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Is Hnis thinking about migration? An overview of Indian taxation, regulatory framework

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Various businessmen, promoters, fund managers and professionals sometimes plan to change base outside of India. This may be due to considerations such as personal family situation, health care, education, and the economy. Sometimes, depending on the jurisdiction of the country concerned, residency / citizenship in these overseas countries may be acquired on the basis of an investment to be made in these countries. It can be noted that India does not allow dual nationality. Therefore, the natural consequence of acquiring foreign nationality is to renounce the Indian passport. Unlike many other countries (eg USA), giving up an Indian passport does not have an immediate tax consequence in the form of an exit / departure tax.

Interestingly, there is some interest in investing in international assets by Indian HNIs with the liberalization of the relevant RBI regulations.
Industry reports suggest that even globally, the shockwaves of continued volatility induced by COVID-19 have led to an increase in the number of entrepreneurs creating diversified home portfolios by investing in residence – and citizenship-by-investment programs to overcome the limitations and associated risks of being restricted to a single jurisdiction.

There may be countries such as United States, New Zealand, United Kingdom, Canada, Australia, Singapore, United Arab Emirates, etc. which appear welcoming from the point of view of out-migration from India. However, in the context of various governments carrying out reforms, regulations, new tax laws, new anti-abuse laws and bilateral rules to avoid tax evasion etc. staying compliant in every jurisdiction remains a priority area for these globally mobile individuals.

India itself has seen significant tax and regulatory developments over time. To name but a few, surtax rates, dividend income taxed in the hands of the shareholder, long-term capital gains realized on the stock market being taxable for individuals. Recent deemed residence rules and reduced visitation thresholds to determine residence impact people based outside India and / or the taxation of their overseas businesses and professions controlled and established since. /in India. In addition, the implications of the place of effective management (POEM), viz. foreign companies controlled and managed from India require careful consideration. Most of these measures are anti-avoidance measures necessary to combat aggressive tax planning which can border the lines of tax evasion.

The influx of technology in tax administration, information exchange treaties, multiple reporting requirements by financial institutions, detailed disclosure standards in personal income tax returns for Indian and foreign assets (including including special purpose vehicles) have also resulted in greater tax transparency.

For migrating HNIs in particular, aspects such as double taxation mitigation, dual residency, particularly the year of migration, navigating tax laws and varying tax rates, consolidating assets in trust structures, investment and exit / disbursement rules, immigration rules, estate taxes, retirement and estate planning, foreign exchange rules in terms of transferring money from India to abroad and vice versa, etc. require a detailed analysis from both the point of view of the home jurisdiction and the host jurisdiction. For example, countries like the UK have a domiciliary concept, remittance-based taxation and inheritance tax. In Canada, residency is a subjective determination of various personal, social and economic ties and it also has special tax considerations such as a departure tax upon termination of Canadian tax residency etc.

In summary, each HNI can have a unique personal and family situation and complex heritage structures. Careful, specific and comprehensive assessment, as well as planning of the fiscal and regulatory framework and reporting across jurisdictions, are therefore of paramount importance.

The article is written by Parizad Sirwalla, Partner and Manager, Global Mobility Services – Tax, KPMG in India. The opinions expressed are personal.