A Non-Resident Indian (NRI) is an individual who does not live on a permanent basis in India but is still either an Indian citizen or holds an Overseas Citizen of India (OCI) card. Many NRIs are highly skilled workers who command high salaries, entrepreneurs who have started businesses overseas or investors who have made investments overseas. Many NRIs accumulate significant wealth and are among the most prosperous communities in many affluent countries, including the UK, the US the United Arab Emirates (UAE) and Singapore.
The flow of high-net-worth Indians moving to or taking up residency in other countries has only increased since the lifting of Covid travel restrictions across most parts of the world. Covid created many complications for NRIs who were unable to travel and served to highlight the benefits of having a formal alternative residence or second citizenship. During the pandemic, ‘golden visa’ holders were not typically subject to bans or hurdles on returning to their place of residence.
One of the main drivers for Indians to take up residence in countries like the UAE and Singapore is the high individual tax rates in India. The 30% top rate of personal income tax in India applies to taxable income above INR1 million (c. USD12,500), but a further surcharge applies to individuals whose total taxable income exceeds INR5 million. This surcharge rises progressively from 10% to 37% where total taxable income exceeds INR50 million to give a maximum marginal rate of 42.74%.
Under the Indian Income Tax Law, an individual will be treated as a resident Indian for a year if he or she has lived in India for a period of at least 182 days during the financial year, or for a period of 60 days (recently extended to 120 days if income derived from a business controlled in or a profession set up in India exceeds INR1.5 million during the previous year) or more in the year and for a period of at least 365 days or more in the preceding four years.
This meant it was possible for an Indian citizen not to have any tax liability in any jurisdiction during a year. For example, if an Indian citizen spent 160 days in India, 160 days in Thailand and the remaining days in Singapore, he or she would not be liable to pay tax in India, Singapore or Thailand (like India, both Singapore and Thailand have a 182-day minimum stay requirement for deemed residency).
Alternatively, the UAE does not levy any income tax on individuals and is only a 2.5-hour flight from India. This means individuals who are resident in the UAE are not subject to tax on their incomes from employment, real estate, equity investments or other personal income that is unrelated to a UAE trade or business. Businesses are also exempted from paying tax on capital gains and dividends received from shareholdings. Many NRIs have taken this option in recent years.
The most popular route to obtaining fast track residency is via a UAE ‘Free Zone’ company. The UAE offers investors more than 30 multidisciplinary free zones, in which expatriates and foreign investors can have full ownership of companies. The Free Zone Company will provide the investor with an opportunity to obtain a UAE residency visas through the entity..
The most common method to obtain UAE residence via a Free Zone is to get an employment contract with a free zone company. Entrepreneurs who establish companies in a UAE Free Zone are eligible to apply for residency in the UAE on the basis of either an Employment or Investor visa. A UAE Residence Visa issued from a Free Zone is typically valid for two – three years. Both Employment and Investor visa holders can then apply for residence visas for their dependents.
The UAE also offers a ‘Golden Visa’, which is a long-term residence visa that enables foreign talents to live, work or study in the UAE while enjoying exclusive benefits. Eligibility includes “investors, entrepreneurs, scientists, outstanding students and graduates, humanitarian pioneers and frontline heroes”. Exclusive benefits under the UAE ‘Golden Visa’ include:
- Entry visa for six months with multiple entries to proceed with residence issuance
- A long term, renewable residence visa valid for 10 years
- A self-sponsored visa, as there is no need for an employment sponsor
- Ability to stay outside the UAE for more than the usual restriction of six months to keep their residence visa valid
- Sponsoring family members, including spouse and children regardless of their ages
- Sponsoring unlimited number of domestic helpers
- Allowing family members to stay in the UAE until the end of their permit even if the primary holder of the Golden visa passes away.
Real estate investors can obtain a Golden Visa in the UAE if they purchase a property valued at AED2 million (c. USD550,000) or above, purchase a property with a loan from specific local banks, or purchase one or more off-plan properties of no less than AED2 million from approved local real estate companies.
Entrepreneurs can obtain a Golden Visa if they own or partner in a start-up registered as a small and medium enterprise (SME) in the UAE that generates annual revenues of not less than AED1 million, or obtain approval for a start-up idea from an official business incubator or from Ministry of Economy or other competent local authorities, or have founded an entrepreneurial project that was sold for a total amount of not less than AED7 million.
