The International Comparative Legal Guide to:

A practical cross-border insight into private client work

6th Edition

ICLGPrivate Client 2017

Published by Global Legal Group, in association with CDR, with contributions from:

Arqués Ribert Junyer AdvocatsBerwin Leighton Paisner LLPBircham Dyson Bell LLPBMT InternationalCadwalader, Wickersham & Taft LLPChetcuti Cauchi AdvocatesGordon S. Blair Law OfficesGriffiths & PartnersHassans International Law FirmIvanyan & PartnersKatten Muchin Rosenman LLPKhaitan & Co Lebenberg Advokatbyrå ABLenz & StaehelinLoyens & Loeff

Macfarlanes LLPMaples and CalderMathesonMichael Shine & Partners, Advocates and NotariesMiller Thomson LLPMJM LimitedMourant OzannesO’Sullivan Estate LawyersP+P Pöllath + PartnersSociety of Trust and Estate Practitioners (STEP)Studio Tributario Associato Facchini Rossi & Soci (FRS)Tirard, Naudin, Société d’avocatsVieira de Almeida & AssociadosWithers Bergman LLP Zepos & Yannopoulos

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DisclaimerThis publication is for general information purposes only. It does not purport to provide comprehensive full legal or other advice.Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance upon information contained in this publication.This publication is intended to give an indication of legal issues upon which you may need advice. Full legal advice should be taken from a qualified professional when dealing with specific situations.

The International Comparative Legal Guide to: Private Client 2017

General Chapters:

Country Question and Answer Chapters:

1 BREXIT: The Immigration Implications – James Perrott, Macfarlanes LLP 1

2 Are the Proposals to Reform the Taxation of Non Doms Still Relevant for Brexit Britain? – Matthew Braithwaite & Guy Broadfield, Bircham Dyson Bell LLP 9

3 Pre-Immigration Planning Considerations for the HNW Client – Think Before you Leap – Joshua S. Rubenstein, Katten Muchin Rosenman LLP 14

4 SpecialIssuesArisingForEstateswithForeignBeneficiariesorLegalRepresentatives – Margaret O’Sullivan, O’Sullivan Estate Lawyers 20

5 Safe as Houses? The New Tax Rules for UK Residential Property – Marilyn McKeever & Damian Bloom, Berwin Leighton Paisner LLP 24

6 Navigating Complex US Immigration Laws: US Visas & Taxation – Mark E. Haranzo & Reaz H. Jafri, Withers Bergman LLP 29

7 AftertheTrustSettlorDies–PotentialUSTaxBenefitsof“ChecktheBox”Elections– Dean C. Berry & Osvaldo Garcia, Cadwalader, Wickersham & Taft LLP 34

8 Residential Property in Russia: What You Should Know Before Buying – Yulia Chekmareva, Ivanyan & Partners 39

9 The Limits to Transparency – George Hodgson & Emily Deane, Society of Trust and Estate Practitioners (STEP) 43

10 Andorra Arqués Ribert Junyer – Advocats: Jaume Ribert i Llovet & Jordi Junyer i Ricart 47

11 Belgium Loyens & Loeff: Saskia Lust & Nicolas Bertrand 57

12 Bermuda MJM Limited: Jane Collis & Hildeberto (“Hil”) de Frias 66

13 British Virgin Islands Maples and Calder: Arabella di Iorio & Richard Grasby 74

14 Canada Miller Thomson LLP: Nathalie Marchand & Rachel Blumenfeld 79

15 Cayman Islands Maples and Calder: Morven McMillan & Alex Way 87

16 China BMT International: Todd M. Beutler 92

17 Cyprus Chetcuti Cauchi Advocates: Dr Jean-Philippe Chetcuti & Charles Savva 98

18 France Tirard, Naudin, Société d’avocats: Jean-Marc Tirard & Maryse Naudin 106

19 Germany P+P Pöllath + Partners: Dr. Andreas Richter & Dr. Katharina Hemmen 115

20 Gibraltar Hassans International Law Firm: Peter Montegriffo QC & Nyreen Llamas 122

21 Greece Zepos & Yannopoulos: Costas Kallideris & Anna Paraskeva 130

22 Guernsey Mourant Ozannes: Matthew Guthrie & Tim Crook 136

23 Hong Kong BMT International: Todd M. Beutler 142

24 India Khaitan & Co: Daksha Baxi & Aditi Sharma 149

25 Ireland Matheson: John Gill & Allison Dey 157

26 Israel Michael Shine & Partners, Advocates and Notaries: Shira Shine & Marina Shnayderman 164

27 Italy Studio Tributario Associato Facchini Rossi & Soci (FRS): Francesco Facchini & Stefano Massarotto 170

28 Jersey Mourant Ozannes: Edward Devenport & Giles Corbin 178

29 Malta Chetcuti Cauchi Advocates: Dr Jean-Philippe Chetcuti & Dr Priscilla Mifsud Parker 186

Contributing EditorsJonathan Conder & Robin Vos, Macfarlanes LLP

Sales DirectorFlorjan Osmani

Account DirectorsOliver Smith, Rory Smith

Sales Support ManagerPaul Mochalski

EditorCaroline Collingwood

Senior EditorRachel Williams

ChiefOperatingOfficer Dror Levy

Group Consulting EditorAlan Falach

Group PublisherRichard Firth

Published byGlobal Legal Group Ltd.59 Tanner StreetLondon SE1 3PL, UKTel: +44 20 7367 0720Fax: +44 20 7407 5255Email: info@glgroup.co.ukURL: www.glgroup.co.uk

