Are HNIs mulling over migration? A bird's eye view of Indian tax, regulatory framework

Various business honchos, promoters, fund managers, professionals at times contemplate shifting base outside India. This may be on account of considerations like a personal family situation, healthcare, educational and economic. At times depending on the relevant country's jurisdiction, residency/citizenship in these overseas countries can be acquired basis investment to be made in such countries. It may be noted that India does not permit dual citizenship. Hence, the natural consequence of acquiring foreign citizenship is to give up the Indian passport. Unlike in many other countries (e.g. US), giving up an Indian passport does not have an immediate tax consequence in the form of an exit/departure tax.

Interestingly, there is some level of interest in investing in international assets by Indian HNIs with the liberalization of the relevant RBI regulations.

Industry reports suggest that even globally the shock waves of ongoing COVID-19-driven volatility have led to a spike in entrepreneurs building diversified domicile portfolios through 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 the US, New Zealand, UK, Canada, Australia, Singapore, UAE, etc. which seem welcoming from an India outbound migration perspective. However, against the backdrop of various governments proceeding with reforms, regulations, new tax laws, new anti-abuse laws, and bilateral rules to avoid tax evasion, etc. staying compliant in each jurisdiction remains an area of priority for such globally mobile individuals.

India itself has witnessed significant tax and regulatory developments over a period of time. To name a few, surcharge rates, dividend income taxed in the hands of the shareholder, long-term capital gains arising on the stock exchange being taxable for individuals. The recent deemed residency rules and curtailment of visit thresholds for determining residency do impact individuals based outside India and/or the taxation of their overseas business and professions controlled and set up from/in India. Also, the Place of Effective Management (POEM) implications viz. foreign businesses controlled and managed from India, need detailed consideration. Most of these measures are anti-avoidance measures necessitated to curb aggressive tax planning which may border on the lines of tax avoidance.

The influx of technology in tax administration, exchange of information treaties, multiple reporting requirements by financial institutions, detailed disclosure norms in personal tax returns with respect to Indian and overseas assets (including special purpose vehicles) have further resulted in greater tax transparency.

For migrating HNIs in particular, aspects such as mitigation of double taxation, dual residency especially in the year of migration, navigating between varying tax laws and tax rates, consolidation of assets into trust structures, investment and exit/remittance rules, immigration rules, estate taxes, retirement and succession planning, foreign exchange rules in terms of transfer of money from India to overseas and vice versa, etc. need a detailed analysis both from a home and host jurisdiction perspective. For example, countries such as the UK have a domicile concept, remittance-based taxation, and inheritance taxes. 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 ceasing Canadian tax residency, etc.

In summary, each HNI may have a unique personal and family situation and complex asset structures. A careful, specific, comprehensive evaluation, as well as planning of the tax and regulatory framework and filings across jurisdictions, is hence of paramount importance.