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India budget move could drive family offices to Singapore

India budget move could drive family offices to Singapore

India’s latest budget move on wealthy non-resident Indians could see an uptick in the family office scene in Singapore, a city-state that is home to over 100 family offices, according to UBS estimates.

In announcing the annual budget, finance minister Nirmala Sitharam said NRIs who have stayed in the country for 120 days will be treated as Indian residents.

In other words, HNWIs and other individuals who avoid paying taxes anywhere in the world may have to pay tax on income generated in India.

Mahesh Kumar, a partner at Withers KhattarWong LLP, said this could now prove problematic for wealthy NRIs who have significant assets in the country.

HNWIs with parents or grandparents born in India, and Indian citizens living in zero tax countries like the UAE could also take a hit.

‘They would be subject to worldwide tax and reporting obligations in India, with the maximum tax rate being as high as around 43%,’ Kumar said.

Moreover, changes to the residency rules may also motivate more HNW families to establish overseas family office structures which can employ members of the family.

Singapore, in that regard, has become a preferred hub for NRIs to establish family offices due to the tax incentives for investment management activities, Kumar said.

‘They may be more inclined to seek residence in non-zero tax regimes, such as Singapore or the UK, which have beneficial tax regimes for investment income.

‘We also note that more Indians are likely to consider getting alternative passports through various citizenship by investment programs in the EU and Caribbean,’ he added.

Singapore's Global Investor Programme, which allows investors to obtain permanent residency, has been very popular among the super rich in China and India.

Under the GIP, applicants are required to make a minimum investment of SGD 2.5m ($1.8m) in a Singapore-based new or existing single-family office, with at least SGD 200m ($144m) in assets under management.

The AUM includes financial assets like bank deposits, capital market products, and collective investment schemes, to name a few. But excludes real estate. 

The number of family offices in Singapore quadrupled from 2016 to 2018, according to the Monetary Authority of Singapore. MAS sees family offices using trust structures for succession planning and asset rotation.

UBS estimates that currently there are 250 to 300 family offices in the Asia-Pacific region, with 40% of which located in Singapore.

Family offices in the Asia-Pacific region raked average returns of 6.2% in the year leading to 31 March 2019, a study by the Swiss banking giant found.