r2i forum

Hi,

There are some misconceptions in this thread. There are only two kinds of reporting - Value of all asset, and Income arising out of those assets

1.) FBAR applies to individuals. It states that all US person (USC, Green card and Resident (183 day SPT rule) must declare value of all financial assets outside. Its only reporting of value of the assets and there's no income reporting ( and subsequently tax) component. If you don't report then there are draconian penalties. Its reported to Treasury dept. And its reported in separate form which are not part of your TAX filing and has a different deadline (June)

2.)FATCA also applies to individuals (as opposed to the belief that its only for institutions). Its also the same as FBAR, that is reporting of all financial assets. But the difference is
- The limits of reporting are higher
- The penalties are more draconian
- Its reported to IRS as part of tax filing(there are separate foms for it) and hence deadline is April
- In addition to declaring value of assets, the income out of these assets also has to be reported and added to your USA income and tax paid on it (as per how US treats the income from those assets. E.g. in India if you even make millions in profit selling Stocks of Equity MF there's no tax. But as per USA those are taxed)

3.) Since people generally don't report the above two, USA has signed agreement with countries FATCA to identify and report the above details of USA persons. Thats the reason now the new KYC in India asks to declare your tax residency (with specific question if you are a US person). Same when you open a bank account. The reason why bank and financial institutions are doing it, its because USA has said that if they don't do then it will assume that they are involved in money laundering and withhold 30% of their income from USA operation.You call it economic bullying or whatever, it is what it is

4.) Pls be clear that investing in MF, shares or anything in India is not illegal. RBI has not barred it and India govt is not concerned with it till you follow the Indian laws (which obviously is not the issue here). The issue is not reporting those as per the above two points (both for you as an individual and for FI now after the agreement has been signed). The reason most AMC are not taking investment of MF is because it's too burdensome for them to identify US persons and comply with the reporting as per 3. Because they have operations in USA which can get impacted (thats why they will get cold feet only if they see an NRI from USA and not any other country). If it had been illegal, then they wouldn't accept it from any NRI. Only those AMCs which have no operation in USA are taking investments, or those who decided that it will comply with the reporting

5.)
USC : Problem is unlike every other country, US doesn't tax based on residency. It taxes based on citizenship. So even if you R2I, you are on the hook for your life because this reporting requirement will apply to you till you are dead or give up your USC. This is the problem which the originator of this thread has pointed out. the only silver lining is that once you are out of USA, the reporting limits are considerably higher. But I guess most of you who are returning after spending their careers here will easily cross those limits)

GC: Same as above till you are preserving your GC status i.e you have to keep reporting and paying tax till you maintain status irrespective of where you live.

Resident (183 day rule, people on Visa who don't settle here and go back):Subjected to above requirements till they satisfy the 183 day , i.e till they are US residents. After that no issues. Frankly I don't think they should even worry about.

6.) Most people don't realize , but those whose children are born here and are USC, they have basically created a big headache and liability for their children. If their children don't grow up and settle in USA, they are also on the hook for their entire life by virtue of being a USC. It is what it is.


7.) Below point is based on my analysis and knowledge which I have verified from multiple sources including CPA. The issue is mainly because India has a big tax advantage (atleast till date) for many asset classes and that's where people will lose money paying taxes. If it had been similar to US, then I don't think the issue would have been that big (apart from reporting req). Also pls note that there's no double tax.
- For fixed income assets (like Saving account, FD, etc). The reporting is not burdensome. Whatever interest you get, declare that as part of USA income and pay tax. This should not be a big issue as most of the R2A I assume will anyway be in the highest tax bracket in India and paying taxes on this. The difference would not be that much. The only sore point is PPF and some specific types of FD whose interest is tax exempted in India. US doesn't recognize this exemptions. There's still a lot of debate and confusion abt PPF and everyone told that its prob better to pay tax on it till IRS specifically expempts
- For Stocks : I am not going to write about PFIC, but I am sure most people will know about it. Stocks are not PFIC, period, with very few exception. The reporting is also easy but the sore point is although India exempts LCTG from any gain, USA doesn't so any gains are taxable. The only silver lining is LCTG in USA follows a different slab structure and is still less than normal tax rates, but still not like India
- MF. This is absolutely the biggest sore point. I will be succinct. The fundamental way in which MF works in USA is different than in India. Hence they are classified as PFIC. There are two issues with holding it.
1.) Unlike bank account and FD where reporting it is very easy, The way in which it has to be reported is extremely complex and beyond the understanding of most people. Only qualified CPA can do it. Also if you have a typical portfolio of holding multiple funds and doing SIP, its literally a mess. But again its is what it is
2.) The taxation is very complex if you continue to hold it for long term. Basically it will wipe out a good amount of gains (because they are tax exempted in India- equity MF. Even for debt MF, one has to pay very less tax after indexation if he holds it for more than 3 years). Pls note that there's no such concept in USA. This forum has lot of articles on PFIC taxation. You can read it and will know the kind of complexity it has
- Real estate - Though their value is not required to be reported, but any income out of it, like rental or capital gains after selling, has to be reported and tax paid.

