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January 1, 2021
January 1, 2021

Canada – One of the best countries in the world to study, work, invest, do business or retire!

Author By Ajmera Law Group Categories Global Financial Markets

A perfect landing pad for Indian Start-Ups:

  1. Why has Canada become a popular destination among Indians in recent years?

Ans: Canada is a unique country that has implemented an open immigration policy since decades. Preceded only by the USA, Canada accepts the highest number of immigrants per year (275,000-300,000). Its immigration policy is progressive and immigrant friendly, which is why most students who go to study in Canada are able to receive immigration after their study. Its Federal Skilled Worker (FSW) program and Provincial Nominee Programs (PNP) are designed to attract the best qualified and educated professionals in the world. This openness has made Canada a very popular destination, especially amongst students and professionals.

There are other important reasons that make Canada an attractive prospect. These include:

  1. Canada has been consistently voted as one of the best countries to live in by various global agencies and for the right reasons. A very large country with a small population, Canada has abundant natural resources and is endowed with breathtaking natural beauty.
  2. Canadians value multiculturalism and human rights very deeply. It is country which is known for its human rights values and its empathy towards refugees.
  3. Canada is the largest trading partner of the USA. Because of the NAFTA agreement between Canada, the USA and Mexico, Canada is often used by many immigrants as backdoor entry point into the USA.
  4. Canada has some of the best and oldest universities and colleges in the world. The tuition fees charged by these top class institutions are quite reasonable when compared to similarly ranked institutions in the USA. This is due to the fact that educational institutes in Canada are funded by the government and most of them still operate as nonprofit organizations.
  5. Canada offers its citizens and residents a free universal health care plan. Its health care system is advanced and well-equipped.
  6. Due to free medical care, affordable education and housing, most Canadian cities offer a high quality of life coupled with a comparatively low cost of living.
  7. Canada is a world leader in many sectors such as forestry, fisheries, hydropower, aerospace, mining and natural gas. Recently large diamond deposits have also been discovered. Canada has the largest number of fresh water lakes in the world and fresh water is one of its biggest natural resources.
  1. Why does Canada attract so many immigrants from around the world?

Ans: To maintain its population and ensure consistent economic growth, Canada has devised an open and welcoming immigration policy. In general, it can be said that Canada aims to attract 1% of its population every year under different immigration programs. This is not only true for Canada, but also most western countries who wish to attract selected type and number of immigrants to their countries for various reasons. What we are witnessing today is a period of highest selective and elective migration that humankind has ever seen.

  1. How are the financial markets doing in Canada?

Let us first talk about the history of the Canadian stock market. Canada has three major stock exchanges – Montreal, Vancouver and Toronto. The most popular and well-known is the Toronto Stock Exchange. (TSX)

The Toronto Stock Exchange is based in Toronto which is the capital of the province of Ontario. TSX is the ninth largest exchange in the world by market capitalization. The exchange was started in 1850s.

This exchange operates from EY Tower in Toronto’s financial district.

The TSX is a wholly owned subsidiary of the TMX Group for the trading of senior equities. A broad range of businesses from Canada and abroad are represented on the exchange.

As I had mentioned in my previous article on the USA, a general perception is that stock market movements reflect the economy of a country. But nothing can be farther from the truth. In fact, stock market movements are dependent on the loss and gain on investment made by investors in the stock market.

After the onset of the COVID-19 pandemic, a rise in Canadian stock markets surprised many. The COVID-19 crisis has hit businesses of all kinds and sizes. However, SMEs do not trade on stock markets and they are the ones which are most affected. Companies that are on the stock market are doing reasonably well in Canada.

Tech companies in particular are doing very well. This is what is reflected in the market. In case of certain sectors, the COVID-19 situation has shown that bigger the problem, greater are the opportunities. In the present circumstances, tech companies are enjoying unbelievable growth as the physical world is gradually morphing into a digital and virtual one.

Furthermore, the Canadian economy was boosted by lower mortgage rates and stimulus packages introduced by the government to counteract the effects of the pandemic. This is what is reflected in the technology sector of the Canadian stock market which has shown a gain of almost 25%.

On the other hand, mutual funds (MF) and exchange traded funds (ETF) of certain sectors are not doing well. Investors have pulled out their investments from these products and reinvested the amount in tech companies.

  1. How is the real estate market in Canada?

Ans: There are more than 300,000 immigrants coming to Canada each year. Because of low mortgage rates, the Canadian real estate market is doing extremely well. It must also be noted that this market is well regulated and well managed, cutting the risk of extreme highs and extreme lows substantially.

