Paresh Karia, Acquest Advisors CEO, joins host Ali Jahangiri to talk about India’s new tax laws that impact transfers of funds for overseas investments, including residency by investments programs like EB-5.
Paresh Karia:
The Indian investors are more evolved, they’re more sophisticated. They’ve been asking a lot of questions, so we have to be prepared. And yes, if you have a good project, they’ll be good takers. The other thing one needs to keep in mind is that Indian clients are also looking at financial returns. Typically, Indians will not be satisfied only with a green card.
Ali Jahangiri:
This is The Voice of EB5 by EB5 Investors Magazine. Each week we sit down with experts in the EB-5 investment space to get valuable insights and the latest EB-5 news. Welcome to The Voice of EB5 with Ali Jahangiri, your host. Today I have a distinguished guest, Paresh Karia. Paresh has a background in migration. He’s a migration agent in finance. Welcome, Paresh, to the podcast.
Paresh Karia:
Thank you Ali. Thanks for having me.
Ali Jahangiri:
Absolutely. So please give us a little bit of background about your history and the migration investment space.
Paresh Karia:
Yeah, I mean my history, my transition into migration space has been quite interesting. So by qualification, I’m an accountant, I’m a chartered accountant and I have been in the banking industry for more than a decade. I was working on the private banking side. So essentially my job was to advise high net worth clients on managing their investments. That’s where my experience of handling high net clients and understanding their finances, providing them solutions to meet their requirement comes in. And after spending more than a decade in banking, I’ve worked with private banks, I’ve worked with the Swiss Bank for some time. And after that I decided to move on my own. I started my own practice on the real estate investment advisory site and we used to advise people on investment in real estate as well as alternative investments. And then we came across this opportunity of EB-5.
We were approached by a mutual friend, one of the EB-5 practitioners in the US and we started representing them over here in India. And that’s how my journey into EB-5 started in 2018. So I was a bit late in joining the party. But yes, even during the short period of time that I’ve been in the industry, I’ve been enjoying every part of it. And our beginning was quite staying, it was quite good, it was pretty successful. In the very first year itself, we managed to build deals in double digits and that really gave a boost. And we started focusing along with EB-5. Then we started adding more products know in 2019, 2020. We started doing the other investment programs for US. We were looking at the L-1 visa, the E-2 visa. Thereafter, we moved on adding other countries. We started looking at the Golden Visas in Europe and we were the ones to start the cultural Golden Visas in India at a very early stage, much before others we got into it and we also started doing business immigration to Canada very selectively. And the last production in our portfolio that we added was the UK innovator and startup visa program.
Ali Jahangiri:
Last time you and I met, we were in Mumbai, we were chatting about the typical Indian investor and it seems like the currencies shifted a little bit and also there’s not a booming economy worldwide right now we’re in a little bit of a dip.
Paresh Karia:
Right.
Ali Jahangiri:
What does that typical investor look like right now that’s walking in your door? Because I know it’s hard to get that money together these days to make the investment. Who is this investor right now?
Paresh Karia:
So typically the kind of investors we are coming across are essentially all businessmen, large and middle-sized businessmen, first generation entrepreneurs who have either set up their own business and their children are already studying in the US and they’re looking to settle their children in the US. Now these children don’t want to come back. So these are typical businessmen who are hoping that after completing their education, their children will come back to India. But now they’re realizing that the children are very happy in the US, they don’t want to come back. And so they’re planning to do EB-5 for that. We also have clients who are essentially senior level executives with large companies typically in banking and IT. So these executives have made their wealth through their ESOPs, especially in the IT and banking sector. Through their ESOPs, they’ve created a well and their children are also studying in the US and they’re also looking at some kind of an opportunity of maybe not now, but later on moving to US or to some other country and setting there with the children. So typically business owners and senior level executives are the kind of clients who are looking out for this kind of opportunities at the moment. The differences that the business owners do not want to move out, they’re not looking at doing it for themselves. The CEOs and senior level executives, those who are closer to the retirement maybe looking at it for themselves, but those who are still very actively engaged in their employment are not looking at moving it out to themselves. They’re only looking at it for their children.