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Continued Overleaf

EDITORIAL

Welcome to the sixth edition of The International Comparative Legal Guide to: Private Client.This guide provides corporate counsel and international practitioners with a comprehensive worldwide legal analysis of the laws and regulations of private client work.It is divided into two main sections:Nine general chapters. These are designed to provide readers with a comprehensive overview of key issues affecting private client work, particularly from the perspective of a multi-jurisdictional transaction.Country question and answer chapters. These provide a broad overview of common issues in private client laws and regulations in 28 jurisdictions.All chapters are written by leading private client lawyers and industry specialists and we are extremely grateful for their excellent contributions.Special thanks are reserved for the contributing editors Jonathan Conder and Robin Vos of Macfarlanes LLP for their invaluable assistance.Global Legal Group hopes that you find this guide practical and interesting.The International Comparative Legal Guide series is also available online at www.iclg.co.uk.

Alan Falach LL.M. Group Consulting Editor Global Legal Group Alan.Falach@glgroup.co.uk

The International Comparative Legal Guide to: Private Client 2017

Country Question and Answer Chapters: 30 Monaco Gordon S. Blair Law Offices: Alexis Madier 195

31 Portugal Vieira de Almeida & Associados: Tiago Marreiros Moreira & Frederico Antas 201

32 Russia Ivanyan & Partners: Yulia Chekmareva & Dmitry Mikhailov 211

33 Sweden Lebenberg Advokatbyrå AB: Torgny Lebenberg & Peder Lundgren 219

34 Switzerland Lenz & Staehelin: Heini Rüdisühli & Lucien Masmejan 224

35 Turks & Caicos Islands Griffiths & Partners: David Stewart & Conrad Griffiths QC 234

36 United Kingdom Macfarlanes LLP: Jonathan Conder & Robin Vos 238

37 USA Cadwalader, Wickersham & Taft LLP: William Schaaf & Sasha Grinberg 254

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Chapter 24

Khaitan & Co

Daksha Baxi

Aditi Sharma

India

In terms of tax planning through trust structures, it is preferable for an Indian (ordinary) resident (refer to question 2.4) to be named as a discretionary beneficiary (not having a specific or determinate share in the trust). This ensures that there is an Indian tax incidence only when a distribution is made. Further, from a tax perspective, Indian residents should not be the key decision-makers of offshore companies (refer to question 5.1).

1.3 In your jurisdiction, can pre-entry planning be undertaken for any other taxes?

Yes, pre-entry tax planning can be undertaken to mitigate indirect tax implications considering that certain exemptions/incentives under the current tax regime are based on location of the setup, nature of activity, location of service provider/service recipients, etc. (e.g. exemption from excise and state value-added tax offered to incentivise setting-up of industries in particular areas). With India being on the cusp of replacing its indirect tax regime with Goods and Services Tax (GST), this tax reform may open further opportunities for (indirect) tax planning in India.

2 Connection Factors

2.1 To what extent is domicile or habitual residence relevant in determining liability to taxation in your jurisdiction?

Indian taxation is attracted based on residence and source and the (Indian) Income Tax Act, 1961 (ITA) provides for specific source rules of taxation. Factors such as the taxpayer’s domicile status or habitual residence do not determine their tax liability in India unless such factors are considered to decide the fiscal residence of the taxpayer in accordance with the tie-breaker clause of a Double Taxation Avoidance Agreement (DTAA) that India has entered into. Domicile is recognised in India to a limited extent for determining succession of property in a few instances such as the succession of moveable property, which depends on the laws of the state where the deceased was domiciled as per the Indian Succession Act, 1925 (ISA) (applicable to persons other than Hindu, Muslim, Buddhist, Sikh or Jain). The said Act specifies rules (similar to English law) on ascertaining and establishing domicile.

1 Pre-entry Tax Planning

1.1 In your jurisdiction, what pre-entry estate and gift tax planning can be undertaken?

India does not currently have specific laws governing the taxation of estates and gifts. ■ Estate Duty Act, 1953 (Estate Act) aimed to level the

disparity and concentration of wealth in Indian society, was abolished in 1985;

■ Gift Tax Act, 1958 introduced to curb practices of tax evasion by gifting assets, met with a similar fate (abolished in 1998); and

■ Wealth Tax Act, 1957 which imposed a tax on an individual’s net worth, was repealed in 2015.

Therefore, unlike other jurisdictions, from an Indian tax perspective, there are no pre-entry estate or gift tax planning measures that can be undertaken.However, a key pre-entry planning strategy pertains to navigating India’s stringent exchange control regulations (viz., Foreign Exchange Management Act, 1999 (FEMA)) by appropriately structuring the foreign assets and funds acquired while being a non-resident, as per the FEMA residency rules, to remain outside the purview of FEMA restrictions even after the individual becomes a FEMA resident. Residence under FEMA is based on the physical presences test (presence of 182 days in India) as well as intention to stay or remain in India for carrying on or setting up business or taking up employment in India for an indefinite period, and in circumstances which indicate that the person intends to remain in India for an uncertain period.

1.2 In your jurisdiction, what pre-entry income and capital gains tax planning can be undertaken?

India taxes on the basis of tax residency, which in the case of individuals is related to the physical presence of the individual (and not nationality or citizenship). Residents are taxed on their worldwide income, with the only exception being the transition period provided to persons who have been non-resident for tax purposes in India for a long period of time. If a person has been non-resident in nine out of previous 10 tax years or has been in India for an aggregate of 729 days in the seven preceding years, then even though she/he is resident in India (refer to question 2.4) in the relevant fiscal year, only the Indian source income is taxable in India. This residence status is termed ‘resident but not ordinarily resident’ (RNOR).

