Connecting Businesses with Opportunities in India
Connecting Businesses with Opportunities in India

doing business in india

Submitted by Shashi Mohan on Wed, 02/10/2016 - 5:07am.

1) For doing business in India, what are the various business structures in India?

Foreign Representation Incorporated Entity Distribution Only
Liaison Office ('LO') Wholly Owned Subsidiary ('WOS') Distributor/Importer
Branch Office ('BO') Joint Venture ('JV') Franchisee/ Agent
Project Office ('PO') Limited Liability Partnership ('LLP')*  

* Foreign Direct Investment (FDI) in LLP is only under Approval Route & Conditional

2) What form of Business is most appropriate?

Business ‘Form’ purely depends on the business need. Such need could be to execute one time project in India, promote the product, understand the market, appoint a distributor, just have a place of business or hire an employee in India etc.

3) Can I do business in India without incorporating there?

Till the time investment decisions are not firm, business in India can be done by appointing an agent, distributor in India or directly providing services from abroad.

Such arrangements are subject to applicable tax withholding rules in India. The payment from India is governed by rules of Foreign Exchange Management Act (FEMA) and controlled by Reserve bank of India (RBI)

4) Can a Liaison Office (LO)/Representative Office (Rep Office) operate in India for an unforeseeable time period?

Initial approval of a LO is granted by Reserve Bank of India for 3 years. Subsequent request for an extension is generally approved for next 3 years. Further extensions can again be applied, however approval by Reserve Bank of India (RBI), is granted on a case to case basis.

5) Who can be appointed as an Authorized Representative of LO?

There is a requirement to appoint an Authorized Representative of an LO. He/She can be a resident of India or US. An Authorized Representative can be changed at the will of the Board of Parent Company. The person however must have an Indian Permanent Account Number (PAN). PAN is a unique number, obtained by registering at Indian Income Tax.

6) Can I open a Branch Office (BO) of my US company?

BO can be opened with a prior approval from RBI and it’s regarded as Foreign Company in India. As it’s not a separate entity from its parent company, all business risk and liabilities are directly assumed by the Parent company. It can conduct full fledged business activities in India, except Manufacturing. It can however subtract such activities to Indian vendors. BO, being a foreign company taxed at a higher rate (presently 40%).

7) Do I need to incorporate in India for executing a Time Bound Project?

You don't need to incorporate. In case you have awarded a specific contract in India, you can set up a PO without prior approval of Reserve Bank of India. After completion for the project the net of tax, proceeds can be repatriated to the Parent Company.

8) Is there any restriction in Foreign Direct Investment (FDI) in India?

Most of the business sectors don't require a prior approval and 100% FDI is permissible. In all such cases, only reporting is required to RBI, within 30 days of receipt of equity/allotment of shares. Where ever automatic route is not available i.e. sectors which has a cap on FDI, prior approval from Foreign Investment Promotion Board (FIPB) is required e.g Whole Sale Trading.

9) Is there any threshold on Capital, Shareholders, Directors etc.?

Recently the requirement of Minimum Share capital (Private Limited- INR100K, Public Limited- INR500K) is being lifted by Indian Government. There is however requirement of minimum 2 Shareholders & 2 Directors (at least 1 to be resident director). There is also a provision of One Person Company (OPC), however it is allowed only to a resident Indian.

10) Do I need a physical business address to register in India?

An address to be termed as a “Registered Office’ is required. Commercial or business address can be at a different location. There is no requirement of any minimum area, location etc. A business incorporated at any place in India, can do business throughout India. State Government however may require some local registrations.

11) How can I fund my Wholly Owned Subsidiary (WOS), until it breaks even?

Initial funding can be done though injecting share capital i.e. FDI. A loan from parent company (External Commercial Borrowing- ECB) is permissible only for Capex. ECB for working capital is permitted subject to certain conditions and a lock in period of seven years for capital repatriation. Local financing is always available subject to required collaterals.

12) Can a US citizen become a Director in Indian PLC?

There is no restriction of any foreign citizen for becoming a Director in Indian PLC. The person is not necessarily be a Shareholder as well. He/She should however require obtaining a Directors Identification Number (DIN) in India. In case, the Director from US also requires signing on behalf Board of Indian PLC, He/She also needs to get a Digital Signature (DSC).

