DOING BUSINESS IN INDIA
Since 2003, Healy Consultants Group PLC has been efficiently and effectively assisting our Clients with establishing a business in India. Our experts serve our Clients with i) India business registration ii) government compliance iii) license registrations iv) visa applications v) work space rental solutions and vi) employee recruitment solutions.
|Summary||LLC||Fast solution||Free zone company||LLP||Branch company||Representative office|
|Best use of company?||Trading company||Trading company||Manufacturing & distribution||Professional services||Projects and assignments||Customer service/research|
|Legally tax exempt if properly structured?||No||No||Yes||Yes||No||Yes|
|Corporate bank account location?||SCB India||DBS India||HSBC India||HDFC India||Citibank India||Axis India|
|Client must travel to India?||No||No||No||No||No||No|
|Can secure trade finance?||Yes||Yes||Yes||Yes||Yes||No|
|Limited liability entity?||Yes||Yes||Yes||Yes||No||No|
|Sales tax payable on sales to local customers?||Yes||Yes||Yes||Yes||Yes||No sales allowed|
|Withholding tax on payments to shareholders?||20%||20%||20%||20%||20%||0%|
|Average total engagement costs?||US$14,355||US$27,905||US$15,505||US$16,355||US$15,605||US$15,435|
|Average total engagement period?||4 months||4 months||4 months||4 months||5 months||5 months|
|Accounting and tax considerations||LLC||Fast solution||Free zone company||LLP||Branch company||Representative office|
|Statutory corporate tax payable?||34%||34%||0%||0%||43%||None|
|Must file an annual India tax return?||Yes||Yes||Yes||Yes||Yes||No|
|Effective corporate tax rate on net profits of US$250,000?||34%||34%||0%||0%||43%||None|
|Must file annual financial statements?||Yes||Yes||Yes||Yes||Yes||Yes|
|Investment income is legally tax exempt in India?||No||No||No||Yes||No||No|
|Access to double taxation treaties?||Yes||Yes||Yes||No||Yes||No|
|This entity enjoys Government incentives?||Yes||Yes||Yes||Yes||Yes||No|
|Monthly sales tax reporting to the Government?||Yes||Yes||Yes||Yes||Yes||No sales allowed|
|Legally tax exempt entity?||No||No||Yes||Yes||No||Yes|
|Dividends received are legally tax exempt?||No||No||No||No||Yes||No|
|Company registration||LLC||Fast solution||Free zone company||LLP||Branch company||Representative office|
|Resident director\partner\manager required?||Yes||Yes||Yes||Yes||Yes||Yes|
|Minimum number of shareholders\partners?||1||1||1||2||Parent company||Parent company|
|Minimum number of directors/managers?||1||1||1||1||1||1|
|Minimum paid up share capital?||US$1,650||US$1,650||US$1,650||US$1||None||None|
|Shelf companies available?||Yes||Yes||No||No||No||No|
|Time to incorporate a new entity?||2 months||3 weeks||2 months||2 months||3 months||3 months|
|Can easily convert to a local PLC company?||Yes||Yes||Yes||No||No||No|
|Can have preference shareholders?||Yes||Yes||Yes||Yes||No||No|
|Business considerations||LLC||Fast solution||Free zone company||LLP||Branch company||Representative office|
|Can invoice local customers?||Yes||Yes||Yes||Yes||Yes||No|
|Can hire local staff?||Yes||Yes||Yes||Yes||Yes||Yes|
|Can rent local office space?||Yes||Yes||Yes||Yes||Yes||Yes|
|Secures a residence visa for business owner?||Yes||Yes||Yes||Yes||Yes||No|
|Good entity for trademark registration?||Yes||Yes||Yes||Yes||Yes||No|
|Other useful information||LLC||Fast solution||Free zone company||LLP||Branch company||Representative office|
|India has signed free trade agreements?||Yes, see this link|
|This country is a member of WIPO and TRIPS?||Yes|
|The country is a member of the ICSID?||Yes|
|Average customs duties suffered?||6.2%|
|Government foreign investment approval is required?||Yes|
|Average monthly office rental? (US$ per sq m)||50|
|Minimum statutory annual salary?||40|
|Average monthly US$ salary for local employees?||190|
|INR deposit interest rate? (1 year average)||7%|
|US$ deposit interest rate? (1 year average)||1.7%|
|Overseas remittance currency controls?||Yes|
|Public register of shareholders and directors?||Yes|
|Multi-currency bank accounts available?||Yes|
|Corporate visa debit cards available?||Yes|
|Quality of e-banking platform?||Yes|
|Crowd funding available in this country?||Yes|
Press the link headings below to read detailed, relevant, up to date information.