The real estate markets of Vancouver and Toronto are doing exceptionally well, so much so that the municipalities of these two cities have introduced an additional 15% tax for foreign investors who wish to purchase real estate in these two metro cities. This is essentially to protect the interests of locals who can buy the same real estate at a cheaper price.

COVID-19 has had no significant effect on the housing real estate market in Canada but a noticeable shift has been seen in the commercial and industrial sectors. Tenants and occupants of these real estates are now asking for additional services (upgraded and more secure facilities) from building owners.

Some of the ideal opportunities to invest in real estate in Canada are student housing facilities around university campuses and senior citizen facilities (old age homes). These two types of housing facilities are doing extremely well in terms of rental income and property appreciation.

As per the Housing Association of Canada data published on 15th September, 2020, “home sales recorded over the Canadian MLS® Systems increased a further 6.2% in August 2020, raising them to another new all-time monthly record.

Unlike the previous two months in which activity was up right across the country, sales in August were up in about 60% of local markets. Gains were led by the Greater Toronto Area (GTA) and British Columbia’s Lower Mainland. With on-going supply shortages in so many parts of Canada, it is interesting to note that the GTA and Lower Mainland also saw a considerable amount of new supply become available in August.

Actual (not seasonally adjusted) sales activity posted a 33.5% y-o-y gain in August. It was a new record for the month of August, and the sixth-highest monthly sales figure of any month on record. Transactions were up compared to last August in almost all Canadian housing markets.”

  1. What are the opportunities for Indian multinationals and public limited companies in Canada?

Ans: Canada has always remained in the shadow of its more illustrious neighbor, the United States of America, and has always been considered as the second best option after the USA. Indian multinational companies and other big players have not yet taken advantage of the Canadian economic policies as much as they should have in order to enter the North American market.

A classic example of this is the information technology (IT) sector. Indian IT companies have entered the Canadian market pretty late as compared to their entry in the U.S. market.

 

Rather than using Canada as a base to serve American companies, the strategy used by Indian IT companies was exactly the opposite. They made USA a base to serve their Canadian clients. Most Indian IT companies are interested in manpower supply which was allowed in the USA but not in Canada under the existing visa rules. Hence Indian IT companies ignored Canada for a while and set up shop in the USA.

Indian IT companies could have established a base in Canada and served North American companies with much lower operating costs than the USA, but it was not to be.  Similarly, other Indian companies can use Canada as a base to serve the North American market under the North American Free Trade Agreement (NAFTA).

Though bilateral trade between Canada and India started many years ago with the Team Canada Mission in 1995 headed by the then Prime Minister of Canada, Honorable  Mr. Jean Chretien, India has still not established great trade links with Canada and vice versa.

  1. How can Indian SMEs enter into and conduct business in Canadian markets?

Ans: It is a fact that SMEs, unlike multinational companies, prefer to do business by themselves rather than appointing country managers and CEOs. In this situation we need to look closely at the business immigration rules of Canada.

Canadian states are known as provinces and there are 10 provinces and three territories in Canada. The Federal (Central) government of Canada and each of these provinces have their own business immigration programs to welcome SMEs of the world to Canada.

It is not possible to discuss all these programs here but suffice it to say that these programs are designed in a way to meet the economic and social needs of the country as a whole and the particular province in question.

In general if one meets the following requirements, there is a fairly good possibility of obtaining the necessary visa to do business in Canada.

These requirements are:

  1. Applicant must have net assets $500,000 CD and above (2.5 crores INR) in India in his/her name, including spouse’s assets. Family assets belonging to parents and siblings (in their name) are not acceptable.
  2. Applicant must have 2-3 years of business or managerial experience in a large corporation.
  • Applicant must be involved in a profit making business on a full time basis for at least 2 years.
  1. Applicant’s education level must be 12th grade pass and above.
  2. Applicant must have working knowledge of the English language.
  3. Applicant must undertake or should have undertaken a business exploratory trip to Canada.
  • Applicant must have the intention to start a business in Canada by purchasing an existing business or a franchise business or start a business in partnership with someone with a minimum investment of $200,000 CD or more in a rural area.
  • Applicant must prepare a detailed business plan of doing business in Canada and this should be related to his/her past business experience outside of Canada.

It goes without saying that one needs to provide extensive paper work to meet the above requirements.

