Ventura Pranas

Hello dear readers, I usually rely on my memory of what we work on as a firm and specifically cover those hoping it would help those of you following me on Linked In. Over the last several weeks I have been dealing with several queries relating to when one should file 1040NR – non-resident US returns. I thought I would make the next series related to this specific filing. So we will cover a few of these scenarios and see how tax filing obligations vary depending on facts & circumstances specific to each case. What is the 1040NR? This is a non-resident 1040 that is filed in the US only to report incomes arising in the US and not having to report income derived in India or any other country for that matter. Keep in mind US imposes taxes on worldwide income even on deemed residents who are visiting the US and happen to spend more than 183 days therefore it is important to know when you need to file a regular 1040 (resident return) vs a 1040 NR (non-resident return). Talk to us if you find yourself in any of the above, OR email us at: ea@venturapranas.com #crossborderaccounting #IPOIndia #Indiatax #USTax #FEMA #Capitalgainsta

We’re wrapping up our long series of posts on mergers and acquisitions involving a not-so-unique scenario of a large Indian holding company with subsidiaries owned by individuals in the US, India and Singapore. What should these owners keep in mind?   𝗙𝗘𝗠𝗔 𝗰𝗼𝗻𝘀𝗶𝗱𝗲𝗿𝗮𝘁𝗶𝗼𝗻𝘀 𝗳𝗼𝗿 𝘁𝗿𝗮𝗻𝘀𝗳𝗲𝗿𝘀 𝘁𝗼 𝗼𝘁𝗵𝗲𝗿 𝗡𝗥𝗜 𝗿𝗲𝗹𝗮𝘁𝗶𝘃𝗲𝘀 Per Chapter V, Rule 13(4) of the FOREIGN EXCHANGE MANAGEMENT (NON-DEBT INSTRUMENTS) RULES, 2019 NOTIFICATION NO. S.O. 3732(E) [F.NO.1/14/EM/2015], DATED 17-10-2019 allows an NRI to transfer shares held on a non-repatriable basis to another NRI as long as the recipient also holds it on a non-repatriable basis. So it is worthwhile looking at this option to allow the recipient access funds permitted by the RBI that apply to this individual separate from the transferor.   𝗙𝗘𝗠𝗔 𝗰𝗼𝗻𝘀𝗶𝗱𝗲𝗿𝗮𝘁𝗶𝗼𝗻𝘀 𝗳𝗼𝗿 𝘁𝗿𝗮𝗻𝘀𝗳𝗲𝗿𝘀 𝘁𝗼 𝗼𝘁𝗵𝗲𝗿 𝗥𝗲𝘀𝗶𝗱𝗲𝗻𝘁 𝗜𝗻𝗱𝗶𝗮𝗻 𝗿𝗲𝗹𝗮𝘁𝗶𝘃𝗲𝘀 We have in our previous posts considered the tax savings associated with transfers to Resident Indian relatives. Keep in mind that these individuals will be subject to the lower LRS thresholds of $250K per annum. There are no restriction on the transfer of shares held on a non-repatriable basis to Resident Indians also on the same basis. Form FCTRS will need to be filed.   Dr. Vivek Mansingh   #M&A #crossborderaccounting #transnationalaccounts #transnationaltaxes #SingaporeTax #Fema

Clients who are headed in for large exits or mergers with other firms, should think about how their residency will affect their taxes. Of course, we’re not suggesting you move (well, not always), but knowing what to be prepared for might change some of your decision making or at least allow you to plan better. Here are more tools to aid you during an M&A of a large Indian holding company with subsidiaries owned by people who are residents of the US, India and Singapore. 𝗨𝘀𝗶𝗻𝗴 𝘀𝗲𝗰𝘁𝗶𝗼𝗻 𝟱𝟰𝗙 𝘁𝗼 𝘀𝗮𝘃𝗲 𝘁𝗮𝘅𝗲𝘀 Another extension of the plan to transfer shares to the hands of the Indian relative is to avail section 54F ( the reinvestment of sale proceeds from the sale of any long term asset including closely held stock) to yield tax savings on such reinvestment in India. This section has several conditions so please be diligent. The share holdings should be effected so that it is in effect when the transaction is consummated and on that date the seller should meet all the conditions of the code section. The 54F effected by an NRI would not be of any benefit because US and CA (for an NRI living in the US) will not honour Indian tax savings strategies.   𝗪𝗼𝗿𝗸𝗶𝗻𝗴 𝘄𝗶𝘁𝗵 𝗱𝗲𝗳𝗲𝗿𝗿𝗲𝗱 𝘀𝘁𝗼𝗰𝗸 𝗰𝗼𝗺𝗽𝗲𝗻𝘀𝗮𝘁𝗶𝗼𝗻 𝗲𝘀𝗽𝗲𝗰𝗶𝗮𝗹𝗹𝘆 𝗶𝗻 𝗮 𝗰𝗼𝘂𝗻𝘁𝗿𝘆 𝗱𝗶𝗳𝗳𝗲𝗿𝗲𝗻𝘁 𝗳𝗿𝗼𝗺 𝗜𝗻𝗱𝗶𝗮 More often than not, most M & A transactions provide for stock based compensation that would vest in the future. If this is an option consider getting these in the options plan of the buyer in a different country. This will allow you the flexibility to access these funds upon a sale especially when you are not resident in India.   Dr. Vivek Mansingh   #M&A #crossborderaccounting #transnationalaccounts #transnationaltaxes #Section54F