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2.2 If domicile or habitual residence is relevant, how is it defined for taxation purposes?

Given its limited relevance, as explained above, the ITA does not specifically define domicile or habitual residence.

2.3 To what extent is residence relevant in determining liability to taxation in your jurisdiction?

Under the ITA, residence or physical presence is a connecting factor to determine tax liability. A person who is ordinarily resident in India (refer to question 2.4) is taxed on their worldwide income, while a non-resident is taxed on income which is sourced in India i.e., income which accrues, arises or is deemed to accrue or arise in India.

2.4 If residence is relevant, how is it defined for taxation purposes?

Residency for individuals can broadly be categorised as:■ An individual who is physically present in India for a period of

182 days in a financial year (commencing on 1 April through 31 March), or who has spent 365 days in four years preceding the financial year, and 60 days or more in the financial year, is regarded as a resident (ROR). Such individual is ordinarily resident of India unless she/he satisfies the transition status of the RNOR criteria. An ROR is taxed on global income.

■ An individual is considered to be a non-resident (NR) if she/he fails the tests of ROR. An NR is only required to pay tax on income sourced in India.

■ There is a further transition status for individuals (RNOR) (refer to question 1.2).

2.5 To what extent is nationality relevant in determining liability to taxation in your jurisdiction?

Nationality per se is not a factor in determining the Indian tax liability of a person. However, the ITA provides certain relaxations in case of an Indian citizen who leaves India for purposes of employment outside India. In case of such a person, the 60-day time limit (refer to question 2.4) is increased to 182 days. This increased threshold is also applicable in case of a citizen of India or a person of Indian origin (PIO) who has been outside India, and comes to visit India. Nationality also assumes relevance when invoking non-discrimination clauses in DTAAs which provide for equal treatment of nationals of the two contracting states.

2.6 If nationality is relevant, how is it defined for taxation purposes?

Nationality is relevant in limited instances. Relevant definitions of the concept include definition of a Non–Resident Indian (NRI) who is an Indian citizen or PIO and is not a tax resident of India. Citizenship is also defined in the Citizenship Act, 1955 (as amended) (Citizenship Act). The ITA deems a PIO as a person who was either born in undivided India, or whose parents or grandparents were born in undivided India.

2.7 What other connecting factors (if any) are relevant in determining a person’s liability to tax in your jurisdiction?

In addition to the residency rules (refer to question 2.4), there are

fairly rigorous source rules and withholding tax obligation rules which determine the liability of a person to pay tax or deduct and deposit tax in India. These may be enumerated as follows: ■ Gains arising from a foreign asset which derives substantial

value from an Indian asset triggers capital gains tax in India.■ Receipt of gift of shares of an Indian company would attract a

tax liability on the value of the shares to the recipient, unless expressly exempt.

■ Making certain types of payment to a resident attracts withholding taxes even when the payer is non-resident.

■ A non-resident making payment to another non-resident would be liable to withhold Indian tax if such payment is taxable in India.

3 General Taxation Regime

3.1 What gift or estate taxes apply that are relevant to persons becoming established in your jurisdiction?

Currently, India does not impose estate or gift taxes that are relevant to persons becoming established (resident) in India from a tax perspective (refer to question 1.1). However, the ITA provides that ‘sums’ received for inadequate consideration are taxed in the hands of the recipient as ‘income from other sources’ at the progressive slab rates applicable (highest effective rate being 35.5%, inclusive of surcharge and cess). Certain exemptions have been provided under ITA (e.g. receipt from relatives, on the occasion of marriage, inheritance, etc.).

3.2 How and to what extent are persons who become established in your jurisdiction liable to income and capital gains tax?

The ITA provides the criteria for tax residency, which in turn impacts the income tax liability of a person (refer to question 2.4). Resident individuals are taxed on a progressive slab basis as under:

TOTAL INCOME TAX RATE

Income does not exceed INR 250,000 Nil

Income exceeds INR 250,000 but does not exceed INR 500,000

10% of the amount by which the total exceeds INR 250,000

Income exceeds INR 500,000 but does not exceed INR 1,000,000

INR 25,000 plus 20% of the amount by which the total exceeds INR 500,000

Income exceeds INR 1,000,000INR 125,000 plus 30% of the amount by which the total exceeds INR 1,000,000

An additional surcharge at the rate of 12% is applicable to individuals whose total income exceeds INR 10 million.Gains arising from the transfer of capital assets are taxed at concessional rates. The rate of tax depends on the nature of the asset, period of holding and status of the transferor, as indicated below.

Capital Asset held by Indian Resident

Tax Rates for Capital Gains

Long-term Short-term

Shares listed on a recognised Indian stock exchange (if sale takes place on the exchange and is subject to Securities Transaction Tax (STT))

NIL 15%

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Capital Asset held by Indian Resident

Tax Rates for Capital Gains

Long-term Short-term

Listed shares sold off the stock exchange and not subject to STT

10% (without availing indexation benefit) / 20%

30%

Unlisted shares of a public or private limited company

20% 30%

Immoveable property 20% 30%

The above rates are exclusive of applicable surcharge and cess. Equity shares held for 12 months or less are short-term assets, and those held for more than 12 months are long-term assets. Unlisted shares, on the other hand, are short-term assets if they are held for 24 months or less, and long-term if they are held for more than 24 months. The period of holding is increased to 36 months in case of other assets being regarded as long-term capital assets. In case of NR, the ITA provides for certain situations where a person is deemed to be a resident of India, or where income is deemed to accrue or arise in India:■ Salary received for services rendered in India. ■ Income from transfer of shares of an Indian company, and

from shares or interest in a foreign company which derives substantial value from an Indian asset.

