Rich Indians rush overseas to open family offices as risks rise at home

Many are heading to Dubai and Singapore to hedge their portfolio against currency and geographical risks and for tax planning for the next generation

Billionaire Mukesh Ambani isn't alone in opening a family office in Singapore for investment overseas. A large number of wealthy Indians are opening their family offices in jurisdictions such as Dubai and Singapore to hedge their portfolios from currency and geographical risks and for tax planning for the next generation. Lower capital gains tax and ease of doing business overseas are cited as other reasons for the rush to foreign locales, say auditors and wealth managers.

Tax planners say once the quantum of wealth becomes substantial, there is a need to diversify into other asset classes (equity, debt, hybrid), manner of deployment (directly via-a-vis mutual funds/AIFs. etc) and geographical diversification to minimise the currency risk associated with a country.

“When the quantum of wealth increases to a substantial size say, over $50 million or more, families are inclined to set up a family office to have a direct and meaningful oversight on their wealth,” said Ketan Dalal, Managing Director of Katalyst Advisors, a tax advisory firm.

Almost all top Indian business families and start-up founders have opened offices abroad as they are looking at the stability of a regime, availability of talent/ability to move talent to the new location, regulatory environment and tax considerations. "Another dimension is proximity and connectivity with the location of the owners of the family office," Dalal said.

Ambani has opened a new family office in Singapore to make investments in real estate. He already has a family office in Mumbai.

“Dubai and Singapore have friendlier regimes, both from a regulatory and tax perspective. Both have strong ties with India, proximity and related ease of connectivity. Both are also locations where it is relatively easy to get talent or to move talent to those jurisdictions and both are credible destinations,” Dalal said.

Indian businessmen are preferring Dubai and Singapore for favourable tax regimes. Tax lawyers said in Dubai, businesses are exempted from paying taxes on capital gains and dividend received from shareholdings. “In India, one has to pay personal income tax of up to 35 per cent, in Dubai there is zero tax. Under the Golden Visa scheme introduced by the Dubai Government, investors could get a 10-year residence visa and 100 per cent ownership by investing in a start-up based in Dubai,” said Sameer Jain, managing partner of PSL advocates, which advises clients on setting up family offices.

Jain said investors get relatively favourable IP (intellectual property) protection under Dubai's regulations. Additionally, Dubai offers much more clarity in laws for investments in Cryptocurrencies and NFTs (non-fungible tokens). Advisors said Singapore is considered to be the entrance door to Southeast Asia, as it offers 100 per cent foreign direct investment in all business sectors, whereas India places a cap on foreign ownership in some sectors. “Moreover, Singapore has a very competent conflict resolution mechanism which helps in ensuring that there is a proper regulatory body governing these businesses. Additionally, double taxation agreements with India helps in reducing the tax burden of investors in Singapore, thereby promoting business,” Jain added.

Other advisors said these overseas jurisdictions have had a more favourable tax treatment regime when compared to India. “The primary business objective of family offices is to make investments. Clearly, the significant capital gains tax benefits as well as favourable corporate tax rate benefits in such overseas jurisdictions has resulted in Indian business owners, HNIs and entrepreneurs preferring such jurisdictions over India,” said Aparajit Bhattacharya, Partner, DSK Legal.

"Setting up of holding company structures in jurisdictions like Singapore, Dubai, Mauritius, Cayman, BVI (for investments into India) have always been prominent for benefits which are available under the relevant Double Taxation Avoidance Agreements executed between such jurisdictions and India. It appears the founders are also taking a similar approach to establish their tax residency in jurisdictions which have a more favourable individual tax regime," Bhattacharya added.

Why the Gold Rush?

1. Overseas family offices helps in tax planning
2. Lower currency risks with geographical diversification
3. Favourable tax regimes in Dubai, Singapore
4. Zero restrictions on FDI in Singapore, Dubai
5. Better ease of doing business when compared to India