FAQs for Investment Advisors to the Fund

Do I need to set up an overseas entity to accept overseas investment via Cube Cloud?
No need to set up a separate overseas entity as it is taken care by Cube Cloud/Dovetail Investment Management, Mauritius (Investment Manager) via incorporation of Protected Cell Company (PCC) set up in Mauritius. Each Cell will be managed under a dedicated Sub-Cell so as to ring fence assets and liabilities of each Fund.

Which types of securities can a Foreign Portfolio Investor make investments in?
A foreign portfolio investor shall invest in the following securities, namely:

  1. Shares, debentures and warrants that are listed on a recognized stock exchange in India
  2. Derivatives that are traded on a recognized stock exchange
  3. Mutual Funds, Collective Investible Schemes, Indian Depository Receipts

For detailed information regarding, refer to clause 20 of this SEBI Circular

Do I need to set up an overseas entity to accept overseas investment via Cube Cloud?
Securities and Exchange Board (SEBI) of India has recently removed broad based criteria for FPIs.

Does the investor wire money to Cube? To me as the investment advisor on the fund? How does the actual money movement work?
Investors directly remits the amount to Tattva Investment Fund Limited’s Feeder Fund (Tattva Fund) in Bermuda which is approved by Bermuda Monetary Authority (BMA) or Dovetail Global Fund PCC (DGF), Master fund in Mauritius which is approved by the Financial Services Commission (FSC) of Mauritius. 

Money collected at Tattva Fund is pooled at DGF before it is invested in Indian securities markets. Cube Cloud system only facilitates investors’ onboarding and does not accept money from investors into in to its account.

What is the path that an investor’s money takes before it is invested in India?
Same as described above.

How often is money moved from the offshore fund to India to be invested?
It is planned to be on weekly basis.

Do I provide advice in rupees, dollars or other currency?
The money flows in USD into India and is converted into INR on the prevalent exchange rate just before the time of execution any purchase trade. IM or the Fund Administrator (Apex Fund Services, Mauritius) will inform IA through Cube Cloud the available amount for investments in USD on weekly basis. In order to have flexibility of executing spot opportunities, some amount is also converted into INR and kept in the bank in India. 

Refer this document to understand the trade flow which includes Subscription, Money Flow, Trade Execution, Redemption

What is the cost of the currency conversion? Who bears this cost?
The cost of currency conversion is around 2 to 5 paise per dollar (depending on the size); it is an operating expenses of the Fund.  

What is the tax impact to the fund when securities are sold?

The Fund needs to pay taxes in India when securities are sold. Fund Taxation is as follows: 

  1. In India:
  • Listed shares/ redemption of equity oriented MFs(where STT is already paid)  – Long Term Capital Gain (LTCG) tax is 10% and Short Term Capital Gain (STCG( tax  15%  plus surcharge of 5% and cess of 4% ; so effective tax for LTCG is 10.92% and STCG is 16.38% respectively.
  • Sale or transfer of other securities (bonds, derivatives) – LT 10% and ST 30% plus surcharge and cess – so effective tax for LTCG 10.92% and STCG 32.76%
  • Interest on Securities– 5% on interest payable up to 30th June 2020  on Government Bonds and Corporate Bonds  whose         coupon rate does not exceed 500bps of the base rate of SBI on the date of issuance of bonds; interest from other corporate bonds is taxable at 20% 
  • Dividend income– exempt from tax; however, Indian companies who declare dividend should pay dividend distribution tax of 20.56% on the dividend.
  1. In Mauritius– no taxation for the Fund’s income because of DTAA except tax on interest earned and dividend received is at effective tax @ 3%

  2. In Bermuda– no taxation as it is a pass through vehicle
        
  3. Individual Investors in the Fund– taxes are paid on gains from their investments; based on applicable taxes in investors jurisdictions.

What is the tax impact to the investor when securities are sold?
NAV of the Fund is calculated after adjusting taxes paid on capital gains in India as mentioned in earlier paragraph; interest and dividend tax paid in Mauritius @ 3%

How does an investor avoid double taxation in India and in their home justification?
Note that an Investor in the Fund does not pay any taxes India. Investors’ need to pay applicable taxes in their local jurisdictions for their gains from investments at the time of redemption.

