How GIFT City Provides Wealthy Indians a Global Investment Avenue Minus US Inheritance Tax
Introduction: Why Global Diversification is on the Rise for Indian HNIs
With the world becoming more interconnected, high-net-worth individuals (HNIs) in India are seeking to diversify their wealth in global markets, notably in the US. However, US investments can bring with them unexpected inheritance taxes, posing a risk for heirs. Fortunately, India’s GIFT City provides an effective solution by enabling pooled investments that bypass direct asset ownership in the US. This reduces tax burdens, safeguarding wealth for future generations.
### Understanding the Inheritance Tax Challenge for US Assets
Key Insight: Direct US asset ownership by an Indian investor could lead to US inheritance tax exposure, making strategic alternatives crucial.
How GIFT City Provides a Tax-Friendly Investment Solution
Benefits of GIFT City’s Pooled Investment Structure-
1. **Global Exposure with Lower Tax Liability**: Pooled funds allow indirect ownership of global assets, sidestepping direct tax liabilities like US inheritance tax.
2. **Operational Cost Savings**: By centralizing operations in GIFT City, investors save on fees otherwise paid to foreign-based fund managers.
3. **Strengthened Domestic Economy**: Capital that would typically flow out of India remains within the national economy, supporting local markets.
4. **Local Fund Management**: Indian fund houses can administer these investments, enhancing India’s position as a competitive global financial hub.
The Tax Hurdle: Fund-Level Taxation in GIFT City
**Example:** For Indian HNIs in lower tax brackets, a fund-level tax system could mean paying more than in a pass-through structure, where individual investors pay taxes based on their personal income brackets.
Strategic Benefits Despite Tax Structure Limitations
- **Regulated Global Investment Access** (H3): Funds can access stocks of companies like Nvidia, Amazon, and Meta through a regulated platform.
- **Reduced Fee Outflows** (H3): Managing investments from GIFT City can lower the fees typically paid to fund managers in foreign hubs like Singapore.
Balancing Government Objectives with Investor Needs
Global Case Studies on Tax-Efficient Fund Management
- **Luxembourg**: Known for its pass-through taxation, which attracts European funds.
- **Singapore**: Offers tax incentives that attract asset management firms through pass-through structures, a model GIFT City could replicate.
