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Foreign havens

Foreign havens

If you thought offshore accounts were used only to park illegal funds, think again. They could be your ticket to legal tax savings and diversification.

Once a month, 43-yearold Ramanand Dubey transfers an average of Rs 30,000 to his savings account in a Swiss bank. No, he is neither a drug lord nor a politician trying to stash away dirty money. His only claim to fame is a two-minute cameo as a beggar in a high-school play. A highranking executive in a multinational consulting firm, Dubey is frequently invited to speak at Bschools around the world, which translates to dollar earnings. He needed a foreign currency account that not only guaranteed a good interest income but also reduced his tax outflow. Says Dubey: “Since the foreign currency accounts for resident Indians failed on both counts, Swiss banks emerged as the ideal choice. They are known to be the safest in the world and also boast low tax rates.”

Dubey is not the only one looking outward. According to the Tax Justice Network, an international coalition of researchers promoting transparency in finance, taxpayers across the world hold about $11.5 trillion worth of assets offshore. A growing breed of global Indians is recognising the advantages of joining the bandwagon by choosing banks in Switzerland, Singapore, Cayman Islands and Luxembourg, the world’s best-known tax havens. By doubling the ceiling under the Liberalised Remittance Scheme (LRS), the only route sanctioned by the Foreign Exchange Management Act (FEMA) to park money overseas, the RBI has given a fillip to the offshore movement. Says an HSBC official: “The concept has been gaining popularity, with banks now facilitating fund transfers for clients wanting to diversify their portfolios.” The fact that this money is often pumped into emerging economies like China is a bonus. Here are some FAQs on opening such an account.

Is there a ceiling on the amount that can be transferred to an offshore account?
According to the RBI, a resident Indian can remit up to $200,000 (Rs 96.20 lakh) in a financial year to any place in the world, except to Bhutan, Nepal, Mauritius, Pakistan and the countries listed by the Financial Action Task Force as ‘non-cooperative’. There are no restrictions on the frequency of remittance and the money can be used for current or capital account transactions to acquire and hold immovable property or assets outside India, without prior approval from the apex bank. This includes equity shares, mutual funds, promissory notes, debt instruments or employee stock options. This facility is in addition to the remittance ceiling available for private or business travel, studying abroad, medical treatment, etc, as sanctioned by FEMA’s current account transactions guidelines.

What are the types of bank accounts that can be opened abroad under LRS?
There are no restrictions on the types of bank accounts that can be opened. Hence, depending on your requirements and the interest rates applicable, you can choose to open a savings account, checking or current account, term deposit, etc.

What are the requirements that have to be met by the customer?
Before you remit money, you will have to designate a branch of an authorised dealer through which all the remittances are to be made. Also, ideally, you should have maintained the bank account for at least one year prior to the remittance. In case you are a new customer, the authorised dealer will be required to obtain your bank statement for the previous year, clearly detailing the source of funds. Alternatively, copies of your latest income-tax assessment order or return filed will suffice. You can initiate talks with any bank abroad once you have furnished a form stating the purpose of the remittances and declare that the funds, which belong to you, will not be used for purposes prohibited or regulated under LRS.

Will I have to visit a bank physically to open an offshore account?
You need not visit a country to open a bank account. Most reputed banks will allow you to complete the application process online or by e-mail. Typically, all you need to do is visit the bank’s Website, fill out the relevant application form, transfer the account opening balance, if required, and furnish the mandatory documents. Once your application is approved, the bank will revert with your Internet password and login details.

What are the documents that have to be submitted to open such an account?
Most banks will insist on an authenticated copy of your passport and proof of economic background, including the last two bank statements and latest tax return, a letter from your employer, a copy of your most recent utility bill as proof of your current residence and a reference from your current bank. In addition, you will have to furnish proof of the origin of your deposits. In this case, the application-cumdeclaration form required to gain approval for remittance under LRS usually suffices.

Are there any legal and tax implications one has to keep in mind before opening an overseas account?
As a rule, a customer should check the applicable laws of the country where he wants to open the account. Typically, residents are taxed on their total income, including the income earned abroad. Says Shabbir Motorwala, director, direct tax and regulatory services, KPMG: “The income earned from such bank accounts may be taxable in both countries depending on the tax residential status of the individual. Ask the bank if you are eligible for any tax relief under specific treaties signed by the two countries.” An investor can get credit for taxes paid in the country where his offshore bank account is located against the income-tax liability in India.

Published on: Nov 04, 2009, 3:21 PM IST
Posted by: AtMigration, Nov 04, 2009, 3:21 PM IST