  1. These requirements don’t seem very stringent. Then how come Indian SMEs are NOT taking advantage of these programs?

Ans: Indians SMEs are not taking advantage of these programs as one might expect to and there are several reasons why. Some of which include:

  1. Entering into a family business is inherently cultural to many Indian business communities. Such businesses do not operate with a business plan, and most often than not, are self-sustaining and do not need professional help. Hence, most SMEs do not have the necessary documents, paperwork and business plan that are needed apply for Canadian business visa.
  2. Most Indian business persons are not big risk takers, especially when it comes to getting out of their comfort zones. We cannot generalize but what I have observed is that established business persons are less of risk takers than novice ones who are ready to take a leap of faith. When we talk of successful business persons in countries like the USA and the U.K., we must remember that these individuals went to these countries as workers/sponsored family members and slowly worked their way up to establish themselves as successful entrepreneurs.
  • Rather than approaching qualified lawyers and related professionals to assist in entering the Canadian market, most Indian business persons prefer to consult an array of agents and consultants. Google search and the University of Whatsapp have become universal sources of information. Friends and relatives in Canada often become misplaced sources of guidance. Due to this (mis)information overload, Indian business persons often find themselves in a state of confusion regarding the true state of affairs.
  1. Many Indian SMEs wish to start/purchase a business in Canada that is very different from the one they have actual experience in operating and managing in India.
  2. There is a certain cost involved in the process as per international standards and many Indian SMEs are unwilling to pay for these costs.
  3. There are very few experienced and qualified lawyers in India who can advise and assist Indian SMEs to go global. The Indian market is dominated by unregulated professionals who give conflicting information, further complicating the matter.

During my two and a half decades of practice, I have observed that unlike Indian SMEs, SMEs of many Asian countries are taking full advantage of the aforementioned Canadian business programs and establishing their presence in Canada. Physical presence and know-how of doing business in Canada give a head start to these SMEs as compared to their Indian counterparts, especially in the field of import and export.

  1. What are the opportunities for start-ups in Canada?

Ans: There are tremendous opportunities for Indian start-ups who wish to enter the North American market. Canada is the first country in the world to introduce the Start-up Visa Program to welcome start-ups from all over the world.

The criteria to qualify under this program are very easy to fulfill.

A brilliant idea in any sector which can have commercial applications for Canada, the USA or the world and which is accepted by a Canadian government approved incubation center or angel investor or VC is the primary requirement.

English language requirement is also very achievable – minimum 5 bands in IELTS exam.

Up to five founders can apply under the same start-up idea.

If Indian start-ups need assistance, there is professional help available from Canada.

Following Canada’s example, 22 other countries in the world have introduced a start-up visa program to attract start-ups from the world over. Indian start-ups must definitely take advantage of these programs because there is no dearth of talent and ideas in the country.

Unfortunately, even many IT associations and VC associations in India are not aware of these Start-Up Visa Programs.

  1. Why should Indian investors invest in Canadian financial markets or real estate or even consider immigrating under Canada’s business immigration programs?

Ans: Why not, I ask? There are a number of reasons why Indian investors must seriously consider Canada as a potential investment destination.

  1. If as a parent you want your child to study in Canada, the first option I would advise you would be to consider immigration under Canada’s business immigration programs. This is because once you and your family become Canadian residents, your child will be entitled to free education until grade 12 and his/her post-secondary and university education fees will be reduced by 80%. As a resident of Canada, your child will have less difficulty in finding suitable employment during and after completing his/her education as compared to international students.
  2. In the event you are unable to take up residency of Canada for whatever reasons, your children can still study and stay in Canada. However, the cost of living and education has to be paid in Canadian dollars. Hence it will be prudent to invest in Canadian stock market or real estate and park your money in advance in Canada at lower exchange rates and reduce the currency fluctuation risk. In other words, you are doing personal hedging of dollars for your child’s education.
  • Investing in Canada also helps to reduce currency and political risk by diversifying the portfolio.
  1. Investing and saving in Canada may also assist your child in obtaining a student visa to Canada (if you do not want to opt for residency).

                    

  1. For studying in Canada, what are some important things we should know and keep in mind as parents and students?

Ans:  These are some of the important points to keep in mind:

  1. Plan early if you wish to send your child to Canada for higher education. Most parents start seeking advice after their children have passed 12th grade or after they have completed their Bachelor’s degree. This limits their options and choices.
  2. Post-Graduate Diploma (PGD….) is not equivalent to a Master’s degree program. It is a 2 or 3 year program, usually offered after a high school diploma (grade 12). It more or less like a Diploma program in India which can be undertaken after passing grade 10 or 12.
  • Understand the education system of Canada before applying for any particular program or at any particular education institution.
  1. After study in Canada, employment and residency are not automatic. There is a process to follow.
  2. There are number of other options available in Canada for study and / or settlement.
December 24, 2020
December 24, 2020

How and Why should Indian HNIs Invest in the USA?

Author By Ajmera Law Group Categories Global Financial Markets, USA

Insightful tips for parents wanting to send their children to study in the U.S. | obtain USA green card and eventual citizenship 

Introduction:

The economic policy of India has been progressive since 1993 for inbound investment, and from 2007 onwards for outbound investment and remittance. As for outbound investment, the first wave of investment was by Indian multinationals who had the financial means and resources to invest outside of India.