13) Is there any taxability issue, in India due to my Directorship in Indian Private Limited Company (PLC)?

No, taxability in India arises based on residential status in India and incomes accrue or arise in India. A Director is however is liable for any negligence or any wrong doing on behalf of the PLC, as he/she is termed as a Key Managerial Person (KMP).

14) Can both the Directors of a PLC, be a resident of US?

It is permissible. Board meetings can even be held outside India. Recently a board meeting via video conferencing is also permitted subject to certain conditions. As per a recent amendment in 2014, at least one resident director is required in every PLC.

15) Can I transfer my shares in a PLC?

There is a restriction in transferring shares in a Private Limited Company. It can however be transferred to another shareholder or a related person, subject to certain conditions. A Non-Resident (NR) can transfer its shares to another NR without any permission from RBI. A NRI however need to get prior permission from RBI to transfer his/her shares in an India PLC to another NR.

16) What legal registration required in order to start a Back Office in India?

Back Office operates as a fully fledged business unit, however for the captive consumption of output by the Parent Company. Indian entity is generally established as a WOS, however it can also be a JV or Associate. In case the activities are under 100% automatic route, no prior approval from RBI or FIPB is required.

Apart from registering a PLC, you also require to get domestic registrations such as PAN, Tax Account Number, Service Tax, Shops & Establishment etc. Other registrations are conditional. Import Export Code (IEC) only in case of specified services. Provident Fund, once your employee level reached at 20, Value Added Tax in case you also trade in goods.

17) Is there any Tax Benefit to US Companies in India?

There are no tax benefits now days to WOS from any country. In case the WOS is 100% exporting its services, it may prefer in establishing in a Special Economic Zone (SEZ), to avail benefit of tax exemption (Service tax, VAT etc) on input services.

18) What is the general tax structure of a back Office?

An incorporated entity in India becomes a tax resident, tax rate of a domestic company (presently 30.09%) applies on its Profit before Tax (PBT). In case the India entity work s for the parent company in a foreign territory, Transfer Pricing Regulations gets applied, which requires establishing that the financial transactions between related parties are done at a Arms Length Pricing.

19) Basic difference in Private Limited Company and Public Limited Company?

Both forms, allows a Limited Liability for the Shareholders. A recent amendment in 2015 has done away with requirement of a minimum share capital in both the formats. Minimum 2 Shareholder required in a Private Limited, however you need o have minimum 7 shareholders in a Public Limited setup. Maximum number of members /shareholders is restricted to 50 in case of a Private Limited, however it’s unlimited in case of a Limited Company. Transferability of shares in a Private Company is ‘Restricted’ however its permitted in a Limited Company (subject for Foreign Exchange Regulations)

Most foreign businesses, SMBs prefer to register as a ‘Private Limited’ also due to a minimum regulatory & compliance disclosure requirements.

20) What is a general tax structure in India?

India has a federal system of levying tax on businesses. Income Tax, Service Tax, Customs Duty etc. are levied & collected by Central Government, however Value Added Tax, Local Body Tax, Municipal Taxes, etc are state subjects.

Submitted by Shashi Mohan on Tue, 02/09/2016 - 10:45am.

Currently the process to get a PAN in India is semi-automated. An online application can be made by using the link https://tin.tin.nsdl.com/pan/form49AA.html. Please be careful in mentioning particulars exactly same as per your identity proof, address proof etc.

Manual Form 49AA can also be downloaded from https://www.tin-nsdl.com/download/pan/form49aa.pdf at NSDL Facilitation Centre available across India. Please check address at https://www.tin-nsdl.com/tin-facilities.php

Fee for processing PAN Application is Rs. 107 including taxes. In case the communication address is outside India, processing fee is Rs. 989 (including tax and dispatch charges) and in such case PAN cards will be dispatched outside India.

The requisite fee can be paid through a Demand Draft of an Indian Bank on through Credit Card, Debit Card. In case you provide ‘office address or residential address’ in India, the payment can also be done through Net Banking.

On confirmation of the application, an acknowledgement number (unique 15-digit number) will be generated. Take a print of the acknowledgement receipt, paste 2 recent, color photographs and sign exactly in the given box, just below. Photographs are required only in case of Individuals.

