India-Netherlands: Exploring Investment Push

India’s emergence as one of the world’s fastest-growing major economies has been supported not only by domestic reforms but also by an expanding network of strategic international partnerships. Against a backdrop of shifting global superpowers, technological competition driven by Artificial Intelligence (AI), and the global energy crisis, India’s initiative to strengthen its ties with European countries has intensified in recent times. 

India - Netherlands Initiative

The bilateral relations between both countries and discussions for elevating ties to a Strategic Partnership have increased in recent times. The India–Netherlands Strategic Partnership Roadmap provides a structured framework for deeper cooperation, which includes political, trade and investment, defence and security co-operation, cyber security, critical and emerging technologies including semi-conductors, space, AI and quantum systems, science and innovation, etc. The partnership is expected to strengthen domestic capabilities, attract long-term investment and generate high-skilled employment opportunities. Various discussions and initiatives reinforce India’s priorities around energy security, sustainability and innovation-led growth.

Beyond immediate sectoral gains, the partnerships also pave the path for deepening economic linkages and building investor confidence.

Netherlands' Investment Footprint in India

Netherlands continues to be an important source of Foreign Direct Investment (‘FDI’) into India, with capital flows spanning various sectors, leading to one of India's most significant trading partners in Europe. However, beyond trade, the nation ranks as India's fourth-largest cumulative foreign direct investor, with FDI inflows amounting to USD 55,620 million in the last two and a half decades, i.e., between January 2000 and December 2025. The Netherlands distinguished itself as India's second-largest Foreign Portfolio Investment (‘FPI’) contributor, recording a net positive FPI inflow of USD 126.40 million in the month of April 2026. This substantial investment comes when the global investment landscape is in turmoil due to tensions hovering over the West Asian region since the beginning of the year 2026 and the FPIs are seen to be exiting the Indian capital market with the majority of them being net sellers.

While overall FPI and FDI flows from the Netherlands have historically been subject to volatility shaped by global market dynamics, regulatory shifts, and bilateral policy developments, the current trend and initiatives on the geopolitical ties point towards a positive and resilient trajectory. The Prime Minister's visit is expected to leave a long-lasting impact in reinforcing the strategic depth of this partnership and the momentum is widely expected to sustain and strengthen in the months ahead.

India-Netherlands Tax Treaty and Investment Framework

India has Double Taxation Avoidance Agreements (DTAAs) with a wide network of countries and historically, jurisdictions such as Mauritius and Singapore have been widely used for investments into India due to favourable tax outcomes under the erstwhile treaty framework. However, the international tax environment has evolved significantly following India’s implementation of the Multilateral Instrument in 2019, the introduction of the Principal Purpose Test (‘PPT’) and the reinforcement that treaty benefits are not automatic and must be supported by genuine economic substance. 

In this changing landscape, the India–Netherlands tax treaty could be an alternative for India-focused investment, particularly for long-term and commercially driven investments. Presently, more than 120 funds from the Netherlands are investing in India under the FPI route. These funds include appropriately regulated funds, pension funds, insurance/ reinsurance entity, etc. 

These funds invest in various instruments permitted by the FPI regulations published by SEBI. While the taxation of capital gains on the transfer of a capital asset is determined based on the nature of the underlying assets and the specific facts of each case, it is generally beneficial for the investors, subject to the conditions specified. The treaty also provides a comparatively favourable tax framework for capital gains and for dividends, interest and royalties, generally capped at 10 percent (subject to certain prescribed conditions) under the relevant articles of the tax treaty, subject to beneficial ownership requirements.

The beneficial taxing rights (which help in lowering the overall tax cost in the hands of the investors) under the India-Netherlands tax treaty will provide an added advantage to the investor group/ investor managers, who are currently grappling to keep up with the return on their investments where the movement in capital market indices seems to resemble a roller-coaster ride rather than a routine candlestick chart or a bar graph. Though the tax benefit may look like a lucrative incentive, the fund managers will also be mindful of the operational costs involved in managing funds from the Netherlands, which tend to be on the higher side in the overall European region as compared to Mauritius, Singapore, DIFC in Dubai, which provide for a faster and more cost-efficient ecosystem for the fund industry.  
 

Way Forward 

The deepening of India–Netherlands economic relations reflects growing global confidence in India as a long-term investment destination, driven by strong economic growth, expanding infrastructure, rapid digitalisation and leadership in sectors such as clean energy, semiconductors and advanced manufacturing. As cross-border collaboration strengthens, the opportunity set for investors continues to widen, reinforcing India’s position in global capital allocation decisions. Having said this, the ‘tax’ element on cross-border investments plays a crucial role and cannot be ignored. 

While the geopolitical relations are expected to scale up, the tax aspect of it may take a back seat. This was recently seen in the case of India – France tax treaty, which sought to balance the taxing rights by the removal of the Most Favoured Nation clause (‘MFN’), source-based taxation in the case of capital gains, etc. Netherlands, however, continues to offer the beneficial tax treatment with no such amendments to date. It is amongst the few countries that offer beneficial tax treatment for its residents looking to invest in a country like India. The domestic tax landscape is also rapidly changing, where the Indian tax authorities and courts are keen on having their first share of tax.

The foreign investor will have to be cautious while availing the beneficial tax treatment and not exploit it and end up in the nets of the tax authorities in line with the global movement of having a fair share of tax for each country. While the ‘Tigers’ of the world have been caught in the Indian tax net, it is worthwhile to see if the Netherlands will act as a safe den for others looking to shift their shelter from the preferred countries like Mauritius, Singapore, etc. It is pertinent to mention that the investor community seeks clarity on taxation rights and is interested in minimising the tax exposure within the four corners of the law, as tax acts as a cost on their investment returns, which at times tend to go well below the minimum expected levels due to various global and domestic factors not anticipated in advance and may leave a long-lasting impact.

Source: Financial Express