Ali Jahangiri:
I see. So right now most of the focus is on the children it seems. And the professionals want to take their kids – send their kids there. What age are these children? Are they currently attending school in the US or are they going to come out to the US?
Paresh Karia:
Yeah, they are attending school in the US. Many of them are on OPT. Some of them have already completed that OPT and are now either on H-1B are in the process of applying for H-1B.
Ali Jahangiri:
So they are, most of them are inside the US.
Paresh Karia:
Yes, most of them are inside the US right now.
Ali Jahangiri:
I see. And their parents have found you or did they look up on Google and find you? How did this happen?
Paresh Karia:
Yeah, so typically it is through their parents. Of course the children themselves are also looking out for it, but the parents are ones who are looking out over here, they look out, they Google. They also come to us through references, existing clients through our network. And interestingly, I had three inquiries suddenly to this today itself, just one hour back. Somebody called me up from UK and he wanted to do it. So we keep getting inquiries from other countries also. We get a call, I got a call from Qatar two days back. Somebody from Qatar wanted to do EB-5, so it’s not really India. We have had clients from other places as well.
Ali Jahangiri:
So it’s all over the place. Paresh, let’s get to some of the recent TV shows you’ve been on – BC and NDTV. I’m noticing you’re dipping your toes into the media. How’d you get involved in that?
Paresh Karia:
Well, it’s interesting. Well, I’ve been doing TV shows for quite some time and I was in a real estate business. That’s how I got associated with CNBC and I used to do shows with them regularly. There was a TV series called Property Guru where they would feature real estate experts. They would come and talk and give their views. So I used to do that show for them once a month. And that’s how my connection with the media, with the industry that started and even after the post I migrated to immigration business, I started talking about immigration. I’ve been writing regularly for money control for Times. I’ve been quoted in Times many times and also writing for Fortune and Forbes. So I enjoy writing. I like to write, I like to share my knowledge. And off late I’ve been gathering, doing a lot of YouTubing also. I like to create videos and put it up there on the YouTube to share the knowledge and information with potential clients and investors.
Ali Jahangiri:
What else is good? Have you noticed that a lot of people pick you up from TV? Have they – have they heard you talk on TV, do you get a lot of leads like that?
Paresh Karia:
Well, not really. You know, TV does not have that kind of reach when it comes to sophisticated product. Like EB-5 is concerned, TV is more for mass. So you have to use the other channels. You have to look at the networking opportunities, the business networking opportunities, social networking opportunities, client reference, etc., to reach out to the client. And of course you also have to do a bit of digital marketing, but digital marketing really doesn’t work that effectively because the segment that you are targeting, you have just a handful of clients, less than 1% of the total population of India would be qualifying for EB-5 type of an investment. So it’s like searching for a needle in a haystack.
Ali Jahangiri:
Yeah, no, you’re absolutely right. It’s a big investment and people have to save up for it and spend their whole life earning money. So let’s go into some of the more details here of choosing the right investment vehicle. When you look at projects Paresh, what are you typically looking for? I know you and I spoke in detail about this, but I kind of wanted to broadcast this among our podcasts. So what are you looking at in a project? What’s your qualifications?
Paresh Karia:
Yeah, sure. So typically, fortunately I come with a banking and investment background and we used to do a lot of alternative investments, real estate related products, private equity funds, venture capital funds, real estate funds, et cetera. So we used to do this due diligence way back in our private banking days. So some of the parameters, I mean the parameters that I use are almost similar. We look at what is the track record of the developer, what is the track record of the regional center, what is the fundamentals of the project? What kind of project it is in what sector? Whether it is what extent it is dependent on the economic swings. At the macro level, these are the factors that we look at. The micro level we go around, we look at things like how is it getting financed, what is the cost? Is it similar to some other project? What is a capital stack? Is some bank involved? Is there a senior loan available? Has the project been appraised by the bank, by an independent bank? And how much money is coming from EB-5? How much money are the promoters themselves putting into it? What is going to be the structure? What is the collateral? What are the repayment terms? What are the conditions associated with the repayment and so on and so forth. So these are the parameters, the basic parameters that we look at. And then of course when we deep dive into the offering memorandum, we look at various technicalities, we go into the micro areas and we look at the financials and various other aspects before we actually go ahead and select the project for investment.