■ Receipt of gift of shares of an Indian company.■ Receipt of an Indian asset for nil consideration or for a

consideration less than the fair market value results in income arising in India to the extent of the delta.

■ Income from a profession exercised from a place in India.■ A person – partnership, body of individuals or a trust – would

be deemed to be resident in India if any of its management or control are in India. A company would be resident in India if its place of effective management is in India.

3.3 What other direct taxes (if any) apply to persons who become established in your jurisdiction?

Currently, income tax is the only direct tax payable in India since wealth tax, estate duty and gift tax have been abolished. It is important to consider FEMA implications – an important, non-tax consideration while structuring personal assets, migrating from or to India, etc. FEMA and the regulations enacted thereunder govern the inflow and outflow of exchange by governing the nature of transactions that FEMA residents may enter into with FEMA non-residents so far as Indian or foreign property is concerned and vice versa.

3.4 What indirect taxes (sales taxes/VAT and customs & excise duties) apply to persons becoming established in your jurisdiction?

The Indian Government is committed to replace the multi-layered regime by a single, uniform Goods and Services Tax (GST) by 2017. Where the supply is from one state to the other, an integrated GST (IGST) shall be levied. Most of the taxes currently levied on goods and services (e.g. service tax, VAT, CST, entertainment and entry taxes), other than custom duties shall be subsumed within the (unified) GST regime. India being quasi-federal in structure, indirect tax is levied by both Union and states in accordance with the powers granted by the Indian Constitution. The Central Government imposes central excise duty on the manufacture of goods, service tax on the provision of

services, and Central Sales Tax (CST) on inter-state sale of goods. Customs duties are payable on import or export of goods.States levy Value Added Tax (VAT) on intra-state sale of goods. Further, there are certain additional local taxes like entry tax, octroi and entertainment tax levied by the state / municipal authorities on specified activities.

3.5 Are there any anti-avoidance taxation provisions that apply to the offshore arrangements of persons who have become established in your jurisdiction?

The ITA provides for specific anti-avoidance measures. For instance: ■ Indirect transfer of Indian assets: Unless expressly exempt,

income arising from the transfer of shares or interest in a foreign company / entity is subject to Indian capital gains tax if the foreign target derives substantial value from the Indian assets, i.e., if the foreign target derives 50% or more of its value from Indian assets and if the value of the Indian assets exceeds INR 100 million.

■ Transfer pricing: The ITA requires any ‘international transaction’ between associated entities to be entered at an arm’s length price, as per the specified methods in the ITA. Additionally, relevant documentation is required to be maintained, along with filing the applicable forms.

■ Revocable transfers to trusts: Even if characterised by the taxpayers as an irrevocable trust, if the settlor of a private trust has the right to re-transfer to self or re-assume control over the trust assets and income, then such income and assets are included in the settlor’s total income.

■ Minimum alternate tax (MAT) and buy-back tax (BBT): In order to protect its tax base, certain provisions have been introduced as measures to curb avoidance. For instance, MAT (at the rate of 18.5%) is applicable to companies (including foreign companies that have a place of business or permanent establishment (PE) in India, as the case may be) whose income tax is less than 18.5% of its book profits. Similarly, Indian private companies are subject to a 20% buy-back tax to avoid using buy-back of shares as a mechanism to distribute dividend.

■ Income shifting: Where an asset is transferred in circumstances and under an arrangement that income therefrom, though accruing to a NR, is enjoyed by a resident, the said income would be chargeable to income-tax. In the event a person sells and then buys back securities with the effect that the interest receivable on such securities is received by a person other than the owner, such interest would be considered as income in the hands of the owner and not the other person.

■ Notification of non-cooperative jurisdictions: The Central Government also reserves the power to notify a jurisdiction as a non-cooperative jurisdiction if it fails to comply with the exchange of information requirements, thereby causing any payments made to a resident of such country liable to higher withholding taxes and compliances.

3.6 Is there any general anti-avoidance or anti-abuse rule to counteract tax advantages?

India is slated to implement general anti avoidance rules (GAAR) with effect from 1 April 2017. GAAR empowers the tax authorities to determine tax implications based on the ‘substance’ of the transactions. For GAAR to be triggered, the transaction/structure/arrangement should be an ‘impermissible avoidance arrangement’, which means that the main purpose of entering into an ‘arrangement’ should be to obtain a ‘tax benefit’, and such arrangement must

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satisfy any of the following conditions: (i) creates rights or obligations which are not ordinarily created between unrelated parties; (ii) results, directly or indirectly, in the misuse or abuse of the provisions of the ITA; (iii) lacks or deems to lack commercial substance in whole or in part; or (iv) is entered into or carried out for mala fide purposes. The consequences of such an arrangement may result in the tax authorities denying DTAA benefits, disregarding the step or a party to the transaction, reallocating income among the parties or looking through the transaction between the parties.However, transactions entered prior to 1 April 2017 would be grandfathered, i.e., GAAR will not apply to income arising out of investments or assets transferred prior to 1 April 2017, irrespective of the date on which income from such transactions arises.

4 Taxation Issues on Inward Investment

4.1 What liabilities are there to tax on the acquisition, holding or disposal of, or receipt of income from investments in your jurisdiction?