Non Resident Indians can use their OCI/PIO card or a NRI bank account as their address proof abroad. A person holding a foreign passport is required to get his/her documents attested by “Apostille” or Indian Embassy or High Commission or Consulate in that country

In case of any other entity, Foreign Organisation, their Certificate of Registration needs to be duly attested by “Apostille” or Indian Embassy or High Commission or Consulate in that country

Once you are through, please put the following documents in an envelope:
  • Acknowledgement receipt signed and affixed with photograph
  • Demand Draft (Original) or payment acknowledgement receipt
  • Proof of Identity and Proof of address

Subscribe the envelop with “APPLICATION FOR PAN…….ACKNOWLEDGEMENT NUMBER” and send through speed post addressed at “Income Tax PAN Services Unit, NSDL e-Governance Infrastructure Limited, 5th floor, Mantri Sterling, Plot No. 341, Survey No. 997/8, Model Colony, Near Deep Bungalow Chowk, Pune – 411016”

Please ensure that the above documents are received at the above within 15 days from the date of online application.

The process would complete in approx 2 weeks time. The acknowledgement number can be used to track the status of application at https://tin.tin.nsdl.com/pantan/StatusTrack.html.

For more details on PAN card for NRIs and foreign companies that want to do business in India, click here.

Submitted by Navin Pathak on Wed, 01/20/2016 - 12:50am.

Though I personally don't feel that Startup India Action Plan will bring any significant changes in India's entrepreneur eco-system, but here is a chart to see if your company is eligible to benefit from this action plan.

Click on image to see a full size version in a new tab

Details about the action plan can be downloaded from the site http://dipp.nic.in.

Submitted by Sandeep Bhosle on Tue, 01/19/2016 - 5:53am.

 

India's Prime Minister Mr. Narendra Modi launched startup India Action Plan on 16th January 2016.

The following are the keypoints of the startup India action plan for growth of startups in India.

  1. Compliance Regime based on Self-certification
  2. Startup India Hub – A single point of contact for the entire startup ecosystem
  3. Rolling out of a Mobile App & Portal – Starting a Startup in 24 hours on a Mobile App
  4. Fast track mechanism of Startup patent applications
  5. Relaxed Norms of Public Procurement for Startups
  6. Faster Exit for Startups
  7. Rs 10,000 crore Fund of Funds for funding support
  8. Credit Guarantee Fund for Startups
  9. Tax Exemption on Capital Gains
  10. Tax Exemption to Startups for 3 Years (for startups registering after April 1, 2016)
  11. Tax Exemption on Investment above Fair Market Value
  12. Organising Startup Fests for Showcasing Innovation and Providing a Collaboration Platform
  13. Launch of Atal Innovation Mission (AIM) with Self-Employment and Talent Utilisation (SETU) Program
  14. Harnessing Private Sector Expertise for Incubator Setup
  15. Building Innovation Centres at National Institutes
  16. Setting up of 7 New Research Parks Modeled on the Research Park Setup at IIT Madras
  17. Promoting Startups in the Biotechnology Sector
  18. Launching Innovation Focused Programs for Students
  19. Annual Incubator Grand Challenge

  

Submitted by Shashi Mohan on Tue, 11/17/2015 - 10:02pm.

Background

PAN Card or Permanent Account Number is a MUST for both a Non-Resident Indian (NRI) and a Non-Resident organization in case they receive income and need to file income tax return in India. Indian Income Tax Authority keeps a track and consolidates financial transactions through PAN and it is regarded as a Tax Registration Number in India. Legislation has accordingly mandated to quote PAN at several financial transactions. As a practice, requirement of PAN is also considered mandatory in non-financial activities such as opening a Bank Account or becoming a “Director” (getting Director Identification Number) in a company registered in India.

Now days, it works as an Identity card in India. Similar to an EIN or Social Security Number in USA, a PAN in India is a 10 digit alphanumeric number issued by Income Tax Department.  It’s a unique number issued for lifetime. In certain cases, it can also be surrendered or cancelled under a valid reason. Having more than one PAN is not permitted and one can be penalized for having more than 1 PAN.

What makes PAN card a Mandatory requirement?