Ali Jahangiri:
So do you typically like projects that have already started construction or ground up? What are you looking for in terms of job creation?
Paresh Karia:
Yeah, so well, that is one of the factors, given everything else, other things being equal, a project which is already underway is preferred compared to one which is on the groundbreaking. And this is also again, more of a mindset from an Indian point of view because Indian clients in India, we have had situations where underdevelopment projects on the residential side, on the construction side have got stuck. A lot of funding people have bought their money in under construction projects. So Indian clients are typically averse to investing something which is just taking off the ground.
Ali Jahangiri:
So outside of the construction side, what do you like to see on the finance side? How much equity interest do you like seeing in these deals?
Paresh Karia:
So usually I prefer equity of at least 20 to 25%. It all depends upon what is the overall structure, what is the size of the project. But the benchmark is there should be at least – the promoter’s equity should be equal to more than the EB-5 money. I believe that the promoters should have more in the game than the EB-5 investors.
Ali Jahangiri:
That’s great. So what exactly are you looking for in terms of the stack? So 20 to 25% sponsor equity. Are you looking for a project that has the senior loan in place already confirmed by the bank? What’s your typical capital stack look like that you like to invest in?
Paresh Karia:
Yeah, it again varies from project to project, developer to developer and size of the project, nature of the project. But yes, I would be very comfortable with the senior lender having a substantial stake in the project, which shows that the senior lender has the confidence, they have done the due diligence thoroughly and they have approved of the project. So that gives you an added comfort.
Ali Jahangiri:
The other question I have is I’ve recently seen some projects that don’t have too much debt, that have little debt. How does that look to you guys as a project? When you see a project that’s mostly in cash. What does that tell you about the sponsor and the owners? Does it say, hey, they couldn’t go find the debt or does this say hey, they’re more responsible to trying to lower their debt service for the project?
Paresh Karia:
Well, being a banker, I would take a very conservative view on this. I would prefer, like I said, with a project, I mean with more of a senior, the senior loan is more of a kind of a long-term loan. It is more reliable. It is much cheaper. So I would definitely look at a project where the senior loan component is high. If the senior loan component is not very high, then that will mean that I will have to look deeper into it, do some more investigation to find out why they’re not raising more senior loan. Is it that the bank is not ready to finance with them or is it some other reason? Is it that the promoters have enough money to fund the project themselves that they don’t need too much of a senior loan?
Ali Jahangiri:
Yeah, no, that’s interesting you bring that up. Do you ever see deals come through that have a mezzanine loan on top of the senior? Have you seen that?
Paresh Karia:
I’ve seen that quite a lot.
Ali Jahangiri:
What do you think of that? When there’s a mezz loan and there’s a senior loan and then there’s like 20 to 25% sponsor equity. Do you see that as a good thing or a bad thing?
Paresh Karia:
I see it as a good thing because if there is a senior loan, it gives you a comfort, like I said. So if there is a senior loan and that looks good, although I know that the in the mezzanine loan holders will stand below the senior, in case of a default, it gives when there is a senior lender over there in case it gives you added comfort. So I’ll be comfortable with that kind of a situation.
Ali Jahangiri:
Very cool. So what do you think is the key for planning and choosing the right investment for today’s scenario? What do you think the key is for the planning and choosing?
