It is not new that the rich Indians have created and registered their family trusts in tax-friendly nations. As per the tax agents in UAE, they transferred their assets, including shares held in India and money repatriated from India, to the countries such as UAE, Singapore, and Malta to insulate themselves from the taxman status and other government agencies. Earlier, countries such as Ireland and Switzerland were the favorite locations of rich Indians to create family trust structures. Family trusts are being created in the USA and Africa also.
According to an Economic Times report, these rich Indians feared that they might get harassed by the government agencies in case of any load default in the future. Hence, to avoid the troubles, they shift their resources and properties to family trusts and holding entities abroad. They believed that it would make it difficult for the Indian authorities to access the assets held outside of their home country. However, following the new global tax deal of the Organization for Economic Co-operation and Development (OECD) and UAE’s plans to introduce more taxes, several rich Indians are contacting their advisers, fearing additional taxes.
Many wealthy Indians, including businessmen, Bollywood celebrities, and politicians, had created or have invested in companies based in tax-friendly countries like UAE. They were handling the operations from India and availing tax benefits due to UAE’s liberal tax regime. After all the leading countries, including the UAE, signed OECD’s global tax deal, the government might introduce a corporate tax of at least 15% across the board that applies to the income of holding trusts and entities. Hence, there’s a fear of getting stuck with tax and other regulatory issues, comments a tax agency in Dubai.
The founder of tax advisory firm Transaction Square, Girish Vanvari, said, “Many Indian families had moved their holding companies and trusts to Dubai in the last two years either completely or partially. Now with the OECD global tax deal, the fear is that there could be a 15% tax in the UAE even on these entities that would eventually wipe out a large part of the tax arbitrage.”
Until recently, countries like the UAE were the preferred location to set up family trusts or holding entities as no income taxes or other direct taxes were incurred. But, OECD, in a deal with 136 countries, made sure that large multinationals pay a minimum tax of 15% on their global income from 2023, and those with profit above a threshold pay taxes in the markets where they conduct business. The tax experts say that, though the OECD deal is only applicable to 100 multinationals as of now with a particular size, it will create tax complications for the companies present in the countries like UAE.
“This is mainly because countries which have low or no corporate tax may be increasing or introducing corporate tax at 15% across the board at some point in next one or two years and that will then also impact the trusts or holding entities in these countries,” said Ajay Rotti, partner at tax advisory firm Dhruva Advisors.
People who have advised their clients on tax, VAT registration in UAE, and other regulatory issues opined that in the future, these companies would end up holding global operations, including the Indian business, by restructuring their holding entities. Apart from family trusts, operational entities might also be restructured.
The partner at UAE-based tax advisory firm WTS Dhruva Consultants, Nimish Goel, said, “With a likely introduction of corporate tax in countries like the UAE and Bahrain, large business houses are already looking at their business structures and have started assessing the impact. The tax landscape in the region is now at an interesting and evolving crossroad.”
The OECD deal targets large corporate companies such as Google, Facebook, Apple, and Amazon for creating complex structures in tax havens, including Ireland, the British Virgin Islands, Bermuda, the Cayman Islands, and Mauritius. Government authorities want these large enterprises to shell out at least 15% tax on their global profits irrespective of the complex structures.