Transcript Doing Business in India

Doing Business in India
Contractor, Nayak & Kishnadwala
Chartered Accountants, Mumbai, India
Tel. +91-22-6623 0600
Fax. + 91 -22- 2261 5814
e mail [email protected]
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Reasons for Doing Business in
India
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Large & Fast Growing Market
Global Outsourcing of Services
Political Stability
IPR Protection
Large Educated Workforce
Lower Costs
Business & Policy Environment
Tax Breaks & Subsidies
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FDI Equity Inflows –
Top Investing Countries
Rank Country
Cumulative Inflows % of total
(April 2000 to Nov 2010) value
USD Million
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Mauritius
52,398
42%
2
Singapore
11,557
9%
3
U.S.A.
9,204
7%
4
U.K.
6,269
5%
5
Netherlands
5,289
4%
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Japan
4,631
4%
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Germany
2,903
2%
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FDI Equity Inflows –
Top Sectors
Rank
Sector
Cumulative Inflows (April 2000 % of
to November 2010) total
USD Million value
1
Services (Fin & Non-Fin)
26,197
21%
2
Computer Software &
Hardware
10,446
8%
3
Telecommunications
10,023
8%
4
Housing & Real Estate
9,356
8%
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Construction activities
8,887
7%
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Power
5,611
5%
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Automobile
5,129
4%
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Metallurgical industry
4,090
3%
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Petroleum & Natural Gas
3,195
3%
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Chemicals
2,767
2%
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Establishment of Business
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Applicable Laws governing Establishment of
Business
Options for foreign companies/citizens
Applicable taxes
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Applicable Laws
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Industrial Policy of Government of India
Foreign Exchange Management Act, 1999
(FEMA)
Companies Act, 1956
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Options for foreign
companies/citizens
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Liaison Office
Branch
Investment in Subsidiary company/joint
venture/other company
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Applicable taxes
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Central
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Income Tax [including Tax Deduction at Source
(TDS, i.e. withholding tax), dividend distribution
tax & fringe benefit tax] & Wealth Tax
Excise Duty
Service Tax
Customs Duty
State
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VAT
Profession Tax
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Industrial Policy
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GoI New Industrial Policy of 1991
Industrial Licensing, Foreign Investment, Foreign
Technology Agreements, Public Sector Policy
Prohibited sectors, Sectors permitted under
Automatic Route, Sectoral caps
Governed by Department of Industrial Policy &
Promotion, Ministry of Commerce & Industry,
Government of India (website: www.dipp.nic.in )
Secretariat of Industrial Approvals (SIA)/ Foreign
Investment Promotion Board (FIPB) for cases not
covered by Automatic Route
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Foreign Exchange
Management Act (FEMA)
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Exchange Control Regulations
Administered by Reserve Bank of India (RBI) –
website www.rbi.org.in
Current Account convertibility with few restrictions
Capital Account controls with few permitted types of
transactions
Liaison offices & branches of foreign companies,
foreign direct investment in Indian companies
Foreign citizens (other than persons of Indian origin)
not permitted to acquire shares on Indian stock
exchanges
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Setting up a Company
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Incorporation process takes 20-30 days
Cost of incorporation of a company
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About Rs.50,000 for authorised capital of
Rs.100,000
About Rs.75,000 for authorised capital of
Rs.1,000,000
Public limited company or private limited
company
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Setting up a Company…
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Public limited company requirements:
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Minimum capital of Rs.500,000
At least 7 shareholders
At least 3 directors
Private limited company requirements:
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Minimum capital of Rs.100,000
At least 2 shareholders, and not exceeding 50
At least 2 directors
Restrictions in articles re no. of shareholders,
transfer of shares, invitation to subscribe to
shares/debentures & acceptance of deposits.
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Companies Act Requirements
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All companies liable to get accounts audited
To file annual return and audited accounts
electronically
To maintain minutes of shareholders and directors
meetings
To have whole time company secretary if capital
exceeds Rs. 50,000,000
Secretarial audit if capital between Rs. 2,000,000 &
Rs. 50,000,000
Restrictions for public limited companies regarding
managerial remuneration, inter corporate loans and
investments
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Liaison Office
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Governed by FEMA and Companies Act
Prior Approval of RBI under FEMA
Subsequent registration with Registrar of Companies
(RoC)
Not permitted to carry on any income earning activity
in India
Only deposits by way of inward remittance permitted
in bank account
To file annual audited accounts of liaison office with
RBI & RoC
Not liable to income tax (except TDS)
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Liaison Office….
