Benjamin Franklin once said that only two things in life were certain; death and taxes.
The new residence definition is just one of several expected provisions to capture wealthy Non-Resident Indians (NRIs). The impact of continued provisions will be significant.
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Non-Resident Indians realise that it is only a question of ‘when’ rather than ‘if’ they will be taxed on a worldwide basis.
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Forgoing Non-Resident Indian status means losing other benefits.
Therefore, NRIs are leaving no stone unturned to protect their Non-Resident Indian status and benefits. Specifically, Non-Resident Indians are seeking to:
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Retain their NRI status.
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Not bind themselves to stay too much in any one country.
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Limit their overall tax exposure.
Why Non-Resident Indians are Choosing Malta
The benefits to Non-Resident Indians for choosing Malta are significant:
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First, a tax rate of zero on all non-remitted global income earned outside of Malta;
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Second, tax Identification Number coupled with Special Tax Status in Malta;
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Third, the possibility to pass on the Special Tax Status to one’s heirs under certain terms;
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Moreover, foreign source capital gains not taxable even if remitted to Malta;
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Additionally, possibility to claim double taxation relief;
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Furthermore, lifetime Permanent Residency for the entire family in a European country; and
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Lastly, no minimum physical stay requirements.
Direct Benefits of Choosing Malta to Non-Resident Indians (NRIs)
As a jurisdiction, Malta is fully compliant with OECD regulatory policy and also benefits from having a number of double tax treaties including India.
In addition, Malta-based solution presents a very strong defense for Non-Resident Indians by providing two key elements, namely:
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A Special Tax Status coupled with a Tax Identification Number; and
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Permanent Residency in a European Union country.
Why UAE Residency is Good but Insufficient for NRIs
To retain their status, Non-Resident Indians are rethinking their residency status for tax purposes by:
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Reducing their number of days in India;
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Establishing a residence in another country; and
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Attaining a recognised tax status.
Further to the day counting rule change, NRIs are considering “residency” in low or zero income tax jurisdiction, such as the United Arab Emirates (UAE).
UAE residency is a popular choice. However, for tax purposes, it is not enough.
Why?
Because Non-Resident Indians are realising that apart from acquiring residency, they must also demonstrate a tax status in a reputable country.
Given the significant ties, some NRIs are naturally considering UAE residence for tax purposes.
Fundamentally, there is a BIG difference between the requirements to keep normal residency which requires the NRI to visit the UAE once every six months and those that lead to tax residency - considering UAE residence for tax purposes.
NRIs Want More Mobility
Obtaining a Tax Residency Certificate (TRC) from the UAE severely restricts the mobility of NRIs because the combined requirements include:
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Spending 183 days or more within the UAE; and
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Staying away from India for more than 245 days.
Non-Resident Indians, therefore, require a more practical solution and are using Europe, specifically Malta. For some NRIs, this is the end solution; for others, it is a plugin over and above their present UAE residency.
The benefit of NRIs?
Ironically the condition of the solution provided by Malta is that he or she must commit to not staying in any other jurisdiction for more than 183 days in a calendar year. This is perfect for those who want to retain mobility while avoiding becoming a resident in another country.
Related article: Malta Tax Status
Obtaining UAE Tax Residency isn't Easy
According to the UAE Ministry of Finance, the requirements below are necessary to get Tax Domicile Certificate (TRC equivalent).
With perseverance and some expense, points 1 to 6 can be achieved. It is in points 7 and 8 where things get tricky since the NRI would need to provide proof of physical stay within the UAE; i.e. 183 days.
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Mobile number registered in the applicant’s name;
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Passport copy of the applicant;
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A valid residence copy;
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A certified tenancy contract or a title deed to a property;
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Proof showing source of income; e.g. salary certificate;
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Certified bank statement for at least 6 months during the required year;
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Proof that the applicant has been resident within the UAE for at least 183 days; and
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Immigration report of residency commonly known as an Exit/Entry.
Complicating matters, the financial year in the UAE runs from 1st January to 31st December whereas in India it runs from 1st April to 31st March. This makes day counting even more cumbersome.
Non-Resident Indians - Tax Nomads No More
NRIs can no longer claim to be a resident of no country simply by staying out of India for 183 days. So, gone are the days when NRIs could effectively hop from one country to another, spending 40 days in Dubai, 30 in the US, 20 in the UK, and so forth.
Even so, this original assumption is also incorrect. Under common tax laws, a tax nomad Non-Resident Indians could still face a large bill from the country where he or she spends most of their time even if less than 193 days.
Conclusion
In conclusion, Non-Resident Indians need to plan ahead and forget the illusion that tax evasion will be forever tolerated. The quicker NRIs embrace legal ways to regularise their position, the more likely they will be able to mitigate the potential exposure of much larger liability on a worldwide basis.
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