Anyway. These laws (both FATCA and FBAR) were always there for last 20 years. People were required to do all these, but no one did it as we all know. I am sure people were R2aing all time and invested in all these asset classes. The only issue now is because agreement has been signed with almost all developed countries, so its only a matter of time when all these will be shared with US government. May be 1 year, 2, year, 10 year is anyone guess

Long post :), but pls do correct me If I am wrong or my understanding is incorrect

rodu,
Mostly what you say is correct except one point. As far as my knowledge goes
FATCA (atleast implementation of FATCA) is fairly recent.


I will request you to read all my posts minutely before claiming there are misconceptions.
Please point exactly where misconceptions are there. Be specific.


An US person (for that matter people of any country I will assume) can invest
there assets anywhere they would like to.


The issue is how to maximise and grow your net worth.


Personaly I feel the US taxation laws are getting more and more cumbersome
and if someone is USC best option is keep all assets in USA. One must realize
US is a very mature market and one must be extremely good investor to get
a CAGR of 8-9% + consistently.


There is no way you can invest in major Indian MFs (a few exceptions may be there)
if you are an USC simply because they wont even allow it. Take a account opening
form for an MF and please read the fine print.


Now in my humble opinion MFs (particularly SIP)are the best and safest option to grow
net worth. If that option is closed why even bother to r2i in the first place.

Off course if some one can grow asset by taking exposure in real estate it is a different
story. I have no knowledge in that area and would not like to pass any comments.


Secondly lets say you are USC and you accumulate significant wealth in your lifetime. If you
r2i and you move your wealth to India I am sure your son/daughter will find it difficult
to manage the inheritance.


I have worked in hedge funds and have come across lots of HNIs. If you are a HNI or at some
point when you become HNI managing your wealth becomes the major issue.


So considering all the complexities that needs to be addressed when your net worth
crosses a thresh hold I think r2i doesn't make sense purely from financial planning
for a USC with significant net worth.

PQR, Yes you are correct FATCA is recent. What I actually meant was FBAR. And i absolutely agree with you. I am also in the same boat. Equity market in USA just cannot match India in terms of return, for reasons being highly efficient, and of course because India is still developing. I just pointed out that many people have said in this thread that investing in Indian MF is illegal, whereas its not so (it wasn't pointed out to you :) ). I agree with all your points, but I just stated the facts. I also stated the same fact, Every MF, bank account or any kind of financial account opening will specifically ask you if you are a USA person
If you are a USC, you have a big dilema and if your kids are also USC then you have basically created a mess for them. It has come to a point that you have to forego the growth of of Indian markets just because of these reporting. There are so many Indian USC with USC kids who have R2i and like any other parents are investing in their Kid's name, without knowing the implications. My view is if you are on visa for some years and have definite plans to return, then just don't care and continue all your investments in India. The risk is only for USC and green card holders. Its better for them to have all assets in USA

pqr2012;632481rodu,
Mostly what you say is correct except one point. As far as my knowledge goes
FATCA (atleast implementation of FATCA) is fairly recent.


I will request you to read all my posts minutely before claiming there are misconceptions.
Please point exactly where misconceptions are there. Be specific.


An US person (for that matter people of any country I will assume) can invest
there assets anywhere they would like to.


The issue is how to maximise and grow your net worth.


Personaly I feel the US taxation laws are getting more and more cumbersome
and if someone is USC best option is keep all assets in USA. One must realize
US is a very mature market and one must be extremely good investor to get
a CAGR of 8-9% + consistently.


There is no way you can invest in major Indian MFs (a few exceptions may be there)
if you are an USC simply because they wont even allow it. Take a account opening
form for an MF and please read the fine print.


Now in my humble opinion MFs (particularly SIP)are the best and safest option to grow
net worth. If that option is closed why even bother to r2i in the first place.

Off course if some one can grow asset by taking exposure in real estate it is a different
story. I have no knowledge in that area and would not like to pass any comments.


Secondly lets say you are USC and you accumulate significant wealth in your lifetime. If you
r2i and you move your wealth to India I am sure your son/daughter will find it difficult
to manage the inheritance.