Paresh Karia:
Well, I think the key for planning and choosing is first we have to look at the macro level. We have to see in what sectors. We all know we are going through tough times. Interest rates are going up. It’s becoming more and more difficult to raise money. So there are a lot of projects out there in the market to raise EB-5 money. So we have to look at, I mean we don’t know what is the situation as far as the recession is concerned. So there is a possibility that, and the investment in EB-5 is a long term investment. It could take about five years, seven years. So ideally I would look at some sector which is more of a recession proof, not linked too much to the economy and not determined on too much on the economic strengths. I would prefer something like a multi-family or an industrial project or infrastructure project with a small size project or something. A project where it is simple construction, some kind of logistics, warehousing, those kind of projects rather than complicated structures, which is something just simple and easy to understand and equally easy to execute and sell.
Ali Jahangiri:
That’s very interesting. So, how is the EB-5 scenario in India? How many active projects are there? Is there, is there a lot of projects coming out there? Do you see a lot of people asking you for help?
Paresh Karia:
People are asking for help, but surprisingly not too much on the project side, you know, so mostly the kind of people that I’m coming across are not here to expose to too many projects. Those are the ones who are approaching to me at least the kind of client I have are at the initial stage. They have just started looking out. Of course their children might have seen a few projects overseas, they would’ve been touched. The people who are here are more at the exploratory stage trying to understand what is EB-5 and how it can benefit their children rather than they’re not yet at that stage where they’re looking at too many projects. So the scenario is quite different from what we had in 2018 and 2019 when there were too many projects, too many people who were at, at one stage. I think we have hit a reset post Covid and now we are getting new set of investors who are coming in and they’re relooking at this entire thing.
Ali Jahangiri:
Where are the most of investors come from, Punjab? Where do you see most of them that you, your clients – you deal with?
Paresh Karia:
So most of the clients, yes, Mumbai does have a large number of clientele and these are typically businessmen and people from Gujarat essentially have a close affinity to US. A lot of them have their friends and relatives over there. So for Gujaratis, US is a preferred destination whether they’re in Gujarat, or whether they’re in Mumbai. So most especially from the business class, they prefer US. Yes, we do have Gujarati businessmen from the manufacturing industry, from the real estate industry. They’re looking at these options for their children. We also have, being in Mumbai, there are a lot of people from the financial sector, senior executives from the financial sector, people from pharma industry, people at senior level in the pharma industry coming to us. And the other sector that we are seeing is of course very close to Mumbai, we have Pune. So in Pune we have industrialists typically. And also Pune is an IT hub. So there are a lot of IT entrepreneurs who are looking at these kind of options. People who have built the business, developed the business, who are now looking at selling the stake and exiting out of it. So they are also the kind of people who are looking at typically moving to the US with the children. But mostly, people in Gujarat rely upon their friends and who are already in the US. They will take their guidance, they will take their advice, they will take their reference and they rely more on personal recommendations and references of people there whom they know in the US rather than professionals over here in India.
Ali Jahangiri:
So tell me a little about your team, Paresh. Do you work with a couple people in your office? Do you work alone? How does your team look?
Paresh Karia:
We have about 10 members in our team. Most of them are based in Mumbai. We have a team member in Delhi and we have four people in sales. We have three people in marketing and we have one person in processing, one person on the admin and one person on the finance site.
Ali Jahangiri:
Nice. Do you typically have a lawyer that’s from India that you work with or which lawyers do you work with?
Paresh Karia:
Well we work with most of the reputed law firms based out of US. So typically all the large law firms which are there in US, we have worked with them.
Ali Jahangiri:
And do they coordinate with you in terms of the 526s or do you have a local attorney that does that in India?
Paresh Karia:
We coordinate with them. We don’t use any local attorney. We coordinate with them. So it becomes easy for me to coordinate with the lawyers because being a chartered accountant, I am very well versed with the source of funds. So most of the things on the source of fund side – planning of the source of fund, explaining to the clients the requirements, coordinating with the finance team of the client on getting the source of fund done, et cetera, is done at our end.
Ali Jahangiri:
I heard there’s a tax coming to get money out of India. When is that happening? How is that happening?