What is the impact of the rationalization of tax rates between India and Mauritius that came into force on 31 March 2019? What if my fund invests in equities? What if my fund invests in MFs?

According to the protocol signed in May 2016, India has obtained the right to tax capital gains on the sale of shares in an Indian company. This right is only for investments made on or after 1 April 2017, meaning that investments made earlier are protected. Furthermore, tax on capital gains arising during the transition period (1 April 2017 to 31 March 2019) will be limited to 50% of India’s tax rate, subject to the newly introduced ‘limitation of benefits’ article (which requires the Mauritius resident to pass the main purpose test and bonafide business test). Such shares, once sold on or after 1 April 2019, will be taxed at 100% of the Indian tax rate.

LTCG and STCG from equity MFs investments will be exempt from tax as per the India Mauritius tax treaty.

Can my fund accept investments from US based investors?
Yes, the Tattva Fund can accept funds from US based accredited investors as it is Reg D complaint with Securities Exchange Commission (SEC) of USA.

Does the fund do State filing in the US for US based investors?
The Fund does State filing in the US. This is basically when the fund accepts investors from a particular state in the US, there are State filings that the fund is required to do. The fee/cost varies based on the investors domiciliation/State in which the tax filing is required to be done.

What is the impact of FATCA on me as the investment advisor on my fund?
The Foreign Account Tax Compliance Act (FATCA) is a tax law that compels U.S. citizens at home and abroad to file annual reports on any foreign account holdings. Hence, it does affect the IAs who are non US citizens.

Is the Cube Cloud offshore structure GAAR-compliant?
We believe Dovetail Global Fund PCC is compliant with the Indian GAAR requirements. However, no assurance can be provided in case the tax authorities rules otherwise and request for tax payment.

Do I benefit from the May 2019 CBDT decision to allow SEBI-approved asset management companies to operate offshore funds under section 9A of the IT Act? 
The benefits would be applicable only if the Fund Manager is located in India and managing an offshore Fund. In the Cube Cloud structure, the Fund Manager/ IM is located in Mauritius and the IA provides only non-binding recommendations to buy/sell securities in India.

Does the Cube Cloud offshore structure account for the CBDT’s guidelines on Place of Effective Management (POEM) to demonstrate that tax residency is overseas?
Yes, the Cube Cloud, and the Fund, Investment Manager, and FPI license are fully compliant with POEM.

The information contained in this document is for professional investors and is only intended for professional investors as defined in your jurisdiction. Please read the relevant fund documents for complete information.

The information on this presentation should neither be regarded as an offer nor a solicitation to buy, sell or otherwise deal with any investment referred to herein and is not intended for distribution to, or use by, any person in any country (including the United States) where the investment funds and services referred to are not authorized or registered for distribution or in which the dissemination of information on the funds or services is forbidden.

The distribution of this document in certain jurisdictions maybe restricted by law and persons into whose possession this presentation comes should inform themselves about, and observe, any such restrictions.

The content of this document is based upon sources of information believed to be reliable. However, no guarantee, warranty or representation, express or implied, is given as to the accuracy or completeness of such information; and neither the Fund or the Investment Manager or the Investment Advisor nor any other company or unit belonging to the Investment Manager or the Investment Advisor, nor any of its officers, Directors, affiliates or employees accept any liability or responsibility in respect to the information or any recommendations expressed herein. The information in this presentation is subject to change without notice.

Prospective investors are urged to consult their own tax advisors with respect to their own tax situations and the tax consequences in respect of their investment in the Funds.
Any tax applicable to the Fund will be borne by the Fund and will be ultimately be borne by all or respective Shareholders as may be determined by the Board of the Fund in its sole discretion. Even if the Shareholder has redeemed its Shares, it will be required to indemnity Fund for allocated tax applicable to such Shareholder.

Does Cube Cloud support my strategy that invests in mutual funds? Or are only direct equity strategies possible?
Yes. Cube Cloud funds can invest in equity and debt mutual funds in addition to direct equities.

Does Cube Cloud support long-short funds, other derivatives-based strategies?
Please get in touch with us to discuss in more detail.