There are specific transactions which cannot be carried out unless valid Pan is presented. Relevant authorities simply deny such transactions in absence of a PAN. Below are a few examples:

  • Opening a Bank Account, getting a Credit Card, apply for a Loan
  • Getting a Digital Signature of obtaining a Director Identification Number (for being appointed as a Director in Indian Companies).
  • Insurance Payment, Other Financial transactions > INR 50,000
  • Transaction in Property, Vehicles >INR 500,000
  • Investment in Shares, Mutual  Fund
  • Utility connections (Telephone, Electricity, Gas etc)
  • Domestic registrations such as Service Tax, Value Added Tax, Import Export Code

NRIs and Foreign Companies that are doing business in India also need a PAN

Every recipient of income from India needs to furnish PAN. It is also required that in the absence of PAN, the tax withholding rate will be higher (20%) even if a lower rate is prescribed in Double Taxation Avoidance Agreement (DTAA) with that particular country. The following are the sample cases in which PAN is required by NRIs and foreign companies doing business in India.

  • Carry out financial or investment related transactions
  • Employment or rendering of professional services
  • Trading in Shares through a Depository or even a Broker
  • Invest in Mutual Funds
  • Purchase Land (not Trading) or some property in India
  • Being appointed as a Director in Indian Companies
  • Being appointed as a “Authorised Representative” in a Liaison Office, Branch Office, Project Office
Submitted by Ritambhara Agrawal on Sat, 10/05/2013 - 9:56am.

The new Companies Bill proposes seminal changes in the manner in which Companies are governed and regulated in India & brings easy and efficient way of doing business in India, better governance, improves levels of transparency while enhancing accountability, inculcating self compliance and making Corporate socially responsible. The bill could potentially trigger a spate of domestic and cross-border mergers and acquisitions, strategic alliances and make Indian firms more attractive to PE investors. We are briefly discussing the changes impacting Mergers & Acquisitions.

  • Global integration and cross-border mergers are now permitted by new Bill thereby allowing merger of an Indian company with a foreign company. Earlier, only foreign companies were allowed to merge with Indian companies. Exits will be easier, because the new law allows the consideration on a merger to be settled in the form of cash or depository receipts. 
  • Allows fast & quick merger between two or more “small companies”, “holding company and its wholly owned subsidiary” or such other class(es) of companies as may be prescribed by the central government, without the approval of the high court or National Company Law Tribunal (NCLT).
  • The Companies Bill specifically provides for provisions relating to a merger of a listed company with an unlisted company and gives power to the National Company law Tribunal to order exit of the dissenting shareholders (made easy) of the transferor listed company in case they opt out of the unlisted transferee company with payment of the value of shares held by them and other benefits in accordance with a pre-determined price formula or after a valuation has been made.
  • For good governance and investor protection, the new Bill advocates price determination by a registered valuer for any preferential allotment of equity. Such a measure is in sync with the principals set out under the exchange laws and the tax framework. This should prevent the dilution of existing investors' interests at an unfair price.
  • Prohibits the retaining of any treasury stock, arising on consolidation, pursuant to a merger and requires all such shares to be cancelled or extinguished, thereby restricting trust structure used by listed entities to retain control or future monitization.
  • Pooling of assets under a single company in any jurisdiction is achievable now by access to large capital without need to go public as number of member restriction under Private limited company increased to 200 from 50.
  • The bill provides that no civil court shall have jurisdiction over any suit or proceeding in respect of any matter that the NCLT is empowered to determine under the bill. And NCLT along with National Company Law Appellate Tribunal (NCLAT), will replace several existing forums, including the Company Law Board, the BIFR and the Appellate Authority for Industrial and Financial reconstruction.

By Ritambhara Agrawal, Managing Partner, Intelligere; www.intelligere.in

Submitted by Ritambhara Agrawal on Fri, 08/02/2013 - 12:37pm.

With the liberalization of FDI policy 2013, most restrictions on foreign investment have been removed and procedures have been simplified. Today, there are very few industries where foreign investment is prohibited. Moreover, investment ceilings, which are applicable in certain cases, are gradually being removed or phased out. Government of India on a yearly basis formulates a consolidated FDI Policy, with the intent and objective to promote FDI through a policy framework, which is transparent, predictable, simple and reduces regulatory burden.

A non-resident entity can invest in India, subject to the FDI Policy, except in those sectors/activities, which are prohibited. However, a citizen of Bangladesh or an entity incorporated in Bangladesh can invest only under the Government route. An entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other then defence, space and atomic energy and sector prohibited for foreign investment.