Paresh Karia:
Yeah, so this has come as a big, you know, setback for all those people who are looking at investing overseas. So in the recent budget which was introduced in February, the government announced that they’re going to increase the tax on when you send the money outside India. So in India, we do not have a capital account convertibility over year. We cannot freely rabbit money outside India. There are restrictions and those restrictions have been there for many years. But somewhere when Indian economy started opening up about 20 years back, so there were reforms and instead of making the Rupee fully convertible, they said that will make it easier for Indians to remit money outside India. So they introduced the scheme called the liberalized remittance scheme. This was introduced way back in 2004. So under the scheme that allowed Indians to send money outside India for certain purposes. So earlier you could not send money outside India.
Ali Jahangiri:
How much is the tax they’re proposing in one?
Paresh Karia:
This tax was first time introduced by the government in 2020. At that time they put up a tax of 5%. So if you’re remitting money outside India, the bank will deduct 5% tax and it’ll credit this money to your tax account. So it’s not an additional text you are paying, it’s just that it’s kind of a withhold in tax. So tax is paid and you get credit for the same when you file your income tax return. So this became applicable from October, 2020 and with 5% it was not so much of a pain. Yes, I mean it increased the procedures, it increased the burden on the bank to follow the process and deduct the tax. But it was not so much of a burden. But now what they have proposed is that we are going to increase this amount to 20%. Now 20% is a huge amount for this kind of a transaction. So you will have to kind of pay 20% extra when you are remitting money outside India.
Ali Jahangiri:
I see. So you gotta pay 20% on top of the 800,000 to pull money out.
Paresh Karia:
Yeah, so like I was explaining to you under the liberalized remittance scheme, which was introduced by RBI to allow Indians to send money outside India, there is a cap of 250,000 per person in every financial year. So Indian financial year is from April to March. So in each financial year, per person can send out way 250,000 US dollars. So this was already making it difficult for people to credit money for purpose of investment in EB-5.
Ali Jahangiri:
How were people transferring money out?
Paresh Karia:
Well typically what they used to do was they used to spread it over the two financial years. So you just send some money in one financial year by March and some money in April. And the regional centers who were operating in India are very well aware about that and some of them were giving that kind of a leeway to spread the investment over to financial use.
Ali Jahangiri:
I see. Right.
Paresh Karia:
So that is the ideal way then there are ways of planning it. There are different ways. Like I’ve always been advising my clients, whomever I come across, I meet them. I would be telling them that even if you have not decided to EFI right now, if you are thinking about it, it makes sense for you to send money outside and in pocket in the bank account so that in future, whenever you want to do an investment or you want to do a euro EB-5 kind of a transaction, you have money available outside India to do it.
Ali Jahangiri:
So if I came to you today and I’m trying to get money out of the country, how long will it take me to do that?
Paresh Karia:
If you come today, you are okay because we are just approaching the end of the financial year. So you can send 250,000 out over year currently now and you can send 250,000 in the next financial year. So that makes it 500,000. Then of course there are ways in which we can do it. There are ways we manage it, we have to look into the individual circumstances of the case. In some cases we may be able to use your family money also.
Ali Jahangiri:
So that’s only 500, there’s 800,000 for this investment. How are they getting the remainder out?
Paresh Karia:
Yeah, so we have to figure a way out. We have to look at the circumstances of the case. We have to see the family situation. We have to check whether we can use the money from the other family members as well or not. We also have to see, you know, unfortunately in many cases what happened with children already outside India and many of them already have funds outside India or they have a different kind of account which the limit is not applicable. So we can use that but varies from case to case.
Ali Jahangiri:
So you could use like parents’ money or is it aunts and uncles or how far removed does the person have to be?
Paresh Karia:
There are ways of doing it. Like I said, it’ll have to vary from situation to situation. We’ll have to look at the situation what it is and we can advise the solution based on the situation. So how many family members are there? What is their age?
Ali Jahangiri:
Legally you’re saying it’s only 250 per year per person?
Paresh Karia:
Yeah, legally it is 250 per year per person. It is open to interpretation also there are different banks who interpret it when it comes to family money, different banks interpret it in a different way.
Ali Jahangiri:
And there’s no tax on top of that. So if you’re spending 250, there’s no, you’re not paying a tax to get it out.