Acquisition: An NR is not taxed while making an investment in India. However, if the NR is acquiring the asset from another NR, then she/he must withhold the applicable Indian tax while making the payment to the NR.Holding: There being no wealth tax, no tax is levied on holding Indian investments. Dividend is taxable only on the company distributing the dividends (Dividend Distribution Tax or DDT), and not taxed on the recipient thereafter. An additional surcharge of 10% is levied on resident, non-corporate entities on the dividend received in excess of INR 1 million.Disposal: The ITA provides for five, mutually exclusive heads of income. Subject to income characterisation rules specified in the ITA, investments are typically treated as capital assets and are subject to capital gains tax in India at tax rates based on the nature of the asset and period of its holding. In case of NRs, applicable DTAA provisions may reduce the tax incidence in case of certain assets, and direct or indirect transfer thereof.

4.2 What taxes are there on the importation of assets into your jurisdiction, including excise taxes?

Customs duty is levied by the Central Government on import or export of goods. The rate of customs duty is set out in the Customs Tariff Act, 1975 and is aligned with the 8-digit Harmonized System of Nomenclature for classification of goods (HSN) as adopted by the World Customs Organisation. India has also adopted the internationally accepted rules for valuation of import or export of goods. Customs duty constitutes basic customs duty, countervailing duty (in lieu of the duty of excise payable on such goods, if manufactured in India), special additional duty (in lieu of VAT on such goods, if sold in India) and other safeguards or anti-dumping duties, if applicable. The Indian Government issues various general and thematic (product/industry/end use) exemption notifications which provide concessional rates of customs duty. Various other free trade agreements are also implemented for notified products. Additionally, pricing guidelines, prior RBI approvals and restrictions on outward remittances, where applicable, must be considered from a FEMA perspective when engaging with NRs for the import of assets into India.

4.3 Are there any particular tax issues in relation to the purchase of residential properties?

When purchasing residential property from an NR, the individual is required to withhold appropriate capital gains taxes, and deposit the same with the Indian treasury. There is 1% withholding tax on such purchase in all other cases. It is important to consider roll-over benefits and capital gains tax exemptions specified in the ITA when re-investing in residential property (e.g. if gains arising from transfer of a long-term capital asset are reinvested in a residential property within the prescribed timelines). Importantly, the consideration paid for land or building purchased must be commensurate with the value adopted for the payment of stamp duties.From a regulatory perspective, FEMA permits PIOs and NRIs to acquire such residential property, other than agricultural property and farm or plantation for personal use, unless inherited from a FEMA resident. NRIs and PIOs cannot engage in real estate business.

5 Taxation of Corporate Vehicles

5.1 What is the test for a corporation to be taxable in your jurisdiction?

Under the ITA, a company is liable to pay tax in India if it (i) is a tax resident of India, or (ii) has income sourced in India (refer to question 2.7). Residency: A company is resident in India if it is incorporated or registered in India or its place of effective management (POEM) is situated in India. The POEM test replaced the erstwhile ‘control and management’ test, and is defined to mean “a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are in substance made”. The Central Board of Direct Taxes (CBDT) has issued certain draft guidelines (which are yet to be notified) for the application of the POEM test which rely on a combination of objective and subjective criteria. Upon classifying the business of the offshore company as active or passive, and other factors to determine POEM (e.g. ascertaining the person or persons who actually make the key management and commercial decision, place of decision making, delegation of powers of directors, etc.).

5.2 What are the main tax liabilities payable by a corporation which is subject to tax in your jurisdiction?

In addition to DDT (refer to question 4.1), MAT (refer to question 3.5) and BBT (refer to question 3.5), the main tax liabilities of a company arise in the following circumstances:■ On income – from business (includes royalties, licence fees,

etc., depending on the nature of the business), capital gains, income from house property and other sources. Relevant provisions of applicable DTAAs may be relied on in case of NR companies, where beneficial.

■ Various withholding taxes when making payments to a non-resident when it is taxable in India, as well as all payments made to a resident (e.g. payments in the nature of payroll, professional fees, interest, royalty, etc.).

■ The applicable tax rates and implications differ in case of resident and non-resident companies.

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5.3 How are branches of foreign corporations taxed in your jurisdiction?

In addition to MAT, a branch of a foreign company would be subject to tax at the rate of 40% (exclusive of applicable surcharge and cess) on income arising in or attributable to its activities in India. There is no separate branch profits distribution tax. A branch of a foreign company is required to comply with all the Indian tax provisions with regard to withholding taxes when making payments, whether to a resident or non-resident (refer to question 5.1).

6 Tax Treaties

6.1 Has your jurisdiction entered into income tax and capital gains tax treaties and, if so, what is their impact?

The ITA enables India to enter into treaties to avoid double taxation, promote mutual economic relations, and exchange information. India has entered into approximately 95 DTAAs, 17 Tax Information Exchange Agreements (TIEA), five Limited Multilateral Agreements, and has approximately 75 Bilateral Investment Treaties in force. Capital gains-related provisions are part of the DTAAs. In order for an NR to claim DTAA benefits, she/he should comply with the eligibility criteria specified in the ITA and DTAA in this regard. The record of India granting DTAA benefits to eligible taxpayers is reasonably good and the courts have generally upheld the beneficial tax treatment accorded by treaties even where a plea is made that the same erodes India’s tax base and tax revenue, provided it is not fraudulent and the legalities are complied with.