I have worked in hedge funds and have come across lots of HNIs. If you are a HNI or at some
point when you become HNI managing your wealth becomes the major issue.


So considering all the complexities that needs to be addressed when your net worth
crosses a thresh hold I think r2i doesn't make sense purely from financial planning
for a USC with significant net worth.

Also, for some people they don't have a choice for R2I , they need to either to support parents or because they want to be back to their roots or it may be any other personal reason. They are in a tough spot.

rodu,
Well I guess I myself might have mentioned that it is illegal
to invest in MF and thank you I stand corrected. Thank you.Actually
what I meant was sometimes one may not look at the fine prints
and unknowingly open an MF overlooking the fact that US
persons cant open an MF account. Anyway now explicit
FATCA declaration is mandatory so this chance is not
there.


Please understand for various reasons like family, career
etc you can and if necessary you must relocate to India
for long term basis even if you are an USC. But it is best to
consider yourself purely as an expatriate and to maintain your financial
assets in USA. At some point as and when appropiate
go back to USA. That way you have a smooth life. Also
more importantly you ensure smooth life for your kids.


This also means USC when they r2i should have minimal
asset in India. USC must realize India is just a temporary
place for them and eventually at some point they must return to
US and spend rest of there life there.


Basically what I meant was for an USC permanent r2i is impractical
and best avoided given all possible complications.

pqr2012;632489 This also means USC when they r2i should have minimal asset in India. USC must realize India is just a temporary
place for them and eventually at some point they must return to US and spend rest of there life there.

Basically what I meant was for an USC permanent r2i is impractical and best avoided given all possible complications.

You are scaring people. I think it is overblown. I plan to r2i after retirement with no plan to move back to America.

You can keep major part of your savings in US and if you want exposure to Indian stocks you can invest in MINDX, EPI or INDY. With $ in US, you get access to worldwide investments at cheaper cost compared to Indian market which is India heavy. Buying foreign stocks/MF in India is expensive. If someone believes India will become a developed country with a mature financial market in next 20-30 years then I can sell Taj Mahal to him/her. INR is going to depreciate against $$ during our lifespan. That will take care of any difference in return you get in Indian MF in INR versus MINDX in $.

I have seen INR going from Rs 15 to Rs 66 in 25 years. SP500 has given 12% in the same time period. It is always better to keep your investment in a stable market and strong currency instead of volatile/unknown market. Nobody knows what will happen in future.

One big advantage for r2i USC is they can get decent $ in SS. If you give up USC then Trump will cancel your SS. $1000 per month check from SS will outstrip whatever return you can get from Indian MF in India. It is like a dividend from a bond with annual cost of living increase. Nothing can beat that.

pqr2012;632489rodu,

and unknowingly open an MF overlooking the fact that US
persons cant open an MF account. Anyway now explicit
FATCA declaration is mandatory so this chance is not
there.

Even I agree with Old Spice. It is not at all scary to R2I as a USC. I have been in India for almost 2 years. FATCA is mandatory only if your wealth in India is more than $400,000 (that does not include real estate or gold). Even then it is just a form which has to be filled. No one has come after me. I have not willingly withheld information. So what is scary about FATCA.
Also it is not illegal to buy Indian MF as long as you follow PFIC rules (Not sure why anyone would want to do that when they have equally good Indian MF in USA at lesser expenses).

So I would say if you are scared of what you have read and decide not to R2I you would miss a lot of stuff here. For example it is mango and jackfruit season here. Plus I can have people like maids, drivers, cooks do all the work for me. Just last week I had an electrician come and fix all my fans for a mere Rs 600 including components. He spent 4-5 hours at my house.

For my India taxation I rely on a CA who is of repute
and have very noteworthy HNI clients.


Also I know some very senior operations guys in HDFC MF,
Reliance MF and ICICIPRU MF.


All of them have clearly mentioned that investment in the
above mentioned funds are restricted to US/Canada persons.


The violation as and when detected may have severe ramifications
including freezing of account.


Anyway this is my understanding. I may be wrong in the fineprint.


So if you are USC make sure whether MF account can be opened. At the
end of the day you dont want your money to be locked in a frozen account.

rodu,

You have hit the nail at the head. A small correction. If you want to permanently
r2i you can even take up GC but do surrender GC once you come back and
settle in India.

From US taxation/India taxation point of view as soon as you spend > 183 days in a year
in US you are an US person and NRI and all tax complications can kick in.

Move to G&B

Moved to several posts to new thread that discussed market returns of USA and India.

Below is the link to the new thread.

http://www.r2iclubforums.com/forums/showthread.php/39958-Investing-Indian-Market-Vs-USA-Market