What happens during the Merger and Acquisition of an Indian holding company with multiple subsidiary owners who are residents of various countries (largely India, Singapore and the US)? What should you watch out for?   𝗧𝗵𝗲 𝗶𝗺𝗽𝗮𝗰𝘁 𝗼𝗳 𝘁𝗮𝘅𝗲𝘀 𝗶𝗻 𝘁𝗵𝗲 𝗨𝗦 𝗳𝗼𝗿 𝗨𝗦 𝗿𝗲𝘀𝗶𝗱𝗲𝗻𝘁 𝘀𝗵𝗮𝗿𝗲𝗵𝗼𝗹𝗱𝗲𝗿𝘀   Sales and proceeds are one matter, but accessing them is an entirely different matter. Keep in mind that your tax bill in another country needs to be met through funds taken out of India in a model like this. With FEMA restrictions on how much one can take out of India, this is a matter that needs to be considered at the time of negotiating the transaction. We have clients whose liability in the US can exceed annual permissible limits allowed for the seller. RBI does not allow permissions even if these funds are needed to discharge a tax bill. So it is worth discussing these angles ahead of a transaction term sheet.   𝗧𝗿𝗮𝗻𝘀𝗳𝗲𝗿𝘀 𝘁𝗼 𝗳𝗮𝗺𝗶𝗹𝘆 𝗶𝗻 𝗜𝗻𝗱𝗶𝗮 We have sellers of Indian companies who are NRIs and who are more motivated by the savings in tax than the access to funds. For these individuals it might be prudent to look into transfers by way of gifts to Indian relatives so that one can transfer it free of tax in India and accrue the tax bill in the Indian relative’s hands. This strategy allows India to get its share of the transaction while saving you high US and CA state taxes if you happen to be an NRI resident in India.   Dr. Vivek Mansingh #crossborderaccounting #holdingcompany #M&A #NRItax #TaxCredit #RBITax #Fema

We’ve recently handled a few Mergers and Acquisitions of our clients, and we wanted to cover scenarios for you in relation to a large Indian holding company with subsidiaries owned by people who are residents of the US, India and Singapore.   𝗧𝗮𝘅 𝗶𝗻 𝗜𝗻𝗱𝗶𝗮 𝗼𝗻 𝗰𝗼𝗻𝘁𝗶𝗻𝗴𝗲𝗻𝘁 𝗰𝗼𝗻𝘀𝗶𝗱𝗲𝗿𝗮𝘁𝗶𝗼𝗻 𝘃𝗲𝗿𝘀𝘂𝘀 𝘁𝗵𝗲 𝗨𝗦   Typical M & A deals include pay-outs upfront as well as over time, in the form of earn outs. US laws allow you to tax these proceeds as they are received. However, Indian rules usually require taxation at the time of the transfer of the underlying asset. Remember, a key consideration is to attach enough uncertainty clauses to make sure these proceeds appear to be contingent to avoid the pitfalls of front loading taxes on a tranche that might never materialize. But don’t despair - these taxes, if paid upfront, can be used as a credit in the US on the “paid” or “cash” basis principal to counter the higher US taxes for NRIs. Dr. Vivek Mansingh #crossborderaccounting #holdingcompany #M&A #NRItax #TaxCredit

These next few posts will cover specifics taxes that NRIs versus Indian residents have to pay with relation to Ownership Sales in an Indian company. The company is an Indian Closely Held Holding company with subsidiaries across the world. The subsidiaries are owned by a mix of US, Indian and Singapore tax residents.   𝗧𝗗𝗦 𝗿𝗮𝘁𝗲𝘀 𝗳𝗼𝗿 𝗡𝗥𝗜𝘀 𝗩𝗦 𝗥𝗲𝘀𝗶𝗱𝗲𝗻𝘁𝘀   India has a protective measure of subjecting proceeds on a sale of shares in an M&A to withholding tax by the buyer. The rate of withholdings vary. For a Non Resident the withholdings follow the tax bill the have to pay so it would be at 11.96% but for Indian residents there is a need to deduct 1% only if the buyer is a Resident Indian, and 0% if the Buyer is a Non-resident buyer. So depending on whether you are entertaining a buyer from abroad or an Indian prospect, the withholdings at source would change.   Talk to us so we can explain to you what this will mean in terms of cash flow. ea@venturapranas.com   Dr. Vivek Mansingh #crossborderaccounting #holdingcompany #M&A #NRItax #TDS