6.2 Do the income tax and capital gains tax treaties generally follow the OECD or another model?

Indian tax treaties follow a combination of the OECD and the UN Model. Indian courts have recognised and relied on OECD and UN model commentaries while interpreting DTAA provisions. Importantly, India has been granted observer status in OECD since it is not a member country. Recent DTAAs concluded or amended demonstrate a trend to protect India’s source-based taxation. Inclusion of service PE clauses (typical of UN model DTAAs) is a case in point.

6.3 Has your jurisdiction entered into estate and gift tax treaties and, if so, what is their impact?

India has entered into an estate treaty with UK with respect to duty payable on the estate of a deceased person. Apart from the UK, India does not have an inheritance tax treaty with any other jurisdiction. However, since India has abolished inheritance tax, while the treaty is still in force, there is no impact in India on account of this treaty.

6.4 Do the estate or gift tax treaties generally follow the OECD or another model?

The only estate treaty is India-UK, which is also not used hence we have not analysed the same.

7 Succession Planning

7.1 What are the relevant private international law (conflict of law) rules on succession and wills, including tests of essential validity and formal validity in your jurisdiction?

Succession of an immoveable property is always governed by the law of the land where it is situated (lex situs). However, it is the law of the testator’s domicile that governs succession of their moveable properties. Further, in India, it is the personal law applicable to the testator that determines their rights in relation to a will. For example, the will of Hindus, Jains, Buddhists or Sikh individuals will be governed as per the Hindu Succession Act, 1956, which is the personal law applicable to succession of such an individual. Similarly, the personal law applicable to the wills of Parsis or Christians is the ISA, and the rules of Islamic law are applicable to Muslims.Private international law in relation to an individual’s succession is recognised by Indian courts. As mentioned above, intestate succession is governed by applicable personal laws, therefore intestate succession of immoveable property situated in India would be governed by the personal law of the deceased, despite being of foreign domicile. A grant of probate of a foreign will, proved in a competent court, can be resealed in India. It shall suffice as evidence of the authenticity of the will following which Indian courts are authorised to grant an ancillary probate, i.e., ‘reseal’ the probate, and grant letters of administration in India. However, it is important to note that although Indian courts do recognise private international law and even actively facilitate its application to foreign citizens/religions, in the event of conflict, Indian law with respect to immoveable properties in India will prevail.

7.2 Are there particular rules that apply to real estate held in your jurisdiction or elsewhere?

Succession of real estate property in India is governed by the personal laws of the individual in case of intestate succession, and may further devolve as per the different sub categories of schools within the respective personal laws. For example, Shia and Sunni schools within Islamic law have their own specific instructions as to devolution of property. Similarly, the Dayabhaga and Mitakshara schools each specify a particular way to measure and divide property within Hindu Undivided Family law.

8 Trusts and Foundations

8.1 Are trusts recognised in your jurisdiction?

Yes, trusts are recognised under the Indian law. The Indian Trusts Act, 1882 (Trusts Act) is the principal legislation which recognises and governs the rights and obligations of trustees, settlors and the beneficiaries of a private trust. Public trusts set up in India are categorised into charitable and religious trusts and are governed by: the Charitable and Religious Trusts Act, 1920; the Religious Endowments Act, 1863; the Charitable Endowments Act, 1890; and are additionally regulated by specific state legislations such as the Maharashtra Public Trusts Act, 1950 and the Gujarat Public Trusts Act, 1950.

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Khaitan & Co India

8.2 How are trusts taxed in your jurisdiction?

A private trust can be categorised either as (i) revocable, or (ii) irrevocable, and further as (a) determinate, or (b) discretionary. A settlor of a ‘revocable’ trust has the power to reassume the asset which has been settled in the trust, while a settlor of an ‘irrevocable’ trust does not have such powers. Further while the interest of a beneficiary is pre-determined in case of a ‘determinate’ trust, in case of a ‘discretionary’ trust, the trustee is bestowed with the power and discretion in respect of share and timing of distribution of income and assets.Trusts do not have a separate legal personality in India and are not taxed as a separate taxable unit. The type of trust determines how the trust shall be taxed. In the event the trust is a revocable trust, the income of the trust is taxed in the hands of the settlor. In the case of an irrevocable discretionary trust, the income of the trust is taxed in the hands of the trustee, while in case of an irrevocable determinate trust, the income of the trust can be either taxed in the hands of the trustee or in the hands of the beneficiaries to the extent of their interest in the trust. Once the income is taxed, either in the hands of the trustee or the beneficiary (as in the case of a determinate trust), there is no further taxation when it is distributed.

8.3 How are trusts affected by succession and forced heirship rules in your jurisdiction?

Under some personal laws, forced heirship rules take precedence over the personal wishes of the deceased. For instance, the rules of community property entailed in the Portuguese Civil Code, 1860, devolution of interest as per Sharia law, devolution of ancestral property as per Hindu law.

8.4 Are foundations recognised in your jurisdiction?

No. The only foundations which are recognised are charitable organisations, often colloquially referred to as foundations.

8.5 How are foundations taxed in your jurisdiction?

Foundations are not recognised in India.

8.6 How are foundations affected by succession and forced heirship rules in your jurisdiction?

Foundations are not recognised in India.

9 Matrimonial Issues

9.1 Are civil partnerships/same sex marriages permitted/recognised in your jurisdiction?

Civil partnerships and same sex marriages are not recognised in India. Section 377 of the Indian Penal Code, 1860 (IPC) prohibits sexual relationships between members of the same sex. The Indian Supreme Court (SC) has upheld the constitutional validity of Section 377 of the IPC (Suresh Kumar Koushal v. Naz Foundation, 2013).