Can I bring on board Cube Cloud my multi-geography strategy, which includes India?
Please get in touch with us to discuss in more detail.

Do I need to set up an overseas entity to accept overseas investment via Cube Cloud?
No need to set up a separate overseas entity as it is taken care by Cube Cloud/Dovetail Investment Management, Mauritius (Investment Manager) via incorporation of Protected Cell Company (PCC) set up in Mauritius. Each Cell will be managed under a dedicated Sub-Cell so as to ring fence assets and liabilities of each Fund.

Which types of securities can a Foreign Portfolio Investor make investments in?
A foreign portfolio investor shall invest in the following securities, namely:

  1. Shares, debentures and warrants that are listed on a recognized stock exchange in India
  2. Derivatives that are traded on a recognized stock exchange
  3. Mutual Funds, Collective Investible Schemes, Indian Depository Receipts

For detailed information regarding, refer to clause 20 of this SEBI Circular

Does the Cube offshore structure satisfy the broad-basing requirements that SEBI’s FPI regulations stipulate?
Securities and Exchange Board (SEBI) of India has recently removed broad based criteria for FPIs.

Does the investor wire money to Cube? To me as the investment advisor on the fund? How does the actual money movement work?
Investors directly remits the amount to Tattva Investment Fund Limited’s Feeder Fund (Tattva Fund) in Bermuda which is approved by Bermuda Monetary Authority (BMA) or Dovetail Global Fund PCC (DGF), Master fund in Mauritius which is approved by the Financial Services Commission (FSC) of Mauritius. 

Money collected at Tattva Fund is pooled at DGF before it is invested in Indian securities markets. Cube Cloud system only facilitates investors’ onboarding and does not accept money from investors into in to its account.

What is the path that an investor’s money takes before it is invested in India?
Same as described above.

How often is money moved from the offshore fund to India to be invested?
It is planned to be on weekly basis.

Do I provide advice in rupees, dollars or other currency?
The money flows in USD into India and is converted into INR on the prevalent exchange rate just before the time of execution any purchase trade. IM or the Fund Administrator (Apex Fund Services, Mauritius) will inform IA through Cube Cloud the available amount for investments in USD on weekly basis. In order to have flexibility of executing spot opportunities, some amount is also converted into INR and kept in the bank in India. 

Refer this document to understand the trade flow which includes Subscription, Money Flow, Trade Execution, Redemption

What is the cost of the currency conversion? Who bears this cost?
The cost of currency conversion is around 2 to 5 paise per dollar (depending on the size); it is an operating expenses of the Fund.  

What is the tax impact to the fund when securities are sold?

The Fund needs to pay taxes in India when securities are sold. Fund Taxation is as follows: 

  1. In India:
  • Listed shares/ redemption of equity oriented MFs(where STT is already paid)  – Long Term Capital Gain (LTCG) tax is 10% and Short Term Capital Gain (STCG) tax  15%  plus surcharge of 5% and cess of 4% ; so effective tax for LTCG is 10.92% and STCG is 16.38% respectively.
  • Sale or transfer of other securities (bonds, derivatives) – LT 10% and ST 30% plus surcharge and cess – so effective tax for LTCG 10.92% and STCG 32.76%
  • Interest on Securities– 5% on interest payable up to 30th June 2020  on Government Bonds and Corporate Bonds  whose coupon rate does not exceed 500bps of the base rate of SBI on the date of issuance of bonds; interest from other corporate bonds is taxable at 20% 
  • Dividend income– exempt from tax; however, Indian companies who declare dividend should pay dividend distribution tax of 20.56% on the dividend.
  1. In Mauritius– no taxation for the Fund’s income because of DTAA except tax on interest earned and dividend received is at effective tax @ 3%
  2. In Bermuda– no taxation as it is a pass through vehicle    
  3. Individual Investors in the Fund– taxes are paid on gains from their investments; based on applicable taxes in investors jurisdictions.

What is the tax impact to the investor when securities are sold?
NAV of the Fund is calculated after adjusting taxes paid on capital gains in India as mentioned in earlier paragraph; interest and dividend tax paid in Mauritius @ 3%

How does an investor avoid double taxation in India and in their home justification?
Note that an Investor in the Fund does not pay any taxes in India. Investors’ need to pay applicable taxes in their local jurisdictions for their gains from investments at the time of redemption.