The introduction of the Liberalized Remittance Scheme (LRS) generated opportunity and facilitated the entry of Indian SMEs into the outbound investment arena. This was the second wave of investors.

What we are witnessing in recent times is the third wave of investors comprising of Indian HNIs and UNHIs who are investing outside of India. As per the Reserve Bank of India (RBI), this investment/remittance amount was $19 billion US last year alone.

It is obvious that Indian multinationals are well served by top Indian and global professionals due to the size of the deal and investment made.

However, when it comes to Indian SMEs, Start-Ups and HNIs, professional help may not always be forthcoming and if available, may not be erudite. Investing outside of one’s country requires in-depth knowledge not only of the laws, rules and regulations governing such investments, but also the economic and financial climate of the destination of the investment and the various investment opportunities this destination has to offer.

It is with this objective that we are starting this monthly “How and Why to invest in ….” series, wherein we will be taking a closer look at the different investment destinations around the world.

We start this month with one of the most favored investment destinations for Indians – The United States of America.

  1. Why do Indian HNIs regard the USA as a favoured investment destination?

ANS:  USA is unquestionably the largest economy in the world. The U.S. has retained its position of being the world’s largest economy since 1871. The size of the U.S. economy was at $20.58 trillion in 2018 in nominal terms and is expected to reach $22.32 trillion in 2020.

The U.S. is often dubbed as an economic superpower and that’s because the economy constitutes almost a quarter of the global economy, backed by advanced infrastructure, technology, and an abundance of natural resources.

The second reason why the U.S. is an economic powerhouse is because a majority of consumer brands created in the USA are household names globally. This makes people to look at the USA more favourably than other countries. The notion of the “American Dream’ and “Rags to Riches” stories of many of its wealthy citizens is also a great crowd puller.

The third most important aspect is the American education system. American universities and colleges attract the largest number of students from all over the world. As an after-effect, many parents of these students and business persons follow their children to make investments in the USA.

I believe this is what makes the USA a very desirable and favourable destination for Indian HNI parents and businesspersons for investment purposes as compared to other countries.

  1. In what type of asset classes can one invest in the USA?

ANS: USA is a free economy and one can make investment in all types of asset classes and businesses as long as it does not constitute an illegal activity. One question I am often asked is if Indians can purchase agricultural land in the USA. The simple answer is, “YES”. Foreigners can certainly purchase agricultural land in the USA.

 

One important note: When investing in the USA, one needs to consider the Indian legal perspective too; the types of assets Indian citizens are allowed to invest in, as well as the U.S. laws governing these investments.

 

For example, if an Indian citizen decides to invest in a U.S. Green Card under the EB-5 category, he/she needs to follow Indian laws regarding remittance of money and the U.S. immigration laws which govern this type of investment.

 For ease of understanding, we can broadly divide investments in the USA in four different categories:

  • Financial markets and related products
  • Real estate – All types
  • Business and Start-up
  • Second passport
  1. What are the applicable laws for Indian citizens who wish to invest in U.S. financial markets?

ANS: The RBI is responsible for regulating the outbound investment/remittance of funds by Indian citizens. The provision is made in the Foreign Exchange Management Act (FEMA) and regulations are made therein. There are two available options:

  • Indian businesses having a company or partnership firm can invest up to 400% of the net assets of the Indian company for making an investment outside of India in a Joint Venture company (JV) or a Wholly Owned Subsidiary (WOS) without RBI permission under the automatic route. However, there are many terms and conditions attached and one must look closely at this provision, or better still, seek appropriate legal counsel.
  • An Indian citizen can remit/invest up to $250,000 US in a variety of assets outside of India under the LRS scheme. The permissible capital account transactions by an individual under the LRS are:
  1. Opening of foreign currency account abroad with a bank
  2. Purchase of property abroad
  3. Making investments abroad – acquisition and holding shares of both listed and unlisted overseas company or debt instruments
  4. Acquisition of qualification shares of an overseas company for holding the post of Director
  5. Acquisition of shares of a foreign company towards professional services rendered or in lieu of Director’s remuneration
  6. Investment in units of Mutual Funds
  7. Venture Capital Funds
  8. Unrated debt securities
  9. Promissory notes
  10. Setting up Wholly Owned Subsidiaries and Joint Ventures
  11. How can one invest in U.S. financial markets?

