Why Indian Family Offices Are Shifting Overseas

Indian family offices are moving offshore as the next generation of the nation's wealthy considers global asset classes to diversify and grow their business or personal wealth.

Family offices are usually set up where families as based as they can find local chartered accountants and legal professionals, according to Jai Rupani, head, Dinesh Hinduja Family Office, and founder and chairman of Aikya Connect—a by-invite network senior investment professionals involved in this category of investing.

But they have started diversifying across jurisdictions, he said. “Now we are seeing the bigger family offices being set up in Singapore or Dubai," he said. It depends on which place wealthy families find "comfortable to visit". Another such destination is London.

India is estimated to have at least 300 family offices with an average asset under management of $100 million each, including those with multi-billion corpuses.

They generally consider overseas jurisdictions that do not have significant capital controls, where foreign exchange is freely tradeable, places that do not have inheritances tax or estate duties, and income tax is at a reasonable level, said Vijay Dhingra, partner, Deloitte, and who handles its family office vertical.

According to Rupani, a lot of family offices were set up in Dubai to manage money, but more money is still sitting in Singapore banks as per the Sharia law. A team could be based out of Dubai and one of the global banks like Citibank or JPMorgan or UBS manages money in Singapore), he said.

“Dubai has zero tax and you do not have to make application under Section 13 of the Singapore Income Tax Act,” he said.

Dhingra said Singapore Income Tax Act does provide relief on certain income earned by the family office but that does not mean it's the only place people go, he said.

Rupani said Singapore has several different regulations depending on the quantum of money that’s brought in—13R for lower capital and 13X for larger capital. “Then you get preferred tax breaks ... it comes with certain expectations that you will spend some money in Singapore, that you will hire some Singaporeans as the company is set up there. There is a fair bit of legal regulation and they are lot of stringent ... [and] paper work.”

Business owners are spreading their risks into different classes of assets, said Dhingra.

“I can either invest directly from India in terms of the forex law in India or have a structured office in India," he said. "But sometimes there is not enough talent which has visibility of markets outside India at times.”

Rupani agreed that there is a “scarcity of professional investment managers” to manage family offices in India.

Typically, cost structure for a family office varies from 0.8-1.2% depending on the size of assets under management. Family offices with lower assets under management tend to have higher cost structure, he said.

“But because you have better talent available in other locations, you may want to set up family office in that geography which will enable a better investment decision from that geography,” said Rupani.

According to Dhingra, if family members do want to spend more time overseas it also makes senses to create foreign exchange assets, which is compliant with the regulatory framework but does not lead to unintended income tax.

“One can have two family offices. There is no difficulty on that as long as they keep it within the framework of the law,” said Dhingra. People do have multiple family offices.

He said there were examples of the wealthy saying they need one in India or Asia for the Asia-Pacific region and another in Europe for the Europe and America investments. "Because risks in different markets are differently assessed, therefore fund allocation is relevant with respect to how much one wants to put in one region versus another."

Wealthy families have been using Liberalized Remittance Scheme and Overseas Direct Investments to undertake money abroad in compliance with regulations.

People, Dhingra said, have been remitting money overseas over a decade as per permitted regulation to create foreign assets. Resident Indians can remit $250,000 a year, while non-residents can repatriate up to $1 million. Non-residents working in India can remit 100% of the current income.

According to Dhingra, it does not make sense for Indian single family offices to look at offshore jurisdiction from a tax purpose.

“If tax is the driver then those days will be limited because there is going to be global minimum tax at 15% in every geography,” he said. "That conversation is still on and it is going to be a multi-country agreement. The framework is ready and to my mind, it will take a year or two more."

Family offices, he said, should look at what is right for the family from their investment goals, from for their long-term business or personal growth.