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Permitted activities –
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Representing parent company/group companies in
India
Promoting export/import from/to India
Promoting technical/financial collaborations
between parent/group companies and companies
in India
Acting as communication channel between the
parent company and Indian companies
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Branch Office
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Governed by FEMA and Companies Act
Prior Approval of RBI under FEMA
Subsequent registration with Registrar of
Companies (RoC)
Can earn income in India
To file annual audited accounts of office with RBI
& RoC
Liable to all taxes in India
Income tax at 40% plus surcharge (effectively
42.23%)
Transfer pricing provisions applicable
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Branch Office – Permitted
Activities
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Export/import of goods
Rendering professional or consultancy services
Carrying out research, in which parent co engaged
Promoting technical/financial collaborations between
parent/group companies and companies in India
Representing parent company in India and acting as
buying/selling agent in India
Rendering services in Information Technology and
development of software in India
Rendering technical support to products supplied by
parent/group companies
Foreign airline/shipping company
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Investment in Indian
Company
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Investment in shares of an Indian company
Either by direct subscription or by purchase of
existing shares
Either under Automatic Route or with prior
permission of FIPB
Subject to sectoral caps and prohibited
sectors
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Investment in Indian
Companies- Prohibited sectors
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Retail Trading (except single brand)
Atomic Energy
Lottery Business
Gambling & Betting
Real estate business or construction
Business of Chit Fund
Nidhi Company
Trading in TDRs
Agriculture (excluding floriculture, horticulture, seed
development, animal husbandry, pisciculture, cultivation of
vegetables & mushrooms under controlled conditions, services
related to agro and allied sectors) and Plantations (other than
tea plantations)
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Investment in Indian
Companies - Sectoral Caps
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Scheduled Air Transport – 49% (100% for NRIs)
Non-Scheduled Air Transport – 74% (100% for NRIs)
Ground Handling – 74% (100% for NRIs)
Banking – 74% (FDI + FII and within this FII cannot
exceed 49%)
Insurance - 26%
Telecommunications – 49%
NBFC activities – permitted list of 18 with minimum
capitalization norms
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Some Sectors for which
Automatic Route not available
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Petroleum sector (except refining), LNG/Gas pipelines
Commodity Exchange
Infrastructure Companies in Securities Market
Credit Information companies
Investment companies in infrastructure & services
Defence & Strategic Industries
Atomic Minerals
Print Media
Broadcasting
Satellite
Postal Services
Courier Services
Establishment & Operation of Satellite
Development of Integrated Township
Tea Sector
Asset Reconstruction Companies
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Sectors under Automatic
Route with no sectoral caps
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All others, including
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Software
BPO/KPO
Drugs & Pharmaceuticals
Advertising
Roads, Highways, Ports, Harbours
Shipping
Power
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Certain Restrictions under
Different Statutes/Policies
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Professional Services – Statutes governing each
profession
Print Media – Information & Broadcasting Ministry
Guidelines
Investment in SEZ and Free Trade Warehousing –
subject to Special Economic Zones Act, 2005 and
Foreign Trade Policy
Satellite – Department of Space/ISRO
Petroleum & Natural Gas – Ministry of Petroleum &
Natural Gas
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Some Sector Specific Issues Trading
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Single Brand Retail Trading permitted under
FIPB route
Test Marketing permitted under FIPB route
Franchise?
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Some Sector Specific Issues Real Estate Development
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Subject to
 minimum development area – 10 hectares for serviced
housing plots, 50,000 sq.mtrs. for construction
 minimum capitalization norms – US $ 5 million for JVs,
US $ 10 million for WOS – funds to be brought in
within six months of commencement of Company’s
business
 time period for completion – 50% within 5 years from
receipt of statutory approvals
 lock-in period for funds – 3 years from completion of
minimum capitalisation
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Taxation – Income Tax
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Scope of Taxation
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For residents & domestic companies,
worldwide income
For non-residents – income accruing,
arising or received in India, or deemed to
accrue or arise or be received in India
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Income Tax – Rates of Tax
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Domestic Companies – 30% plus surcharge
(effectively 33.2175%)
Foreign Companies – 40% plus surcharge
(effectively 42.23%)
Dividend Distribution tax – 15% plus
surcharge (effectively 16.995%)
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Withholding Tax Rates for
Payments to Foreign Companies
Nature of Payment
Rate
Interest on Foreign Currency Loan 21.115%
Royalties & Fees for Technical
Services
Dividends
10.5575%
Short Term Capital Gains
15.83625%
Long Term Capital Gains
21.115%
Other Income
42.23%
Nil
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Other tax provisions
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No provisions for group consolidated returns
No controlled foreign corporation rules
No thin capitalization rules
Deemed Dividend in respect of loans to shareholders
Rates of Depreciation prescribed on written down
value basis
No carry backward of losses
Carry forward of losses for 8 years
Minimum Alternate Tax at 18% of book profits
Authority for Advance Rulings for non-residents
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Some Tax Holidays
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New Software Technology Park Units & Export Oriented
Units – 100% of export profits till 31st March 2012
New Units in Special Economic Zones – 100% of profits
for first 5 years, 50% of profits for next 5 asst. years – for
the next 5 year, up to 50% of the amount transferred to
SEZ Reinvestment Reserve account.