ANS: There are a number of ways by which Indian citizens can make an investment in U.S. financial markets. Let me explain in brief:

  • An Indian financial institute is providing some products to make an investment in the USA. Preferred for investments of $200,000 US and above.
  • One may approach a U.S. licensed broker or financial advisor or portfolio manager and make an investment. Preferred for investments of $100,000 US and above.
  • There are now online platforms (FinTech start-up) and American sub-brokers who have started arriving in the Indian market. They can assist in making investments in the USA with several facilities. Preferred for investors with smaller ticket size of $1000 US and above.
  • There are platforms available where one can make Systematic Investment Plan (SIP) investment in global products with ticket size of only $200 US (similar to the Indian mutual fund market).
  • There are also multi–stock market platforms available which can offer access to 50+ stock markets around the world from a single account. Suitable for ticket size of $500 US and above. However, the investor needs to perform his/her own transaction. A demo version is available to get acquainted with the platform. This is suitable for savvy investors who wish to save on brokerage. It is also recommended for Indian stock exchange brokers who can have a white label of this platform and offer their clients access to more than 50 stock markets globally right here in India.
  1. How is the U.S. financial market likely to fare post COVID-19?

ANS: As the COVID-19 outbreak gripped the entire world in March 2020, stock market prices plunged globally. Then, in a move that seemed irrational to some observers, the markets bounced back.

As per a leading economist, “Markets decline when there’s unexpectedly bad news and rise when there’s unexpectedly good news”.

Nevertheless, when we analyze the market sector wise, we see that certain sectors such as hospitality and travel are not doing very well and their stock prices are going down. On the other hand, tech companies are doing very well.

The dominance of major U.S. Tech Stocks in recent years has pushed the sector past another milestone as it is now valued at more than $9.1 trillion US, which is more than the entire European stock market, according to Bank of America global research.

In today’s complex economy, this once again confirms the view that stock markets are not the best indicators of a country’s economy. Therefore when it comes to investing in stock markets, one should look closely at individual sectors, individual companies and the factors that affect stock prices, rather than just looking at the overall market performance and indices.

  1. What is FATCA and how is it applicable to investments made in the USA?

ANS:  The Foreign Account Tax Compliance Act (FATCA) is part of a broad initiative by the United States to combat offshore tax evasion by U.S. taxpayers. The goal of the law is not to increase revenues for the U.S. Treasury, but rather to collect information on U.S. taxpayers that invest in foreign financial institutions and foreign entities.

FATCA requires a U.S. withholding agent (generally defined as any U.S. party that is making a payment of interest, dividends, certain capital gains, etc.) to withhold 30% of a payment made to certain foreign entities.

Thus FATCA is more of a reporting requirement of the U.S. government. Thus if you invest in the USA, you will be required to file tax returns. When you sell your assets, there may be a withholding tax which may be claimed back by declaring a U.S. non-resident tax status or adjust against tax liability in India.

 What are the opportunities for Indian stockbrokers in the USA?

ANS: There is a tremendous opportunity for Indian stock brokers in the USA and other financial markets of the world. Unfortunately, the Indian financial industry focuses on only one aspect of the economy, which is inbound investment.

Due to advances in technology, it is now possible to access not one but several stock markets of the world right from the comfort of your home or office with just a click. With some effort and will, it is easy to enter into these markets.

Just imagine – more than $19 billion US were remitted/invested by Indians outside of India with negligible advisory services from the Indian financial market and professionals.

If professionals associated with or working for the Indian financial markets take due interest and understand the importance of overriding the political and currency risk by investing in more than one country and in more than one currency, I have no doubt that this market can grow many folds.

I am more than confident that in a few years Indian investors will consider foreign investment as a mandatory part of their investment portfolio.

Indian stock brokers will benefit greatly by expanding their worldview and urging their clients to invest in markets outside of India. Proper understanding and knowledge of how this can be done is the need of the hour.

  1. How is the U.S. real estate market at present?

ANS: Just like the financial market, the U.S. real estate market is the backbone of the U.S. economy.

After six years of strong house price growth, the U.S. housing market is cooling. The S&P/Case-Shiller seasonally-adjusted national home price index rose by just 3.13% during the year to Q2 2019 (1.46% inflation-adjusted) – the lowest growth since Q3 2012. House prices increased 2.29% during the latest quarter (1.52% inflation-adjusted), according to S&P/Case-Shiller.

Despite this, 19 of the 20 major U.S. cities continued to experience moderate to minimal house price hikes, according to Standard and Poor’s.

The post COVID period has created some very good opportunities for repossessed properties.

At the same time, one must note that the USA is a country that attracts one of the largest foreign investment into real estate in the world. Foreign investment in U.S. real estate was almost $74 billion US in 2019. The three most popular states for foreign real estate investment in the USA are – New York and Florida on the east coast and California on the west coast.

 How can one invest in U.S. real estate?

