india entrykservices.in/resources/india entry for foreign investors.pdf · under indian companies...

India Entryfor Foreign Investors

Kruti ServicesDivision of Kruti Software Consultancy Private Limited

C225 Antop Hill WH Complex, VIT College Road, Wadala E, Mumbai 400037, Maharashtra, INDIA

Phone: +91 22 2413 3139 Email: [email protected]

Delhi – NCR | Jaipur | Ahmedabad | Vadodara | MumbaiPune | Bengaluru | Chennai

India Entry for Foreign Investors

Roadmap to India Entry

Foreign Direct Investment Policy

Entry Options and Structuring of Entity

Repatriation of Profits and Capital

Investment Incentives

Taxes - Direct and Indirect

16 January, 2017 www.kservices.in 2


• Identification and Finalising of Entity structure based on Financial andother business requirements

• Application to Central Government for approval, if required based onsector

• Setting up - Incorporating Entity by registering with appropriateauthorities

• Setting up of Bank Account

• Inflow of funds as per Entity structure designed (eligible instruments) andfollowing pricing guidelines such as Share Valuation certification



• Initial Registrations under various Direct and Indirect Tax laws

• Meeting reporting requirements of Reserve Bank of India (RBI) andForeign Exchange Management Act (FEMA)

• Project approval at State / Union Territory level

• Finding ideal space for business activity based on various parameters likestate incentives, cost, availability of man power, others

• Manufacturing projects are required to file Industrial Entrepreneur’sMemorandum (IEM), some of the industries may also require industriallicense



• Construction of new unit or renovation of existing unit

• Understanding Statues governing Labour engagements

• Hiring of manpower

• Obtaining licenses, if any

• Other State and Central level registrations

• Meeting annual and periodic statutory requirements under Company Law, Direct and Indirect Taxes and Local Statutory compliances



Foreign Direct Investment (FDI) Policy controls have been liberalised to greatextent and made entry into India attractive

• Major policy reforms have been made in a number of sectors such asDefense, Construction development, Pensions, Broadcasting,Pharmaceutical and Civil aviation

• Foreign investors can invest in India either on their own or as a jointventure, as may be required in a few sectors



• 100% FDI is allowed through the automatic route without any need ofgovernment approval in most sectors, namely Automobile, FoodProcessing, Construction etc.

• FDI in sectors not covered under the automatic route requires priorapproval of the Government, which is considered by the ForeignInvestment Promotion Board (FIPB)



A. Indian Company Incorporated

Foreign investor can setup business operations in India by Incorporating acompany limited by shares under the Companies Act, 2013

It may be either

• Joint Venture (JV)

• Subsidiary (wholly owned)

• Limited Liability Partnership

Foreign equity in such Indian companies can be up to 100%, subject tosectoral equity caps under the prevailing FDI policy



A. Indian Company Incorporated - Joint Venture with an Indian partner

Foreign investor can set up operations in India by entering into strategicpartnership with Indian entities by forming Joint Venture (JV)

Joint Venture can be advantageous to the foreign investor with access toalready established distribution/marketing set up and business contactsof Indian partners to smoothly startup and sustain its operations in India



A. Indian Company Incorporated - Subsidiary

Foreign investor have option to incorporate company limited by sharesunder Indian Companies Act, 2013

It could be either 100% owned equity or in partnership with otherstakeholders

Subsidiary company is treated as an Indian resident and Indian companyfor all Indian regulations (including Direct and Indirect tax laws, ForeignExchange Management Act, and Indian Companies Act)



A. Indian Company Incorporated - Limited Liability Partnership

Foreign investor have option to incorporate limited liability partnershipentity under Limited Liability Partnership Act, 2008

It could be either 100% owned equity or in partnership with otherstakeholders

LLP registered in India is treated as an Indian resident and Indian entityfor all Indian regulations (including Direct and Indirect tax laws, ForeignExchange Management Act, and Indian Companies Act)



B. Foreign Company options

Foreign investor can set up their operations in India through

• Liaison Office

• Branch Office

• Project Office



B. Foreign Company options - Liaison Office

Foreign investor are allowed to open liaison offices in India with priorspecific approval from the RBI

Liaisoning office is permitted only to liaise on behalf of foreign parentcompany. Liaison office is restricted to act only as channel ofcommunication between the foreign principals and business entities inIndia

All Statutes for Registrations and compliances under Central or State lawswill be applicable



B. Foreign Company options – Branch Office

Foreign investor engaged in manufacturing and trading activities abroadare allowed to set up Branch Office in India with prior specific approvalfrom the RBI

Further on obtaining of approval from RBI, Foreign company branchneeds to apply for registration with Registrar of Companies (ROC)

ROC will issue a certificate to establish place of business in India asbranch office, after due scrutiny of application