9.2 What matrimonial property regimes are permitted/recognised in your jurisdiction?

Portuguese Law as applicable in Goa recognises the principle of community property whereby assets of a married couple are considered to be common assets and cannot be alienated by a spouse without the express consent of the other spouse (unless contracted otherwise by the couple). Hindu law recognises the concept of streedhan whereby any property received by a woman as gift on account of her marriage, or at any time subsequent, is recognised as her absolute property. Muslim law recognises the right of a wife to ‘mehr’, which is payment made by the husband or his family at the time of marriage (or in some cases, at the time of divorce). The SC has recognised that mehr is an unsecured charge on the estate of the deceased husband, and the widow’s right to mehr precedes the right of other heirs. The Married Women’s Property Act, 1874 (MWP) provides that earnings of a married woman both prior to and after marriage shall be her separate property. This Act accords security to the wife and her children in case of life insurance policies. Certain provisions of MWP pertaining to life insurance have been extended to Hindu, Jains, Buddhists, Sikhs and Muslims. Except as stated above, India does not recognise community property in respect of married couples.

9.3 Are pre-/post-marital agreements/marriage contracts permitted/recognised in your jurisdiction?

Pre-marital / post-marital agreements are not expressly recognised in India. There is a divide in judicial opinion on the validity of pre-nuptial agreements in light of how personal laws treat marriage (e.g. Muslim law treats marriage as a contract, whereas Hindu law does not).

9.4 What are the main principles which will apply in your jurisdiction in relation to financial provision on divorce?

Award of maintenance on judicial separation, and alimony on divorce, are primarily governed by personal laws. Either spouse under Hindu law or Parsi law may require the other spouse to pay alimony on divorce. A Muslim woman has a right to seek maintenance from her husband after divorce. Similarly, a Christian woman has the right to seek alimony from her husband. Apart from personal laws, the Code of Criminal Procedure 1973 requires a husband to pay maintenance to his divorced wife irrespective of their religion and personal laws.

10 Immigration Issues

10.1 What restrictions or qualifications does your jurisdiction impose for entry into the country?

Any foreign national who is not an Indian citizen requires a valid visa for visiting India. The type of visa required depends on the purpose of visit (e.g. tourist, business, diplomatic, journalist, student, etc.). Each visa category requires submission of specified valid documents and is subject to conditions (e.g. period of validity, entry into India).

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adopter to implement the Common Reporting Standard (CRS) and has implemented rules in its domestic law to exchange information relating to accounts in financial institutions held by non-residents from the year 2017 onwards. Further, India has implemented Action plan 13 of the Base Erosion and Profit Shift (BEPS) project by including provisions of country-by-country reporting for large taxpayers. In order to exchange information of US persons holding financial accounts in Indian financial institutions, India has signed the Inter-Governmental Agreement with the United States (US) to implement the Foreign Account Tax Compliance Act (FATCA). Rules for implementing FATCA have also been codified in India’s domestic laws. It is also relevant to note that the ITA creates an obligation on taxpayers to maintain records of certain financial transactions (e.g. the sale or exchange of property, provision of services, etc.) and furnish a statement of such transactions to the tax authorities in the specified format.

11.2 What reporting requirements are imposed by domestic law in your jurisdiction in respect of structures outside your jurisdiction with which a person in your jurisdiction is involved?

The ITA requires an ROR who has assets located outside India to declare the same in Schedule FA of the income tax return filed by such tax resident. This includes signing authority in an offshore bank account, even if the individual is not a beneficiary. In case of transfer of shares of an offshore company which derives substantial value from assets located in India through or in an Indian entity, the Indian entity is required to report change of shareholding in its parent, intermediaries and ultimate shareholder foreign entities. From an Indian tax compliance perspective, the ITA now requires compulsory quoting of Permanent Account Number (PAN) in specified cases (e.g. purchase of securities, debentures and bonds, land, etc. above specified thresholds). Recently, the Indian Government has introduced laws to enable reporting of offshore assets and income, that defaulting taxpayers had previously refrained from disclosing.

11.3 Are there any public registers of owners/beneficial owners/trustees/board members of, or of other persons with significant control or influence over companies, foundations or trusts established or resident in your jurisdiction?

While there are no specific registers maintained in India for the parties to private trusts, corporate, property and trust laws in some instances reflect the details of the trustees (legal and beneficial owners). For instance, transfer of property laws read in conjunction with trust laws stipulate the mandatory registration of a trust deed where immoveable property is settled or transferred to the trust. Such registration then becomes part of the public record maintained by the relevant Sub-Registrar of Assurances. Similarly, the register of shareholding of a company, as well as of directors maintained under the Companies Act, 2013 requires disclosure of beneficial interests in shares of a company to be filed with the registrar of companies, including cases wherein the trustee holds the shares for the benefit of the beneficiaries.

AcknowledgmentThe authors are extremely grateful to Ms. Prajakta Menezes (Principal Associate, Indirect Tax Practice), Ms. Yashashree Mahajan (Associate), Mr. Pranay Sahay (Associate, Indirect Tax Practice) and Virja Dange (Trainee Associate, Private Client Practice), for their assistance and valuable inputs in preparing this chapter.

Khaitan & Co India

Foreign residents who hold a valid India passport do not require a visa to enter India. Overseas citizens of India (OCI) cards may be issued to persons of Indian origin which enable such persons to enter India without a visa. Further, the Indian government has notified that PIO card-holders who hold a valid passport shall be deemed to be OCI cardholders and thereby eligible for entry into India without a visa.

