Non-Resident Indians (NRIs) living abroad but avoiding residence-based taxation may become liable to pay tax in India on the basis of their citizenship alone. They are therefore looking for solutions, including a change of citizenship through citizenship by investment.
Non-Resident Indians (NRIs) are Indian citizens who do not reside in India. Many officially reside in a second country, but some reside ‘nowhere,’ spending too little time in any one location to become formal residents. There are sometimes taxation benefits to this ‘non-residence,’ as most countries tax their residents only.
Things are, however, about to change for these NRIs.
In a Memorandum to India’s ‘Union Budget 2020-2021,’ plans were unveiled to adopt the Finance Bill 2020, which proposes to amend Section 6 of the Income Tax Act 1961 to the effect that “an Indian citizen who is not liable to tax in any other country or territory shall be deemed to be resident in India.” This would make Indian citizens liable to taxation in India by virtue of their citizenship – a rule that is almost unheard of across the world except for in the United States.
The intent behind the proposed amendment was explained as follows:
“The issue of stateless persons has been bothering the tax world for quite some time. It is entirely possible for an individual to arrange his affairs in such a fashion that he is not liable to tax in any country or jurisdiction during a year. This arrangement is typically employed by high net worth individuals (HNWI) to avoid paying taxes to any country/jurisdiction on income they earn. Tax laws should not encourage a situation where a person is not liable to tax in any country. The current rules governing tax residence make it possible for HNWIs and other individuals, who may be Indian citizen[s] to not to be liable for tax anywhere in the world.”
Should the Finance Bill, 2020 be passed by Parliament, it would come into effect from 1 April 2021 and apply to the financial year 2021-22.
What are my options?
Following the Indian Government’s proposed clampdown, citizenship by investment industry stakeholders have reported growing enquiries from NRIs exploring the possibility of acquiring a second citizenship, relinquishing their Indian citizenship and passport, and obtaining an Overseas Citizen of India card.
If you are an NRI, citizenship by investment in a Caribbean jurisdiction could offer a fast and effective solution to protect your financial security before April next year. However, you must ensure you are able to pass the Caribbean’s stringent due diligence, including checks on whether your citizenship would in any way harm the Caribbean jurisdiction’s own reputation.
Having citizenship of a Caribbean country does not make you a tax resident, but it does require you to contribute to that country in other ways. Most significantly, you will need to make a donation to a national development or sustainability fund or to purchase shares in tourist resorts and other pre-approved real estate, whose development will bolster local jobs and the country’s overall profile.
How can I find out more?
If you wish to find out more about how to attain a second citizenship in the Caribbean, please contact CS Global Partners at [email protected].