What is the impact of the rationalization of tax rates between India and Mauritius that came into force on 31 March 2019? What if my fund invests in equities? What if my fund invests in MFs?

According to the protocol signed in May 2016, India has obtained the right to tax capital gains on the sale of shares in an Indian company. This right is only for investments made on or after 1 April 2017, meaning that investments made earlier are protected. Furthermore, tax on capital gains arising during the transition period (1 April 2017 to 31 March 2019) will be limited to 50% of India’s tax rate, subject to the newly introduced ‘limitation of benefits’ article (which requires the Mauritius resident to pass the main purpose test and bonafide business test). Such shares, once sold on or after 1 April 2019, will be taxed at 100% of the Indian tax rate.

LTCG and STCG from equity MFs investments will be exempt from tax as per the India Mauritius tax treaty.

Can my fund accept investments from US based investors?
Yes, the Tattva Fund can accept funds from US based accredited investors as it is Reg D complaint with Securities Exchange Commission (SEC) of USA.

Does the fund do State filing in the US for US based investors?
The Fund does State filing in the US. This is basically when the fund accepts investors from a particular state in the US, there are State filings that the fund is required to do. The fee/cost varies based on the investors domiciliation/State in which the tax filing is required to be done.

What is the impact of FATCA on me as the investment advisor on my fund?
The Foreign Account Tax Compliance Act (FATCA) is a tax law that compels U.S. citizens at home and abroad to file annual reports on any foreign account holdings. Hence, it does not affect the IAs who are non US citizens.

Is the Cube Cloud offshore structure GAAR-compliant?
We believe Dovetail Global Fund PCC is compliant with the Indian GAAR requirements. However, no assurance can be provided in case the tax authorities rules otherwise and request for tax payment.

Do I benefit from the May 2019 CBDT decision to allow SEBI-approved asset management companies to operate offshore funds under section 9A of the IT Act? 
The benefits would be applicable only if the Fund Manager is located in India and managing an offshore Fund. In the Cube Cloud structure, the Fund Manager/ IM is located in Mauritius and the IA provides only non-binding recommendations to buy/sell securities in India.

Does the Cube Cloud offshore structure account for the CBDT’s guidelines on Place of Effective Management (POEM) to demonstrate that tax residency is overseas?
Yes, the Cube Cloud, and the Fund, Investment Manager, and FPI license are fully compliant with POEM.

For US Investors, are the investments designated as Passive Foreign Investment Company (PFIC) under the Internal Revenue Service (IRS), US?
No, the Bermuda Feeder Fund is not a Passive Foreign Investment Company (PFIC) as it is a partnership structure

 

Disclaimer:

The information contained in this document is for professional investors and is only intended for professional investors as defined in your jurisdiction. Please read the relevant fund documents for complete information.

The information on this presentation should neither be regarded as an offer nor a solicitation to buy, sell or otherwise deal with any investment referred to herein and is not intended for distribution to, or use by, any person in any country (including the United States) where the investment funds and services referred to are not authorized or registered for distribution or in which the dissemination of information on the funds or services is forbidden.

The distribution of this document in certain jurisdictions maybe restricted by law and persons into whose possession this presentation comes should inform themselves about, and observe, any such restrictions.

The content of this document is based upon sources of information believed to be reliable. However, no guarantee, warranty or representation, express or implied, is given as to the accuracy or completeness of such information; and neither the Fund or the Investment Manager or the Investment Advisor nor any other company or unit belonging to the Investment Manager or the Investment Advisor, nor any of its officers, Directors, affiliates or employees accept any liability or responsibility in respect to the information or any recommendations expressed herein. The information in this presentation is subject to change without notice.

Prospective investors are urged to consult their own tax advisors with respect to their own tax situations and the tax consequences in respect of their investment in the Funds.
Any tax applicable to the Fund will be borne by the Fund and will be ultimately be borne by all or respective Shareholders as may be determined by the Board of the Fund in its sole discretion. Even if the Shareholder has redeemed its Shares, it will be required to indemnity Fund for allocated tax applicable to such Shareholder.

Book your free phone consultation

Let's get you started