10.2 Does your jurisdiction have any investor and/or other special categories for entry?

There are no such provisions.

10.3 What are the requirements in your jurisdiction in order to qualify for nationality?

A person can acquire Indian citizenship by birth, descent, registration and naturalisation. The conditions and procedure for acquisition of Indian citizenship are as per the provisions of the Citizenship Act, relevant provisions of which have been set out below. ■ Birth: A person who is born in India after 3 December 2004

to parents who are Indian citizens shall be deemed to be a citizen of India by birth.

■ Descent: Parents of a person born outside India after 3

December 2004 whose parents are citizens of India need to declare within 1 year that such person does not hold a passport of another country and his/her birth should be registered with the Indian consulate within 1 year of his/her birth.

■ Registration: PIOs and persons who are married to Indian citizens who are resident in India for seven years can register under the Citizenship Act, and if they are resident in India for seven years and have resided in India throughout the year preceding the year of the application, they can obtain citizenship through registration. For an OCI, the requirement for residence in India has been reduced to five years.

■ Naturalisation: Foreign nationals who are ordinarily resident in India for 12 years and have resided in India throughout the year preceding the year of the application can obtain citizenship through naturalisation.

10.4 Are there any taxation implications in obtaining nationality in your jurisdiction?

There are no specific tax implications arising on account of obtaining nationality since taxation under the ITA is residence-based (refer to question 2.2).

10.5 Are there any special tax/immigration/citizenship programmes designed to attract foreigners to become resident in your jurisdiction?

There are no such provisions.

11 Reporting Requirements/Privacy

11.1 What automatic exchange of information agreements has your jurisdiction entered into with other countries?

Apart from the DTAA and TIEA (refer to question 6.1), India has also ratified the Convention on Mutual Administrative Assistance in Tax Matters (Convention) in 2012. Being a signatory to the Multilateral Competent Authority Agreement 2014, it is an early

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Daksha BaxiKhaitan & Co One Indiabulls Centre, 13th FloorTower 1, 841 Senapati Bapat MargMumbai 400 013 India

Tel: +91 22 6657 5190 / +91 98201 87619Email: daksha.baxi@khaitanco.comURL: www.khaitanco.com

Aditi Sharma Khaitan & Co One Indiabulls Centre, 13th FloorTower 1, 841 Senapati Bapat MargMumbai 400 013 India

Tel: +91 22 6657 5153 / +91 75060 86875Email: aditi.sharma@khaitanco.comURL: www.khaitanco.com

Founded in 1911, Khaitan & Co is one of the oldest full service Indian law firms, having a strength of over 480 fee-earners, including 104 partners and directors across its four offices in Mumbai, New Delhi, Bengaluru and Kolkata. Given its centennial presence, Khaitan & Co has worked closely with promoters and business groups, becoming their trusted advisors. Over the decades, the Firm has established a recognised private client practice, which comprises professionals with the necessary expertise and experience to advise on issues relating to trusts, related tax, litigation, corporate, securities law considerations, wills & testamentary instruments, obtaining probates and regulatory approvals. We have advised our clients on drafting family constitutions, restructuring family and business assets, creation of trusts and wills, migration of residency and change of citizenship. Our clientele includes promoters of major corporates, global Indian families, banks and financial institutions with respect to their private client needs, trustees, family offices, and HNIs.

Our team members are internationally recognised and are regular speakers invited to international and domestic fora on estate planning, succession and asset protection. They find special mention by renowned publications such as the Citywealth Leaders List, Chambers & Partners, Who’s Who Legal and The Legal 500.

After several stints with leading international tax advisers, Daksha joined Khaitan & Co in 2007 to build the Direct and International Tax practice in the Firm. Her experience spans India, Switzerland, Jersey, the US and the UK where she spent time advising on cross-border taxation for multi-jurisdictional organisations and individuals with residence in more than one state.

Daksha has been named as a leading tax lawyer by Citiwealth Leaders List, Who’s Who Legal 500 for Private Client Practice, and identified as a leading female tax practitioner in India by International Tax Review’s ‘Women in Tax Leaders’ Guide. She has been voted as “one of the most highly acclaimed tax professionals in India” for several years in a row by Asia Pacific Leading Lawyers of the Jersey-based Euromoney PLC. Chambers & Partners have recommended Daksha as the tax expert in India. Euromoney’s Tax Advisers Guide has nominated her as one of the leading tax advisor and she has also been identified as a leading tax advisor by AsialawProfiles (a guide to Asia-Pacific’s leading law firms). She is also a member of Society of Trust and Estate Practitioners.

Having successfully graduated with a law degree in 2010 from NALSAR University of Law, Hyderabad, Aditi joined the international and direct tax practice group at Nishith Desai Associates, Mumbai wherein she assisted clients on advisory, structuring and issues relating to transfer pricing litigation in addition to assisting individuals with structuring their Indian estate. Thereafter, in 2013, she graduated with a Masters of Law degree from Harvard Law School, Cambridge, USA. She joined Khaitan & Co’s tax practice in 2013.

Being a member of Khaitan & Co’s tax and private client practice, Aditi works closely with high-net-worth individuals to plan their succession and Indian estate. She has advised and assisted national and international clients with documentation on an array of issues regarding testamentary succession, obtaining probates, preparing asset transfer plans, structuring onshore and offshore trusts.

Khaitan & Co India

59 Tanner Street, London SE1 3PL, United KingdomTel: +44 20 7367 0720 / Fax: +44 20 7407 5255

Email: info@glgroup.co.uk

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