The latest edition of the Henley Private Wealth Migration Report (2023) highlights a concerning trend for India as it faces a net outflow of high-net-worth individuals (HNWIs). The report indicates that India is expected to witness a net outflow of 6,500 ultra-rich individuals in 2023, making it the second-worst performer after China. Political stability, low taxation, and personal freedom are identified as the key metrics influencing these wealthy individuals' choice of residency.
As India navigates the consequences of this wealth migration, it becomes imperative for policymakers to address the underlying issues that contribute to the exodus of high-net-worth individuals, such as tax reforms, economic stability, and improved investment climate.
As of the end of 2022, India was among the 10 richest countries in the world — ranked 10th in the so-called W10 grouping — if one goes by the HNWI population. India has 3,44,600 HNWIs, 1,078 centi-millionaires (those with wealth exceeding $100 million) and 123 billionaires (those with wealth exceeding $1 billion or Rs 8,200 crore).
“The top five destinations for net inflows of high-net-worth individuals in 2023 are projected to be Australia, the UAE, Singapore, the USA, and Switzerland. On the flip side, the largest net outflows of millionaires are expected to come from China, India, the UK, Russia, and Brazil,” writes Andrew Amoils, the Head of Research at New World Wealth, the organization that provides the data for this report, as quoted in the Indian Express.
Reasons for Wealth Migration
Prohibitive Tax Laws: One of the primary reasons for the migration of high-net-worth individuals from India is the burden of prohibitive tax laws. Complex and convoluted rules on outbound remittances, coupled with misinterpretation and abuse, have made it challenging for wealthy individuals to manage their investments effectively. Imposing capital gains taxes and high Goods and Services Tax (GST) rates further diminishes the appeal of staying in India.
Economic Outlook and Confidence: The migration of millionaires often serves as an early warning signal for a country's economic outlook and future trends. High- and ultra-high-net-worth individuals are sensitive to potential threats to their wealth and have the means to take corrective action. An increasing outflow of millionaires can indicate a drop in confidence in a country's economic prospects. The ability to leave and vote with their feet allows these individuals to preserve their legacies and protect their wealth.
Preferred Destinations for Indian HNWIs
United Arab Emirates (UAE): Dubai and Singapore have emerged as the top destinations for wealthy Indians. The UAE's government-administered global investor "Golden Visa" program, favorable tax environment, robust business ecosystem, and safe, peaceful environment are major attractions. The country offers zero taxation rates, a highly developed infrastructure, and a low level of street crime. Dubai, known as the "5th City of India," has become particularly attractive due to lower taxes and affordable residential and commercial properties.
Singapore: Singapore has positioned itself as the "Silicon Valley of Asia," attracting a significant number of tech entrepreneurs and startup founders. The country offers a streamlined visa application process, a business-friendly environment, strong intellectual property protection, attractive tax policies, and a well-developed banking sector. Its political stability, robust legal framework, and strategic geographical location make it an ideal base for investors targeting emerging markets in the region. "One of the main reasons for the Indian startup founders flocking their way to either Dubai or Singapore is because the taxes that a startup may incur while setting up a business is substantially lower as compared to India, especially in Dubai. Another reason for Indians moving to Dubai is the fact that leases for residential/commercial properties are taxed at a flat 5-10% and since the demographic of Dubai is more or less similar to India, that only adds to the attraction of setting up a startup business in Dubai," said Suhael Buttan, Senior Associate, SKV Law Offices told Bussiness Standard.
Reasons for Attraction
Countries like the UAE and Singapore are considered safe havens in their respective regions. Their stable political systems and robust regulatory environments provide a sense of security for wealthy individuals and their assets. The rule of law is respected, and economic freedoms are guaranteed, preserving wealth.
Low Taxation: Both the UAE and Singapore offer competitive tax rates, making them attractive for wealth preservation. These jurisdictions have favorable corporate tax rates, zero wealth and inheritance taxes, and provide tax incentives for businesses and investors. This allows high-net-worth individuals to optimize their tax obligations and retain a larger portion of their wealth. In contrast, India's tax structure can be burdensome for HNWIs, making the prospect of relocating to countries with more favorable tax policies highly appealing.
Business Opportunities: The UAE and Singapore have highly diversified economies, offering opportunities in various sectors such as financial services, healthcare, technology, and real estate. These countries provide a favorable business environment, access to emerging markets, well-regulated financial markets, and incentives for entrepreneurs and investors. The presence of venture capital and private equity investments, as well as family offices, further enhances their appeal. HNWIs seek opportunities to expand their business interests and capitalize on emerging trends and markets, which may be more readily available in these destinations.
Quality of Life: The UAE and Singapore offer a high standard of living, excellent infrastructure, world-class healthcare systems, and a cosmopolitan lifestyle. These factors contribute to an enhanced quality of life for HNWIs and their families. The availability of top-notch educational institutions, cultural diversity, and a range of leisure and recreational activities further add to the overall appeal of these destinations. HNWIs often prioritize the well-being and comfort of their families when making relocation decisions, and these countries provide a conducive environment for a fulfilling and prosperous life.
Asset Diversification: Wealthy individuals understand the importance of diversifying their assets globally to mitigate risks and maximize returns. By moving their residency to countries like the UAE and Singapore, HNWIs can diversify their investments geographically and gain exposure to different markets and currencies. This strategy allows them to hedge against economic or political uncertainties in their home country while exploiting global opportunities. Additionally, international residency and citizenship provide access to a wider range of investment options, including real estate, stocks, and bonds.
But who are High Net Worth Individuals:
High Net Worth Individuals are individuals whose investible surplus exceeds a certain threshold, typically more than Rs 5 crore in the Indian context. Their net worth is measured by the value of their assets minus liabilities. Net worth is determined by subtracting an individual's liabilities from their total assets. It includes liquid assets, such as stocks, bonds, and money held in brokerage accounts or banks, while excluding non-liquid assets like primary residences, durable goods, or collectibles.
High-Net-Worth Individuals (HNWIs): HNWIs are investors who own liquid assets valued between Rs 5 lakh and Rs 5 crore. They possess a significant amount of wealth and are considered as potential clients by private wealth managers.
Very-High-Net-Worth Individuals (VHNWIs): VHNWIs are investors with liquid assets valued between Rs 5 crore and Rs 25 crore. They have a substantial investible surplus and require specialized wealth management services to preserve and grow their wealth.
Ultra-High-Net-Worth Individuals (UHNWIs): UHNWIs are investors who own more than Rs 25 crore in liquid assets. They are among the wealthiest individuals and have unique financial needs and investment opportunities.
HNIs are highly sought after by private wealth managers as they require specialized financial advice and portfolio management. The investment decisions made by HNIs can significantly impact the economy. Their investments in stocks, bonds, real estate, and businesses contribute to capital formation, job creation, and overall economic growth. Many HNIs actively engage in philanthropic activities and contribute to social causes. Their charitable donations and initiatives address social challenges and positively impact society.