ANS: The RBI allows Indian citizens to make investments in foreign real estate. One can directly contact a real estate agent or developer in the USA and make an investment. There are many real estate agents and developers who come to India regularly to solicit investment in their projects.

The U.S. real estate market is highly regulated when it comes to selling and buying real estate but one still needs to be careful and seek professional help. One more important point that investors must note is that in the residential sector, only licensed real estate agents can assist in buying and selling real estate in the USA.

Abundant data is available on the internet pertaining to the U.S. real estate market. It is therefore very easy to obtain a lot of information online regarding the property under consideration.

  1. How can one decide which real estate to invest in?

ANS: USA is a very big market. Hence investors need to do their homework well. Deciding which state and city to invest in, how much to invest and personal preferences (house, condo, row house, downtown, suburbs) is generally influenced by the presence of family and friends in the USA.

A budget of $300,000 US can allow an investor to buy real estate in many states of the USA and it is a good starting point.

  1. Is it possible to obtain a mortgage for investing in real estate in the USA?

ANS: Yes, it is possible to obtain a mortgage for purchasing real estate in the USA from selected brokers who specialize in mortgages for foreign investors.

  1. How can one establish a business in the USA?

ANS: When it comes to establishing a business in the USA, there are two aspects to consider:

  • Do you want your company to have a presence in the U.S. and hire local workforce?

In this case, a company, with only one director, can be registered in any state in the USA within four weeks. One can also obtain all types of tax ids and numbers.

Opening a bank account may require physical presence in the USA. This can allow you to perform business transactions and conduct business with U.S. companies. Understandably, one needs to follow annual company compliance and income tax filing.

  • Do you want your company to have a presence in the U.S. and send workforce from India?

In this case, one needs to consider the U.S. immigration and visa rules. There are five types of visa categories can be covered under such a scenario –

  1. L-1A Visa – The L-1A nonimmigrant classification enables a U.S. employer to transfer an executive or manager from one of its affiliated foreign offices to one of its offices in the United States.
  2. L-1B Visa – The L-1B nonimmigrant classification enables a U.S. employer to transfer a professional employee with specialized knowledge relating to the organization’s interests from one of its affiliated foreign offices to one of its offices in the United States.
  3. EB-1 (c) – Certain managers or executives of multinational companies, who have been employed outside the United States for at least 1 year in the past 3 years preceding the petition can apply under this category. This category is known as ‘Transfer under the Mergers & Acquisitions’.
  4. E-2 Visa – The E-2 nonimmigrant classification allows a national of ‘Treaty Countries’ (Canada, Grenada, Turkey, and such other 60+ countries) to be admitted to the United States when investing a substantial amount of capital in a U.S. business.
  5. EB-5 Visa – The standard minimum investment amount has increased to $1.8 million US (from $1 million US) and, for the Targeted Employment Area (TEA), it has increased to $900,000 US (from $500,000 US) to account for inflation. The business also needs to create 10 jobs for Americans.

Each of these categories is very complex and needs extensive documentation, business plan and, in many cases, an elaborate explanation of the source of funds. Professional help and guidance is highly recommended and desirable when applying under any of these categories to ensure best results.

  1. One last question. Many of our members want their children to study in the USA. How can they plan for their children’s education the USA?

ANS: In general, when Indian students go to the U.S. for studies, they apply for a U.S. Green Card under one of the three following visa classes – EB1, EB2 and EB3.

There is a quota of 40,000 Green Cards per year in each category, with a total of 120,000 Green Cards to be issued.

When this quota was introduced, there were a limited number of foreign students applying for a U.S. Green Card. However, in recent times more and more foreign students are coming to study in the USA from all over the world and are applying for a U.S. Green Card after completing their studies. Thus the number of petitions have increased but the quota has remained the same since the last thirty years.

Due to an unprecedented increase in this number, the waiting time for a Green Card in October 2020 is almost 12 years. If one counts the period of study and H1 work visa period, the total period is almost 20 years to obtain a U.S. Green Card.

Indian students, and parents who wish that their children settle in the USA, need new strategies and proper planning if this dream has to come to fruition.

They must bear in mind the following points:

  1. Plan early and look in to the possibility of Residency by Investment. If that is not possible or feasible, look into the possibility of saving money for your child’s foreign education by investing outside India in financial markets or real estate to avoid currency fluctuation risk and the rising cost of foreign study.
  2. Parents and students must also realize that doing a Post Graduate Diploma (PGD..) in the U.S. is not equivalent to obtaining a Master’s degree.
  3. It is always preferable to study in a recognized university and not a college or private institute.
  4. In 2020, parents and students must not assume that studying abroad will guarantee job placement and future immigration.
September 13, 2020
September 13, 2020

HOW AND WHY SHOULD INDIAN HNIs INVEST GLOBALLY?