FDI is allowed either under the automatic route without prior approval of the Government or the RBI in all the sectors as specified in the FDI Policy. FDI in sectors not covered under the automatic route requires prior approval of the Government, which is considered by the Foreign Investment Promotion Board (FIPB).

Depending upon its business needs, a foreign company can choose between setting up a liaison office, a branch office or a project office or incorporating an Indian company, either its wholly owned subsidiary or joint venture with an Indian/overseas partner.

A.    AS AN INDIAN COMPANY

A foreign company can start its business operations in India by incorporating a company under the Companies Act, 1956 through either a Joint Venture (JV) or forming a Wholly Owned Subsidiary (WOS). Foreign equity in such Indian companies can be up to 100%, subject to sectoral equity caps under the FDI policy.

1.    Joint Venture with an Indian partner

Foreign companies can set up their operations in India by entering into strategic partnership with Indian entities and forming a Joint Venture (JV). JV can provide many advantages to the foreign investor, like access to established distribution/marketing set up of the Indian partner and established contacts of Indian partners to smoothly run the operations in India.

2.    Wholly Owned Subsidiaries

Foreign companies can also set up their operations in India by forming a Wholly Owned Subsidiary in sectors, where 100% foreign direct investment is permitted under the FDI policy. An application has to be filed with the registrar of Companies (ROC) for registration and incorporation of the Company in India. Once a company has been duly registered and incorporated as an Indian company, it is subject to Indian laws and regulations, as applicable to other domestic Indian companies. Such a subsidiary is treated as an Indian resident and an Indian company for all Indian regulations (including Income Tax, Foreign Exchange Management Act, 1999 and the Companies Act), despite being 100% foreign owned. For detailed procedure and guidelines for incorporation of company in India, read here.

B.    AS A FOREIGN COMPANY
       
    Foreign companies can set up their operations in India through Liaison Office, Project Office or a Branch Office.

1.    LIAISON OFFICE
   

Foreign companies are allowed to open liaison offices in India, subject to obtaining specific approval from the RBI, to undertake liaison activities on their behalf. Liaison office acts as a channel of communication between the principal places of business and entities in India.

Scope of Activities

Under the current exchange control regulations, a liaison office is permitted to: 

•     Represent the parent/group companies in India; 
•     Promote exports and imports from/to India; 
•     Promote technical /financial collaborations between parent/group companies and companies in India; 
•     Act as a communication channel between parent/group companies and companies in India. 
 
Typically, a liaison office is not permitted to: 

•    Earn any income; 
•    Undertake any industrial, trading or commercial activity; 
•    Enter into any agreement on behalf of the head office; 
•    Borrow or lend money for any commercial activity; 
•    Charge any fee or commission or otherwise earn any income, in respect of liaison activities carried on in India. 

    For detailed procedure and guidelines for opening the liaison office in India, read here.

2.    BRANCH OFFICE

Foreign companies engaged in manufacturing and trading activities abroad     are allowed to set up Branch Office in India for the following purposes:

•    Undertake the export and import of goods; 
•    Render professional or consultancy services; 
•    Carry out research work in which the parent company is engaged; 
•    Promote technical and financial collaborations between Indian companies and parent/overseas group companies; 
•    Represent the parent company in India and act as buying and selling agents; 
•    Render services in information technology and development of software in India; 
•    Render technical support to the products supplied by the parent/group companies; 
•    Operate as a foreign airline/shipping company.     

    Apart from obtaining RBI approval for establishing a liaison office, project     office/branch office, the foreign company is also required to register with the     Registrar of Companies ("ROC"). An application has to be filed in the prescribed     form within 30 days of the establishment of the office in India with ROC, pursuant     to which ROC would issue a certificate of establishment of place of business in     India to the foreign company.
 

3.    PROJECT OFFICE   

Foreign companies planning to execute specific projects in India can set up     temporary project/site offices in India. RBI has now granted general permission     to foreign entities to establish project offices, subject to specified conditions.     Such offices cannot undertake or carry on any activity other than the activity     relating and incidental to execution of the project. Project offices may remit     outside India the surplus of the project on its completion, general permission for     which has been granted by the RBI.