Infrastructure Companies – 100% of profits for any 10
consecutive years out of first 20 years
Power Generation, Transmission & Distribution units 100% of profits for any 10 consecutive years out of first
15 years
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Double Taxation Avoidance
Agreements
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Override domestic tax law, to the extent that
treaty more beneficial to taxpayer
Comprehensive Treaties with 79 countries
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Double Taxation Avoidance
Agreements – Some Treaties
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Belgium
Interest
Royalty FTS
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10
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Cyprus
Denmark
France
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15
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15
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10
20
10
Germany
Italy
Ireland
10
15
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20
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20
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Malta
10
15
10
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Double Taxation Avoidance
Agreements – Some Treaties
Country
Netherlands
Interest
Royalty FTS
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Norway
Portugal
Spain
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10/20
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Sweden
Switzerland
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United Kingdom
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10/15
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Transfer Pricing
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Applicable to transactions between related entities, at
least one of which is a non-resident
5 recognised methods for ALP determination
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Comparable Uncontrolled Price
Resale Price Method
Cost Plus Method
Profit Split Method
Transactional Net Margin Method
No safe harbour rules
Transfer Pricing Audit
Scrutiny of transactions exceeding Rs.150,000,000 in
a year
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Income Tax Procedures
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Payment of advance tax
Filing of tax returns
Assessment by Assessing Officer
Appeals to Commissioner (Appeals)
Appeals to Income Tax Appellate Tribunal
Appeals to High Court
Reference to Supreme Court
Website www.incometaxindia.gov.in
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Excise Duty
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Duty payable by manufacturer on
manufacture of goods
To be paid at time of removal from factory
Normally payable on selling price – generally
recovered from customer
Normal rate of 10% plus education cess
(effectively 10.30%)
Cenvat Credit available for excise duty paid
on inputs & service tax paid on input services
Website www.cbec.gov.in
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Service Tax
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Payable by service provider on provision of specified
services
Most services taxable, other than medical services
Payable on value of services at 10% plus education
cess (effectively 10.30%) – generally recovered from
customer
Payable by service recipient on import of services
Export of services exempt
Cenvat Credit available for excise duty paid on inputs
& service tax paid on input services
Website www.servicetax.gov.in
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Customs Duty
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Payable on import of goods into India
Payable on clearance of goods from
port/airport
Normal Customs Duty rate of 10% plus
education cess (effectively 10.30%)
Additional Duty to match Excise Duty rates
Special Additional Duty at 4% of value
Website www.cbec.gov.in
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VAT
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Payable on sale of goods
Payable on sale price, including excise duty
Lease and works contracts deemed to be
sales
Normal rate of 12.5%
Set off available for VAT paid on purchases
Central Sales Tax on inter-state transfers
No VAT on purchases during course of import
or on exports
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Cultural Aspects of Doing
Business in India
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Land of different cultures – people from North
India more aggressive, from South India more
conservative, from West India more businesslike
Both strongly held traditional values and
emerging modern business practices prevalent
Greet with a handshake or namaste
Always use formal titles (Mr., Dr., Sir, Madam )
when greeting for first time
Punctuality – be prepared for delays in
appointments, particularly in Government offices
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Cultural Aspects of Doing
Business in India ….
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Most Indians are reluctant to say no directly - try
and understand the message behind the words
Get to know your counterpart as a person and
gain his trust
Be willing to share a cup of tea/coffee and
indulge in small talk before getting down to the
main business
Do not be offended at personal questions
Do not be too aggressive or forceful or
confrontationist – try and use reasoned logic
after understanding the other person’s problem
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Thank You!
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