Taxation - Foreign Residency

Tired of taxes?

• Low cost option: open a brokerage account on global equities. Do not book any capital gains. When the account goes big, change your tax residency. And, book profits.
• Expensive option: setup a base in low-tax countries immediately. Enjoy perks (but for this, you need to meet a threshold).

Low Cost Option

This is a sophisticated strategy often called "jurisdictional arbitrage." It is legally feasible for an individual investor, provided you meticulously follow the tax laws of both India and your future country of residence.

Here is a step-by-step roadmap to executing this strategy, the specific risks involved, and the operational setup required.

Phase 1: The Setup (While in India)

Your goal here is to minimize costs and ensure portability. If you open an account with a broker that only serves Indian residents, you may be forced to close the account (and sell the holdings, triggering tax) when you move abroad.

1. Brokerage Selection: The Critical Choice

You need a brokerage that supports account migration.

• Best Option: Interactive Brokers (IBKR).

  • Why: They operate globally. When you move to another country (e.g., Dubai or Singapore), you simply file a ticket to migrate your entity from "IBKR India" to "IBKR LLC/UK/etc." effectively keeping your portfolio intact without selling.
  • Cost: Very low. Commissions are negligible (~$0.35 to $2 per trade depending on the plan).

• Alternatives: Vested or INDmoney.

  • Risk: These often use US-based clearing partners (like DriveWealth). While they are excellent for staying in India, moving your account status to "Non-resident" while keeping the same account can sometimes be bureaucratically difficult or require a transfer of assets (ACATS), which costs money.

2. Funding the Account (LRS & TCS)

• The Mechanism: You will use the Liberalised Remittance Scheme (LRS).1 This allows every resident Indian to send up to $250,000 USD per financial year abroad.
• The "Tax" Hit (TCS): Any remittance above ₹7 Lakhs in a financial year attracts a 20% Tax Collected at Source (TCS).
  • Note: This is not a "cost" but an advance tax. You can claim this back as a refund when you file your India tax return (ITR), but it locks up your capital for a year.

3. What "Global Equities" to Buy? (The Hidden Trap)

This is where most people fail. If you buy direct US stocks (e.g., Apple, Tesla, SPY ETF), you face two problems:

1. US Estate Tax: If you pass away while holding >$60,000 in US assets, the US government takes 40% of your wealth above that limit. This applies even if you are not a US resident.
2. Dividend Tax: US dividends are taxed at a flat 25% (withheld) for Indians.

The Solution: Buy Irish Domiciled UCITS ETFs.

• These are ETFs (like Vanguard FTSE All-World) registered in Ireland.
• Ticker examples (London Stock Exchange): VWRA (Vanguard All-World), CSPX (iShares S&P 500).
• Benefits:
  • No US Estate Tax for non-US residents.
  • Accumulating: You can choose "Accumulating" versions (e.g., VWRA) which automatically reinvest dividends. This means you receive zero dividends in your bank account, saving you from paying dividend tax in India every year.

Phase 2: The Exit (Changing Residency)

To stop paying capital gains tax in India, you must legally cease to be an Indian Tax Resident.

1. The "182 Day" Rule

• To become a Non-Resident Indian (NRI) for tax purposes, you generally must stay in India for less than 182 days in that financial year.
• Strategy: Move out of India early in the financial year (e.g., April or May). By the time the next March 31st arrives, you will be a non-resident for that entire year.

2. Does India have an "Exit Tax"?

• Currently: No. Unlike the US or some EU nations, India does not currently tax individuals on "unrealized gains" when they leave the country. You can leave with a portfolio worth $10M of unrealized profit, and the Indian taxman will not stop you.
• Caveat: Tax laws change. Keep an eye on the "Direct Tax Code" developments.

3. Changing Status with Broker

• Once you have your visa and proof of address in the new country, you inform Interactive Brokers. They will update your tax residency status.

Phase 3: Booking Profits (The Destination)

You need to move to a jurisdiction with 0% Capital Gains Tax for individuals.

Top Jurisdictions:

1. UAE (Dubai): The most popular. Zero personal income tax, zero capital gains tax.
2. Singapore: Zero capital gains tax, but high cost of living.
3. Switzerland: Generally tax-free capital gains for private investors (canton-dependent rules apply).

The Payoff:

• You sell your holdings (e.g., VWRA) while resident in Dubai.
• India Tax: ₹0 (Because you are a non-resident selling a foreign asset).
• Dubai Tax: $0.
• US Tax: $0 (Because you hold Irish ETFs, not US situs assets).

Summary of Risks & "Gotchas"

Risk	Description	Mitigation
Exchange Rate	You convert INR to USD (Loss ~0.5% - 1%) and back.	Use low-markup banks (e.g., IDFC First, IndusInd) or platforms like Wise (if supported for LRS).
US Estate Tax	40% tax on death if holding US assets >$60k.	Strictly buy Irish Domiciled ETFs (UCITS) trading on the London Stock Exchange, not NYSE.
POEM Risk	"Place of Effective Management".	If you run a company, just moving yourself doesn't work. This strategy works best for personal investment portfolios.
Returning to India	If you return to India, you become a resident again.	You must realize (book) your profits before you return to India permanently.