- By Ritambhara Agrawal, Managing Partner, Intelligere; www.intelligere.in

Submitted by Navin Pathak on Wed, 12/08/2010 - 8:23pm.

Driven by a growth rate of over 8% in 2010 and a 350 million strong middle-class with growing purchasing power and appetite to spend, the Indian market is reshaping the world’s economy. Investment in almost every sector (Education, Food, Energy, Health care and Retail) of the Indian economy has a promise of high returns that has caught the attention of investors and businesses across the world.

Indian economy is, however in transition and so are its tax and investment laws. New guidelines, policies, programs, and incentives for investment are being introduced into the system regularly and frequently.

Indian government is offering various incentives for the foreign companies and investors who want to

  • Lower labor costs
  • Explore new market/s (in and around India)
  • Develop and Commercialize/Industrialize new products and services
  • Open up export oriented units in India

Government incentives include:

  • Duty free import of capital goods and raw materials
  • Reimbursements of Central Sales Tax
  • Tax holiday for specified period
  • 100 per cent repatriation of profits for subcontracting facilities
  • and more

However, there is a considerable risk for players who are not fully prepated to do business in India and may not fully understand how local markets operate in India. Hence the challenge of the investor is to assess what opportunity to tap and how to minimize the associated risk.

I outline below an eight step plan with action, resources and contacts to help you benefit from the booming Indian Economy while minimizing your risk.

 

 1. Know WHAT you want..

Have clear objectives for your company and ensure that your India strategy is aligned with your objectives.

Buyusa.gov provides excellent information on assessing your objectives and provides what you need to know for doing business in India.

 

2. Understand the Economy you are investing in

India is a diverse country with many languages, different business norms and a complex regulatory structure. In addition, foreigners must know how to deal with corruption, bureaucracy and labor market rigidities at the state and the central level.

World Bank's Doing Business site provides excellent information on these topics. Read through the following papers and presentations:

- Doing Business 2010 ‘India’ by the World Bank Group

- Doing Business in India by Ernst & Young

 

3. Identify and Assess Opportunities in India

You need to do a thorough market research to qualify the opportunity for selling your products/services or for making other investments in India. Get the research tailored to your needs from the following resources: 

- Market Research Reports are available on buyusa.gov

- The country commercial guide for India from US Department of Commerce

Indian Brand Equity Foundation group from India

- Wealthtree for custom market research

 

4. Are you ready?

Assess if your company is prepared to do business or invest in India. Is your company committed to succeeding in India? Is there a market for your product? Is your product/service unique enough? Are the regulatory requirements straightforward to implement?

 

5. Attend Trade Events

Trade events are probably the best way to identify opportunities, meet subject matter experts, showcase your products and services, connect with potential partners, suppliers and buyers and check out your competition.

Upcoming Events by Entry India is an excellent source for upcoming business events in US and India.

 

6. Find one or more local partners in India

It is essential to have a local partner who understands the language and culture of the country. This will make it easy to negotiate, develop sales and distribution channels, price the product and services appropriate for the target market segment, and to protect intellectual property of your company. Due diligence and sound contractual agreement with the partner are a must for success.

US Department of Commerce has excellent services for US companies to find the right Indian partner.

 

7. Market Entry Options

Options include creating a wholly owned subsidiary, a joint venture with a local company or opening a branch or liaison office in India.

Department of Industrial Policy and Promotion under government of India provides excellent information for foreign companies pursuing entry into India.

 

8. Know Industry and Professional Associations in India

Through membership with key Industry associations, businesses gain access to local business resources, make valuable contacts, keep track of changing laws governing their business etc.

- Depending on the industry/sector of interest Confederation of Indian Industry, FICCI, AMCHAM, ASSOCAM, and NASSCOM are a few industry associations that a foreign business must look into.  India One Stop provides a comprehensive list of professional organizations in India that foreign companies must know.

- Export Assistance from US: The U.S. Commercial Service helps U.S. companies to expand their business to worldwide markets and has the largest presence, outside US, with 7 offices in India. U.S. Commercial Service offices are located in 107 U.S. cities and 145 U.S. Embassies and Consulates worldwide to take advantage of.

 

Summary:

A thorough planning before expanding your business to India or making your investments in India will go a long way for a profitable and worry-free operation in India.