There are plenty of options on the real estate market for Indians who are looking to make an investment in overseas property. Whether you’re a business owner, professional property investor, or simply an individual looking for a new place to buy property, you have many lucrative investment prospects available.
Economic troubles in Europe and the US have caused a serious drop in property prices. That makes it easy for you to invest in property at an affordable price.
In general, real estate has been a great choice for foreign investors in the past. When it comes to Indian investment in overseas property, the most popular destinations are London, New York, Malaysia, Dubai, and Singapore.
Indian investment in overseas property
Buying property in your own country is a difficult task in itself. You have plenty of legal issues to worry about before you can finally settle into your new home, even if your newly acquired property isn’t very far from your previous residence.
However, if you want to buy property abroad, you have to be far more cautious. Now you have to consider the foreign investment laws of India in addition to the laws of the destination country. Furthermore, you should be mindful of the legal aspects involving purchasing of property.
When acquiring property in a foreign country, you should remember that there are also many investment and liability risks present. However, you shouldn’t let that discourage you. The important thing is to know what laws you should be mindful of, and you shouldn’t have any problems.
Hopefully, this article will help shed some light on the legal issues surrounding Indian investment in overseas property so you can make a sound financial decision.
Seeking government approval
First of all, Indian investment in overseas property most likely requires approval from the relevant government official. However, that depends on what country you will be purchasing the property in. For example, in Scandinavian countries, government approval isn’t necessary at all, whereas, in France, it’s mandatory.
On a side note, you can acquire property outside of India if you receive it as a gift or inheritance from someone who isn’t an Indian resident. Furthermore, the law permits you to hold an immovable property outside of India even if you acquired it while you were working outside of India.
Ultimately, the rules and regulations vary in each country, so it’s extremely important to inform yourself beforehand.
Taxes
After you’ve obtained the necessary approval, the next obstacles you will encounter when buying property abroad are the taxes. In general, taxes are a hassle. Presumably, it will take you some time to get used to the tax laws in a foreign country.
There are 5 taxes concerning Indian investment in overseas property that you will have to fully understand.
Stamp duty tax
The first tax is referred to as an indirect tax. It’s called the stamp duty tax, and it is put on the property you purchase based on the price you paid for the property. For example, if you are buying property in the UK, the percentage ranges from 1% to 4%.
The 4% tax is for properties that cost over 500.000 pounds.
Council tax
The second one is also an indirect tax. It’s called a council tax. This tax comes from the local authorities, and the rate depends on the location, purchase price, and also the value of the property you purchased.
Income tax
Now, the third one is a direct tax. It’s called the income tax. So, you will have to pay income tax if the property you purchased goes up in value just enough to make you earn some money and if it’s seen as an investment income. However, if you actually live on the property you purchased, this tax shouldn’t concern you.
Capital gains tax
This one is also a direct tax. If you sell your property, and you earn some money in the process, you will have to pay this tax. However, since we are talking about foreign non-residents, it’s important to mention that they are exempt from this tax.
Inheritance tax
The final direct tax you should understand is the inheritance tax. You will have to pay this tax if you’re an investor with assets that aren’t within your chosen country. However, if you are a non-resident, you won’t have to worry about paying it.
Ultimately, the first two taxes are quite costly, and they are mandatory. Two out of the three direct taxes don’t concern foreign buyers. Nonetheless, it’s always best to familiarize yourself with all the issues concerning taxes so you can prepare yourself beforehand.
Complications regarding taxes
Complications regarding taxes may occur in the overseas country where you acquired the property.
These complications may include:
● Obtaining the necessary tax registrations.
● Filing tax returns.
● Paying the property taxes.
First of all, if you’re earning rental income, you will have to accept the tax laws of the country where you made your investment, as well as the tax laws of your own country. To put it simply, any income from a property investment overseas will be treated as income from a property in India.
At any rate, tax considerations are exceptionally important for Indian investment in overseas property. If you sell a property in India in order to finance the purchase of another property in a foreign country, you will create a tax liability within India.
Additionally, leasing, selling or transferring foreign property that has already been purchased creates a tax liability not only in India but also in the foreign country. Therefore, the NRI tax issues in India need to be considered, as well as the tax issues in the country where the property is situated.
All things considered, if you want to avoid this double taxation problem, it’s immensely important that you manage this liability adequately. The smart thing to do is to appoint a lawyer to help you with these legal issues.
In the meantime, it’s good to know that some countries have a “Double Tax Avoidance Agreement” (DTAA) with India. This agreement offers two options to avoid double taxation:
1. Their income will be taxed either in India or in the other country.
2. India will deduct an amount that’s equivalent to their income tax in the other country.
Do I need permission from the FEMA or RBI?
Indian investment in overseas property requires permission from the FEMA (Foreign Exchange Management Act), and the RBI (Reserve Bank of India). Also, the legal regulations state that Indian residents can invest in property overseas without the approval of the RBI, but only under specific circumstances.
As a matter of fact, there are 3 ways in which an Indian resident can buy property abroad without the approval of the RBI:
1. By purchasing property jointly with a non-resident relative.
2. Using funds from an RFC (Resident Foreign Currency).
3. Through the LRS (Liberalised Remittance Scheme).
The Liberalised Remittance Scheme
The Government needs to be aware of any money you send from India to an overseas country. However, the LRS grants individuals the option to send money across the border without seeking specific approval.
Basically, all resident individuals can remit a quarter of a million dollars to any country overseas every year. You can use these remittances for overseas travel, education, medical treatment, and for buying property overseas.
The LRS is especially useful to parents whose children are studying abroad. It allows them to send money for school fees, accommodations, and other living expenses.
Moreover, it allows investors to put their money to good use all around the globe. So, if you want to buy a piece of property in New York, the LRS allows you to do so. At the moment, it’s the only legal way to send money overseas without seeking permission of the RBI, and the liberalised remittance scheme has proved very popular amongst Indian investors to invest in property abroad.
However, the Liberal Remittance Scheme has its limits. You cannot use the LRS for trading on the foreign exchange markets. Also, you cannot send money to ‘’non-cooperative’’ countries.
Bear in mind that LRS is not available to corporate entities, trusts or partnership firms.
However, there is a loophole; the RBI allows Indian companies and limited liability partnerships to set up or invest in foreign companies that can buy real estate overseas.
Possibly the most important issue you may face with the LRS is that you can only send funds to close relatives. That includes parents, children, spouses and the spouses of your children. Hopefully, the RBI will widen their definition of relatives in the future.
In conclusion
Investing in property overseas is a good idea and will broaden your horizons. However, it’s extremely important to inform yourself about the all the possible legal issues involved in order to make a sound decision on where to invest.
While there are many lucrative options available, you should be very careful. Laws vary from country to country, so you may want to rethink your initial decision.
When it comes to Indian investment in overseas property, picking a random location on the map isn’t an option. You will have to seek professional advice to make sure you aren’t breaking any laws.
However, don’t let that interfere with your decision to invest in property abroad. The Liberal Remittance Scheme isn’t flawless, but it has created some opportunities that make Indian investment in overseas property a lot easier. So, if you’ve set your sights on a great investment opportunity, you should definitely go for it.