B. Foreign Company options – Project Office

Foreign investor planning to execute specific projects in India are allowedto set up temporary project/ site offices in India

RBI has now granted general permission to foreign entities to establishproject offices, subject to specified conditions. The Project officeactivities are permitted only to undertake or carry-on activity relating andincidental to execution of the project

Project offices may remit outside India the surplus of the project on itscompletion, under general permission from RBI




ProfitsDividend

Profit making enterprise can pay-out profits as Dividends to shareholders

Dividends are freely repatriable without any restrictions, subject toWithholding Tax and Dividend Distribution Tax

Management Fees to Principal/ Holding company

Management fees are generally paid for certain services provided oncommon pool basis by principal or holding company to subsidiarycompany. Management fees can be remitted outside India subject toremittance compliances as per RBI, Withholding tax and Service tax, ifany



ProfitsInterest

Interest on fully and compulsorily convertible debentures is also freelyrepatriable without any restrictions, subject to Withholding Tax



CapitalSale/ Transfer of Equity Shares

Exit out of Investments made can be made by selling/ transfer of shares

Remittance of sale proceeds of a security to the seller of shares residentoutside India is permissible, provided the investment was made onrepatriation basis

Further, Sale of security should be in accordance with the prescribedguidelines and tax clearance certificate from the Income Tax authorities



Central Government Incentives

Incentives available to unit’s set-up in Special Economic Zones (SEZ),National Investment & Manufacturing Zones (NIMZ) etc. and ExportOriented Units (EOUs)

Exports incentives like duty drawback, duty exemption/ remissionschemes, focus products & market schemes etc.

Areas based incentives like unit set-up in North East region, Jammu &Kashmir, Himachal Pradesh, Uttarakhand

Sector specific incentives like Modified Special Incentive PackageScheme(M-SIPS) in electronics



State Government Incentives

Each state government has its own incentive policy, which offers varioustypes of incentives based on the amount of investments, project location,employment generation, etc. The incentives differ from state to state andare generally laid down in each state’s industrial policy

The broad categories of state incentives include: stamp duty exemptionfor land acquisition, refund or exemption of value added tax, exemptionfrom payment of electricity duty etc.

Refer: http://www.investindia.gov.in/state-policies


Taxes - Direct and Indirect


Taxes – Direct and Indirect

Direct Taxes

The investor is required to pay tax on net income earned in India. The rates of taxes differ among structures

Direct Taxes - Income Tax

Company

The company incorporated in India is required to pay tax 30% + surcharge + education cess on net income earned. It is also required to deduct tax on profits distributed @ 15.50% + surcharge + education cess



Direct Taxes

Direct Taxes - Income Tax

Branch office/ Project office/ Liaison office or permanent establishment

The fixed place of business in India is treated as a permanentestablishment and is required to pay tax @ 40% + surcharge + educationcess. There is no tax on profit distribution

Limited Liability Partnerships (LLPs)

LLPs are required to pay tax @ 30% + surcharge + education cess. There is no tax on profit distribution



Direct Taxes

Direct Taxes - Minimum Alternate Tax (MAT)

MAT @ 18.50% + surcharge + education cess

Indian tax law requires MAT to be paid by corporations in cases wherethe tax payable according to the regular tax provisions is less than 18.50%of their book profits

However, MAT credit (Actual Tax only, not including surcharge andeducation cess) can be carried forward in next 10 years for set-off againstregular tax payable during the subsequent years subject to certainconditions



Direct Taxes

Transfer Pricing Tax regulations

Transactions between associated enterprises needs to follow transferpricing regulations

Tax Audit (Turnover based audit) under Corporate Tax laws



Indirect Taxes

Indirect Taxes are taxes paid by end consumers of the products/ services.These are charged by Central as well as State governments. Indirect Taxesmay vary each state wise.

Beginning new Financial Year from April 2017 onwards, major IndirectTaxes are going to be subsumed into Goods and Services Tax (GST) whichwill make it single tax single country regime across India withstandardised rates



Indirect Taxes

Various Indirect Taxes present as of now, such as Excise Duty, Service Tax,Value Added Tax (VAT), Octroi and Entry Tax, Entertainment tax,Additional Custom Duty commonly known as Countervailing Duty (CVD),Special Additional Duty of Customs (SAD), Luxury Tax would be subsumedinto GST

Rates of GST will be standardised based on categories of Goods andServices ranging between 0% - 28%

• Essential goods @ 0% (Zero) rate

• Common Use goods @ 5%

• Other Goods and Services @ 12% and @ 18%

• Luxury goods @ 28%


Welcome to India

India Entry Services provided by

Kruti Services


india entrykservices.in/resources/india entry for foreign investors.pdf · under indian companies...

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