Author By Ajmera Law Group Categories Global Financial Markets, Global Investing How & why?, Headlines
  1. What is a global investment?

Global or international investing means investing in different global investment instruments so that one’s financial portfolio becomes geographically diversified. This international investment not only diversifies the portfolio but also helps to spread the investment risk among various foreign markets and companies thereby ensuring the security and long term safety of the investment.

  1. What is Indian government’s policy on investing globally?

As per the Reserve Bank of India (RBI), Indian government has opened up doors for investing and remitting abroad as it believes that joint ventures abroad promote economic co-operation between India and the host countries. Since globalization of trade is a two-way process, integration of the Indian economy with the rest of the world with all its attendant benefits is achieved through overseas investment. It is the reverse of Foreign Direct Investment (FDI) and can be termed as Indian Direct Investment abroad.

Thanks to a liberalized economic policy from 1992 onwards and huge foreign investments by Foreign Institutional Investors (FIIs) and Non Resident Indians (NRIs), India’s foreign exchange reserve now stands at several billion dollars.

This huge fund has permitted the Reserve Bank of India to implement a much liberalized foreign exchange policy. In 2004, RBI allowed an Indian citizen to invest $25,000 US abroad. Over the years, this amount has been increasing steadily and as of today, $250,000 US per year per individual can be remitted/invested outside of India. This scheme is popularly known as Liberalized Remittance Scheme or LRS.

Indian HNIs can certainly benefit from this policy changes. Unfortunately, due to lack of knowledge and awareness regarding investing globally, a negligible number of Indian investors have taken advantage of the LRS.

  1. What are the types of assets that Indian HNIs can invest in outside of India?

In general, Indian citizenscan invest in equity shares, debt instruments, foreign portfolio, real estate, life insurance premium (except term insurance) including opening of foreign account abroad for investment. The payment can also be remitted to close relative(s) as a gift or for purpose of family maintenance. Detailed information is available on official RBI website.

  1. Since the start of LRS, how much fund has been remitted/invested by Indian HNIs abroad?

According to the RBI, the Indian remittance has increased from $72 million US in 2007-08 to $19 billion US in 2019-20. In just over a decade, we are witnessing a huge change in the spending power and spending pattern of Indian HNIs.

  1. If Indian investors have remitted/invested $19 billion US in the last year, do you think Indian HNIs are savvy enough when it comes to foreign investments?

Economic liberalization, economic boom and the aforementioned LRS has resulted in the remittance of more than $19 billion US outside of India last year alone.

However, when we examine this data more closely, we find that a major portion of this remittance by Indian HNIs is expenditure and a very small portion of the money has been actually invested. Here is the RBI data for Indian outbound remittance in 2019-20 (in million US$)

  • (i) Deposits – 623.37
  • (ii) Purchase of immovable property – 86.43
  • (iii) Debt/equity – 431.41
  • (iv) Gift – 1904.53
  • (v) Donations – 22.32
  • (vi) Travel – 6954.20
  • (vii) Maintenance of close relatives – 3437.46
  • Medical expenses –33.88
  • (ix) Studies abroad – 4989.04
  • (x) Others –268.74

We can easily infer from the above data that the spending habits of Indian HNIs have seen a significant shift from domestic to international.

However, though Indian HNIs spend a substantial amount of their wealth abroad, their investing and saving habits have not changed and are still largely concentrated in the domestic domain. If this trend does not change, it can eventually result in financial distress for Indian HNIs who continue to spend abroad but do not invest abroad.

  1. Why do you say there could be financial distress for Indian HNIs?

Let’s take a simple example. 5 crore INR was equivalent to 1 million US$ in 2008. However, at the present time, this 5 crore INR is equivalent to 635,000 US$. This is due to the fact that the US dollar has been growing stronger year after year. Its exchange value increased from Rs. 49 in 2008 to Rs. 76 in 2020.

So when Indian HNIs continue to invest in India but spend a substantial amount of their money abroad, they are not getting the full value for their domestic investment, eventually decreasing their net worth and spending power. If the same amount is invested abroad, then the spending is balanced out because currency is not devalued as you are spending in the same currency.

Let’s take another example of an Indian HNI who invests in stocks and shares in India. He may be earning really well in India but Dollex 30 Chart of the Indian stock market shows that in the last 12 years, investing in shares has not given any substantial return to the Indian investors in terms of the US dollar. So if this HNI wants to go abroad for a vacation, send his children abroad for higher studies or spend on foreign luxury items, the investments he has made in India must give higher returns to balance out the currency risk/fluctuation.

