Does an offshore investment trust make sense for resident Indians or NRIs?

Indian residents and NRIs with children settled outside India have always faced a very difficult dilemma when it comes to estate planning and leaving a legacy for their children. Very often, Indian residents who have worked all their working lives in India have their retirement assets in a Public Provident Fund or similar structures. Besides this, they typically have substantial cash savings in Bank accounts or investments in stock markets along with property all denominated in Indian rupees. Leaving such a legacy for children who are settled outside India and who have no intention of returning back to India only complicates problems for the children who have to sort out this mess and bribe their way through the Indian bureaucracy to claim what is rightfully theirs. You begin paying bribes starting with the death certificate - this phenomenon is quite wide spread throughout India with some crematorium officials in Mumbai asking as much as US$ 1000 in bribes.



These problems can best be avoided by setting up an offshore trust in a UK jurisdiction such as the Isle of Man or the Channel Islands in a hard currency of your choice. RBI now allows every Indian resident to transfer up to US$ 200,000 every calendar year through their Liberalised Remittance Scheme. This is a very effective mechanism for Indian residents to transfer their wealth abroad to leave a legacy for their children. NRIs returning back to India after a lifetime spent working overseas may also wish to leave a legacy for their children using this offshore investment trust mechanism to avoid taxes on transferring wealth to India.

After Switzerland, UK and Channel Islands top the list of offshore domiclies

Funds Europe magazine reports that the UK and Channel Islands are at number two on the list of offshore domiciles, with assets under management of US$1,800 billion at the end of 2011. Switzerland still tops the list, with more than 80% of the funds held in Switzerland being for foreign clients.



India's new wealth tax surcharge of 10% on individuals with taxable incomes topping 10 million rupees will not work thanks to a well-established tax dodge wealthy people and corporations use that involves sending money to and from Mauritius. Under a tax treaty between India and Mauritius, companies based in Mauritius are not taxed on their investments in India. The Isle of Man or the Channel Islands may not have a similar tax avoidance agreement as Mauritius but they are certainly far safer havens (see video) to protect assets if return of assets is considered more important than return on assets.

Changing tax haven scene - Switzerland and Caribbean trusts no longer preferred

The Economic Times writes today about the changing tax haven scene where traditional tax havens such as Switzerland, Liechtenstein and Caribbean countries are quickly dropping out of favor as their bank secrecy is rapidly eroded and they come under attack from aggressive tax agencies chasing tax dodging citizens. The article further posits that Singapore and Dubai may now be the tax haven of choice for rich Indians or NRIs looking to invest overseas.

I would argue against the choice of either Singapore or Dubai as the base for overseas investments for Indian residents or NRIs for the same cautionary tale told by recent events in Cyprus (see video clip above). Moreover, Singapore and Dubai are in restive neighborhoods and there is always a political risk from this geographical closeness. A better choice for overseas investment gateways for resident Indians and NRIs alike are the Isle of Man and the Channel Islands. Both these locations are protected under British Sovereignty and are very clean with transparent regulation.

Don't get Cyprused - cardinal rules for protecting your assets

Cyprus bank customers with assets exceeding € 100,000 will be taxed with 37.5 % as reported by Friedlnews. BBC further reports that big savers could effectively loose up to 60% of their savings. Up to 22.5% will go into a fund attracting no interest and may be subject to further write-offs. The other 40% will attract interest but this will not be paid unless the bank performs well - a very unlikely scenario. This seizing of a large chunk of depositor assets by a Government can happen just about anywhere - Cyprus is only the unfortunate canary in the financial coal mine. I have a few cardinal rules to protect assets in the long term which savers will do well to heed:

1. Return "off" assets is more important than return "on" assets - In other words attractive looking assets such as cloud computing equities may do well in the immediate short but they are getting to be bubbles of massive proportions - so best to stay away.

2. The Euro is effectively a currency on life support and not tenable in the long term - avoid investing anything in Euros or Euro denominated market instruments. The story of Cyprus is likely to get repeated in other Euro zone countries over the medium term.

3. Gold is a good holder of value in the medium term but unlikely to do well over the long term.

4. Isle of Man or the Channel Islands are quite possibly the safest jurisdictions for holding assets compared to other offshore jurisdictions for cash assets as well as from a tax perspective.

5. It is very prudent to have some of your non cash assets invested in real estate, farm land, water resources, food commodities and energy.