If we don’t post for a while, it’s not because we’re lacking in ideas but rather we’re too busy with actual work. Our clients provide us with so many nuanced scenarios, and it’s a recent transaction we assisted our clients with that have inspired the next few posts.   We’d like to discuss Ownership Sales in an Indian company for US persons.   Let us take the example of an Indian Closely Held Holding company with subsidiaries across the world. The subsidiaries are owned by a mix of US, Indian and Singapore tax residents. We cover various angles to the transaction and some solutions for potential pitfalls as well.   𝗧𝗮𝘅 𝗿𝗮𝘁𝗲𝘀 𝗶𝗻 𝗜𝗻𝗱𝗶𝗮 𝗳𝗼𝗿 𝗡𝗥𝗜𝘀 𝗩𝗦 𝗜𝗻𝗱𝗶𝗮𝗻 𝗿𝗲𝘀𝗶𝗱𝗲𝗻𝘁𝘀 If you are an NRI owning stocks in an Indian Holding company, then the rate of tax that applies is 10% plus surcharge and cess, taking this to 11.96%. Contrast this with an Indian resident who has to pay 23.92%. Keep in mind NRIs get no advantage of indexation of cost while Indians do. However, NRIs have to worry about the tax in their home country if they are residents of those states that tax worldwide income. For example for a CA resident US person the US rate on the same sale is 23.92% Fed plus 13.3% CA taking the total Worldwide rate to 37.22% after credits for taxes paid in India. Talk to us so we can help you work out the best combination of sales. Talk to us so we can help you work out the best combination of sales.   #crossborderaccounting #OwnershipSales #DoubleTaxation

More on Foreign Earned Income Exclusion (this should be of interest particularly to US citizens filing taxes in two countries).  To claim the Foreign Earned Income Exclusion, you need to file Form 2555 and pass either the Bona Fide Residency test or the Physical Presence Test   To qualify for the Foreign Earned Income Exclusion, you have to pass one of two tests: The Bona Fide Residency Test or the Physical Presence Test. To pass, you have to have lived abroad for a certain number of days and have had limited connections with the U.S. If you qualify, then you’ll have to file Form 2555 to claim the FEIE.   Yes, you have to jump through hoops.    If you want to pass the Bona Fide Residency or Physical Presence Test you need to track your time carefully!  This trips up a lot of American expatriates looking to claim the FEIE. In order to claim the FEIE you need to pass either the Bona Fide Residency Test or the Physical Presence Test. Tracking your time is essential because you could fail the Physical Presence Test if you’re off by even a few hours. To qualify, you must have been in a foreign country for 330 full days out of the year—the “full days” is where U.S. expats get tripped up. If, for example, you’re on a 12-hour trans-oceanic flight, those 12 hours may not count toward your full 330 days because you’re technically in international airspace.   To qualify as a Bona Fide Resident, for the first year you need to have been living in a foreign country for an entire tax year, which is where many expats get confused. If you go back to the U.S. to visit family for a month, the time you spend in the U.S. does not count.   As with most overseas tax situations, there are a variety of different stipulations and considerations, so it’s always smart to let a tax professional help you navigate U.S. taxes while living abroad. You know we specialize in cross border accounting, right? ea@venturapranas.com    #CrossBorderAccounts #TransnationalTaxation #ForeignIncomeExclusion

How to distinguish between the Foreign Earned Income Exclusion vs. the Foreign Tax Credit? Choosing whether to claim the FEIE, FTC, or both will have a substantial impact on the outcome of your tax return, and you should consider all of your options carefully before filing. For example, if you had been using the FEIE but decide to switch to the Foreign Tax Credit you may find yourself locked out of the FEIE for five years. Big factors U.S. expats should consider when choosing between the FEIE or the FTC include: - Your income type and source - Your housing expenses - Your future plans for life and work abroad - Your dependents and their U.S. citizen status - Whether you pass the Bona Fide Residency test or the Physical Presence Test - Your current country of residence and its local tax laws - Your foreign tax liability to your country of residence We understand that your situation might be complex and it might still be hard to make a choice after having all this information in front of you. If you need an expert eye, get in touch with us at ea@venturapranas.com #CrossBorderAccounting #ForeignIncomeExclusion #ForeignTaxCredit #USTax #IndiaTax 

Our Trichy office turns one, and words cannot really express how proud and impressed I am with my team. I have not had too many occasions to visit the office, but my team members have taken turns visiting and it is essentially they who have managed this production office that has enabled qualified accountants to work out of their hometown. Touched to see a large, happy team and I’m pleased to see how far we’ve come (by this, I don’t just mean our growth in terms of scale, but our growth in terms of professional capabilities).   #crossborderaccounting #growth #IndianEntrepreneur