization of withholding and dividend distribution taxes levied on loans and investments between India and Hong Kong. This will lead to Hong Kong’s emergence as a leading global financial centre to route investments in India and facilitate closer interaction with Hong Kong and Chinese firms looking to explore India opportunities. Strong trading ties coupled with a conducive tax regime could also lead to reverse investment flows where more Indian companies may explore Hong Kong as the base to set-up operations in China and North Asia.


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