Offshore migration: A check-out check-list

An Indian tax resident’s worldwide income is taxable in India, whereas only income which accrues or is received by the non-resident in India is taxable in India. Indian tax laws provide some concessions to non-residents in terms of reporting as well as tax rates in case of certain capital assets. For a non-resident, similar tax rules in the country where the individual is migrating to must be reviewed.

Exchange Controls: India has stringent exchange control laws i.e. the Foreign Exchange Management Act, 1999 (FEMA) that regulates capital convertibility. FEMA is key to determining the kind of bank accounts one can hold in India, the permissible debits and credits from such bank accounts, the nature of property one may purchase in India, remittance of proceeds from sale of property etc. From an exchange control perspective, an individual’s residential status would depend on satisfaction of the physical presence test and the intention test. Under FEMA, an individual is regarded as a ‘person resident in India’ when he is in India for more than 182 days in the previous FY, unless otherwise provided (Eg: intention to permanently reside, commence business, pursue employment).

One of the most critical considerations after moving to a foreign country would be to ensure sufficiency of and access to funds. Whilst resident in India, an individual may consider remitting money for permissible transactions under the Liberalised Remittance Scheme (LRS) upto USD 250,000 every FY. Some of the permitted transactions include remittance for opening of a bank account or purchase of property abroad or drawing of foreign exchange up to USD 250,000 by a person going abroad for employment.

Pertinently, LRS facility is available only to persons who are Indian residents as per exchange control laws, and hence one’s residency in the previous year becomes relevant.

Bank accounts that can be owned and operated by an Indian resident vis-à-vis Non Resident Indians (NRIs) are different. NRI accounts are subject to certain limitations and hence due formalities must be completed with the respective banks such as designation of bank accounts to ‘NRO’ accounts, providing declarations on the prescribed limits, updating of correspondence address etc. Similarly banks in which one holds fixed deposits and other wealth accounts should also be updated about the envisaged migration.

While there is no legal requirement to inform the bank that has issued a credit card of migration of residence, it is advisable to update credit card companies of the proposed migration. One must ensure that an Indian credit card is not used to carry out any transaction that is prohibited by Indian exchange control regulations.

An individual’s directorship on boards of companies must be carefully evaluated. Under prevailing corporate laws all companies are required to have at least one resident director. Further, specific rules and approvals are mandated when appointing non-residents in executive positions. Accordingly, it is advisable to inform concerned companies about one’s migration to ensure that all legal requirements are duly met. One may also prefer reviewing the appointed signatories to bank accounts of companies / HUFs/ partnership firms before becoming an NRI, to ensure ease of operation of such accounts.

Immovable Property and Migration

An NRI is not permitted to acquire agricultural property, a plantation or a farm house in India via purchase. There are further restrictions on repatriation of proceeds from sale of immovable properties, including residential properties. Thus, the nature of property held or acquired in India becomes relevant. FEMA provides for certain exemptions whereby inheritance or acquisition whilst being a resident is permitted.

Given the legal nuances involved, it is important to navigate the applicable rules and legal regimes when migration to a country abroad is envisaged. While the trend to migrate offshore continues to grow, planning some of the above steps well in advance to facilitate the move will be helpful.