  1. What is the top foreign spend for Indian HNIs?

Careful analysis of the remittance data gives us an insight as to how Indian HNIs are spending their wealth abroad. As can be clearly seen, spending for children’s foreign education is on top of the list for Indian HNIs.

  1. In what type of asset classes can one invest outside of India?

There are primarily four options available. They are:

  1. The first option is investing in foreign stock markets and diversifying your portfolio globally. Due to recent advancements in technology, there are several platforms available whereby Indian investors can invest in stocks, debts and other instruments of more than 50 different stock markets of the world from a single account on any device. However, the lack of knowledge of foreign stock markets makes it difficult for Indian brokers and investors to venture into it.
  2. The second option is an investment in global real estate. Even though Indian investors prefer investing in real estate as compared to other asset classes, this investment in international real estate is limited to countries in the Middle East and Far East such as Thailand. However, there are excellent opportunities available for real estate investment in countries such as USA, Canada, UK, Australia, New Zealand and many European countries.

    In many of these countries, the real estate market is booming so much that the government has restricted foreign investors from making investments in real estate or implemented additional welcome tax for foreign investors. In some countries, it is the buyer who has to pay all the transaction expenses and brokerage.

3. The third option is expansion of business. Not only big corporations and multi-nationals, now even Indian SMEs and exporters can invest out of India and expand their business by establishing their presence in international markets.

4. The fourth option is to invest in a second passport by way of Residency & Citizenship by Investment (RCI) programs. These RCI programs are being offered by more than 30 countries in the world. Investing in a second passport should not be perceived as abandoning your country but be seen as an opportunity to achieve many financial as well as non-financial benefits such as NRI status, visa-free travel, quality of life, expansion of business, portfolio diversification and retirement abroad.

The most important benefit that Indian parents can reap by investing in a second passport is the reduction in their child’s foreign university education fees by almost 80%.

  1. How can investing outside of India be beneficial to Indians, Indian companies and the Indian economy?

The liberalization of the Indian economy began in 1993-94. At that time the object was on attracting foreign investments to India and that policy continues till date. Over the years the strength of the Indian economy grew and the Indian government started focusing on creating bilateral trade between India and the rest of the world. The government wanted to create a bigger customer base for Indian companies and to that end, the Government of India has implemented certain regulations and policies from 2007 onwards to encourage greater outbound investments by Indian companies and individual Indian citizens.

These policies were created by the Indian government with a long term vision to not only encourage Indian multinational companies to make investments outside of India but also strengthen the Indian economy by assisting individuals and Indian SMEs to venture outside their comfort zone and promote India’s interests overseas.

One may ask how Indian HNIs and businesspersons can benefit from all this? The answer is simple. The world is increasingly becoming a global village and investing outside of India is a powerful tool that can be used by Indian HNIs and businesspersons not only for their personal advantage but also to contribute positively to the Indian economy by promoting bilateral trade. More NRI businesspersons mean more bilateral trade and increased remittance of foreign currency and business back into India.

Foreign investment can also be a highly effective and dependable strategy for Indian HNIs to assert their presence in the global business market. India is perhaps one of the last developing economies in the world where venturing outside of the country to conduct business has yet to become a way of doing business. Yes, there are businesspersons who have taken that risk but their percentage is very low as compared to our population and potential.

In 2020, investing abroad can be equated to creating a second option for your family and expanding your business interests. If we look at countries such as China, Taiwan, Vietnam and Korea, the businesspersons and HNIs of these countries have made personal as well as business investments in other countries, thus providing their families and future generations with a second option along with economic growth. It’s high time that Indian businesspersons and HNIs also start thinking in a similar manner.

  1. The Indian real estate and the stock market are booming right now and very soon India is likely to be a favorite destination for foreign companies. In such a scenario, why should Indian HNIs consider investing outside of India?

‘Do not put all eggs in one basket’.This old saying has been proven true time and again especially with reference to national and international economic markets. In most cases, investors have failed to understand this old saying and have lost money heavily by investing it in just one type of market.

Every investor must consider four types of risk to their investments. These are – political risk, interest rate risk, currency exchange rate risk and most importantly, in the case of Indian HNIs, new spending habits.

There is no exact mix one can work out for investing abroad but traditionally, one can take ratio of 70% local market and 30 % foreign market.

 Do not be tempted to put too many eggs in one basket, no matter how attractive and convincing it may seem. As the Indian government now allows investments abroad, it is time that Indian businesspersons look closely at new avenues of investing outside of India and diversifying their portfolios.

A few years back, investing in mutual funds was frowned upon but now we say, ‘Mutual Funds SahiHai!’

Similarly, in the next few years, Indian investors will say,

‘Foreign Investment Zaroori Hai!’

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