Professionals or highly-skilled workers with high educational qualifications and professional experience across a wide range of disciplines – medicine, sciences and engineering, information technology, business and administration, education, law, culture and social sciences – can obtain a Golden Visa if they have a valid employment contract in the UAE, are classified in the first or second occupational level as per the classification of Ministry of Human Resources and Emiratisation, hold a Bachelor’s degree or equivalent and have a monthly salary of AED30,000 or above.
Inventors, innovators and exceptional talents in fields such as culture, art, sports and digital technology can obtain a Golden Visa regardless of their educational qualification, employment status, monthly salary or professional level provided they obtain a recommendation or approval from a federal or local government entity.
Scientists and researchers with high achievements and influence in their field can obtain a Golden Visa based on a recommendation from the Emirates Scientists Council. A candidate should have a PhD or a Master’s degree in one of the disciplines of engineering, technology, life sciences and natural sciences from the best universities in the world, as well as substantial research achievements.
To cement UAE residence status, NRIs should clearly establish that the UAE is their ‘centre of vital interests’ by demonstrating close personal or economic ties – such as ensuring a permanent home is available to them, by rent or purchase, in the UAE, transferring private wealth to UAE or overseas financial institutions, or educating their children in the UAE – as well as severing obvious links with India.
Sovereign has substantial representation in the UAE, as well as other countries in the Middle East, and can assist with establishing Free Zone companies, obtaining Golden Visas, opening personal and corporate bank accounts, as well as providing private client and corporate services. This includes accountancy, human resources, pensions, insurance, obtaining local licences and permits, executive relocation and assistance with tax and regulatory compliance.
However, India’s Finance Act 2020 introduced a new section 6(1A) to the Income-tax Act 1961, which provides that an Indian citizen will be deemed to be resident in India if his/her income derived from a business controlled in or a profession set up in India exceeds INR1.5 million during the previous year and he/she is not liable to tax in any country or jurisdiction by reason of his/her domicile or residence.
This change has created difficulties for the thousands of Indian families that have relocated – or were planning to relocate – to the UAE because it risks leaving NRIs exposed to deemed residency in India. On the positive side, India does not currently impose any tax on a change of citizenship, so high-net-worth Indians can emigrate without incurring tax cost at the point of migration and will then no longer be exposed to Indian taxation on their worldwide income.
Sovereign and its specialist external partners can guide clients through the best options for citizenship by investment (CBI) programmes worldwide to determine which one will suit them best. We keep up-to-date details on these schemes around the world, with their financial conditions, required investments, financing options, government application fees and requirements and time frame. Important points to consider include geographic location, reputation of the country, visa-free travel availability for passport holders, investment options and costs, official language, legal system and the banking and business facilities.
Sovereign has also teamed up with expert Indian professional practitioners to ensure that high-net-worth Indian nationals seeking to relocate from India can establish NRI status in full compliance with Indian tax laws. At the point when NRI status has been secured and moveable assets have been transferred from India, we would typically recommend that an overseas family trust is set up.
Although many of the tax benefits that were associated with trusts have been eroded in recent years by anti-avoidance legislation, they still offer great advantages – particularly for individuals who are changing, or planning to change, their domicile, residence or citizenship; those with families resident abroad; those seeking asset protection; and those whose principal motivation is not to avoid taxation but to dispose of their estate free of forced heirship provisions and without recourse to a lengthy and expensive probate procedure.
When selecting the best jurisdiction for establishing a trust it is important that it offers a strong tradition of enforcing trusts, an English common law system, modern trust legislation and an established reputation for trust business.
Once a trust has been created, with Sovereign Trust appointed as trustee and an important family member or trusted family adviser appointed as trust protector, the NRI family will have a fiscally neutral platform in which to hold their assets and into which any surplus wealth that is not needed for living expenditure in the UAE can be transferred. This will provide substantial wealth management benefits and flexibility to the entire NRI family, as well as significant succession planning opportunities in the longer term.
For further information or to receive specific guidance and advice, without obligation, please contact Simon Denton, Managing Director of Sovereign UK Ltd., by phone on +44 (0)7887 991649 or by email below.