Paresh Karia:
No you are. So the rules are now changed. So earlier up to 700,000, which was coming up to about 90,000 US dollars, let’s say you never had to pay any tax over that. You had to pay 5%. But now if you are sending money out for the purpose of investment on whatever amount that you send, even if you send out hundred dollars on that, you’ll be allowed to pay $20 as tax. So if you are thinking of sending out 250,000 letters a maximum where person can send you will have to make provision for 300,000 US dollars, out of which 50,000, which is 20% off to a unit, 250,000 will be deducted by the bank, collected by the bank as tax and the balance 250,000 will be limited. So to send 300, 250,000 out, you need to have 300,000 in your bank account. That much liquidity should be available.
Ali Jahangiri:
Have you ever heard of swaps at all? I know some countries have swaps. Is there any way to, you know, other means of getting the money out or is it generally limited to this regime?
Paresh Karia:
I’ve not seen anybody using swaps in India.
Ali Jahangiri:
I don’t know, 20% sounds like a lot Paresh. It sounds egregious. Why is India doing this? Why do you think they’re coming up with this policy?
Paresh Karia:
That’s really surprising. I mean even I’m surprised by the government doing it. The ostensible reason given by the government is that they want to track people who are sending money outside India without paying taxes in India. Right? So there have been cases where people have been borrowing money from their friends, etc. For the purpose of doing runting money overseas. Now if we look at this transaction, the way the entire transaction is done operationally, so whenever you’re sending money outside India, you need to share your tax number with the bank and the remittance is linked to your tax number. So through your tax number they are checking how much money you are sending outside India. So the government already has the information about people who are emitting money outside India. They already have their tax records. So if at all they want to, you don’t question the people who are sending money outside India without disclosing enough income in the income tax return. They can always call for it.
Ali Jahangiri:
Why are they preventing money from going out? What’s the reason you think is behind the government? Have they mentioned this at all in the news?
Paresh Karia:
No, they’ve not mentioned this on the news. Ostensibly their reason was that they want to track the money going outside India, but that is already happening. But it seems that yes in a way they are trying to discourage sending money outside India and which I think is a retrogressive step. Cause this entire scheme, you know, for allowing Indians to send money outside India was a step towards making to be fully convertible and after 20 years we are taking us to step back by discouraging people to send money outside India.
Ali Jahangiri:
Yeah that’s like discouraging people to have a global economy. Now just out of curiosity, has this been going on for – this 20% tax has been going on for a couple months or a year now? What’s the title?
Paresh Karia:
No, the 5% tax has been for two years now. It was introduced in 20, the new announcement which has been made, it is a proposal in the budget. So this proposal has still not been passed in the parliament. So it is supposed to come into effect from July 1, 2023. So people still have time. You know those who are thinking of sending money outside India, they still have time. They have time up till 31st March, 2023 to send 250,000 outside India post 31st March till 30th June, 2023. They can send another $250,000 outside India under the old provision. The new provisions will kick in only from July 1, 2023.
Ali Jahangiri:
July, 2023. So we have a couple months left and that’s tax free or 5% is all you get charged if you remember. But the – has it passed in the parliament, the 20%?
Paresh Karia:
Not yet. So we are hoping that the government has a re-look at it. I’m sure a lot of people are making representation to it. It is not only going to affect investment, it is also going to affect travel and tourism because if you’re going to spend the money for you know, travel, then also you’ll have to pay tax.
Ali Jahangiri:
Well Paresh. It’s been a pleasure talking to you. We’re talking in off times between US and India, but appreciate you being here and look forward to seeing you in Mumbai.
Paresh Karia:
Likewise. Look forward to seeing you and thank you. It was a pleasure talking to you.
Ali Jahangiri:
This has been The Voice of EB5 by EB5 Investors Magazine. To learn more about this episode, please visit EB5Investors.com/podcast to stay up to date with the latest EB-5 discussions. Be sure to subscribe to the show wherever you listen to the podcast. And if you like the show, please consider leaving us a five star review. It helps us out a lot. See you next week.