Benefits and problems of registering a company in India(Back to Top)
Benefits and problems
Benefits of India company registration
- The Indian economy presents massive untapped market potential for our Clients because:
- India is the 3rd largest economy in Asia by GDP and is expected to become the world’s fastest growing economy in 2015 with a projected growth rate of 7.5%. India is also the world’s 2nd largest country (by population) and has a massive consumer market which is expected to quadruple from US$991 billion in 2010 to US$3.6 trillion in 2020;
- The Indian Government has recently started to allow foreign direct investments (FDIs) in various sectors including retail, finance, insurance, airline, railways and telecom. So, Healy Consultants encourages its Clients to setup a base in India to tap these new markets;
- India has signed 90 double tax avoidance agreements (DTAAs) and 28 free trade agreements (FTAs). This will allow our Clients to not only reduce their withholding taxes but also market their product to other huge markets including China and Australia.
- Operating a business in India will be cheap for foreign entrepreneurs because:
- An Indian limited liability company can be incorporated with a low paid up share capital of US$1,650;
- Average salaries in India are very low at US$169 per month;
- Electricity retail prices in India are low at US$0.08 per Kwh;
- India has amongst the lowest consumer cost index in the world. According to the Worldwide Cost of Living 2014 index, Mumbai and Delhi are respectively the 1st and the 3rd least expensive cities in the world. As a result, our Clients will find it relatively inexpensive to live and work in India;
- Foreign entrepreneurs will find it cheap to travel within the major metropolitan cities as average domestic airfare is lower in India as compared to the rest of the world.
Problems with India company registration
- Doing business in India is difficult for foreigners because:
- It can take up to 5 months to incorporate a simple LLC and open the corporate bank account, because of the amount of paperwork involved and government approvals required;
- Companies will need to work regularly with government authorities for matters relating to business approvals and licenses which can be very chaotic and disorganized. As a result, the World Bank negatively ranks the country as 155th in the world for starting a new business;
- India’s infrastructure is negatively ranked 81st in the world in the Global Competitiveness Report 2014-15. Problems including power cuts (Electricity infrastructure rank – 115th) and underdeveloped roads, railways and airports (Transport infrastructure rank – 32nd) should be expected. That said, India does have a massive distribution network with the 2nd largest roadways and the 4th largest railways in the world. This allows resident businesses cheap connectivity to every part of the country;
- Labor unrest can be a problem in India as industrial disputes and strikes occasionally impact productivity;
- Consequently, the World Bank listed India as 130th best in the world in its annual Doing Business survey.
- Foreign entrepreneurs are nervous about the security of their investments in India because:
- Foreign investors may have difficulty relying on the Indian regulatory system to protect their business interests as the country’s corruption index ranks 85th out of a total of 183 countries;
- Patent and licensing guidelines favor local manufacturers rather than international players. Consequently, India is ranked 46th out of 97 countries in the Intellectual Property Rights index;
- India rupee value is volatile, impacting the value and profitability of foreign investments in India.
- Total tax paid by companies in India (as a percentage of profit) can be as high as 60% because:
- Corporate tax rate for a resident company is 34% while for a branch of a foreign company is 43%;
- Additional taxes and levies include i) VAT at 14% ii) import and export duties at an average rate of 12% iii) central excise duty at 12% iv) tax on dividends at 20% and v) employer’s social security contributions at 12%. For more information, kindly refer to our section on accounting and tax.
- The process of repatriating funds from India can be cumbersome because:
- Our Clients will be required to settle their TDS (withholding tax) claims applicable to the amount remitted and submit i) Form 15CA to the Income Tax Department ii) Form 15CA and Form 15CB to the Reserve Bank of India (RBI) and iii) Form A2 to the bank;
- This process can take up to 3 weeks. For more information, please refer to our section on repatriating funds from India.
- The Indian economy presents massive untapped market potential for our Clients because:
Best uses for an Indian company
- India is an excellent country to setup a manufacturing company because:
- Companies setting up a manufacturing unit in a Special Economic Zone (SEZ) can claim i) 100% tax deduction on export profits for the first 5 years and ii) 50% tax deduction for the next 10 years. Furthermore, miscellaneous incentives including exemption from custom duties, excise duties and VAT may also be available, depending on the state in which the SEZ is located;
- Oil and gas companies engaged in production of either mineral oil or natural gas will be 100% corporate tax exempt for the first 7 years. Furthermore, companies involved with laying down and operating new oil and gas pipelines for distribution purposes will receive full refund of all costs associated with the project;
- Companies engaged in recycling bio-degradable waste to produce agricultural products including fertilizers and pesticides will receive corporate tax exemption for the first 5 years. Furthermore, companies which are looking to setup new facilities to produce fertilizers will receive re-imbursement worth 150% of the total cost of setup;
- Businesses setting up new plants or purchasing new machinery to be used for manufacturing of goods or generation and distribution of power will be eligible to claim additional depreciation worth 20% of the cost of the new plant/machinery;
- Manufacturing companies will receive 100% exemption on custom duty on import of capital goods and raw materials if the value of the goods exported is at least 6 times the custom duty incurred;
- India has the world’s 2nd largest labor market with 487 million people and 54% of the total population below the age of 25. The overall literacy rate is 74% and the number of English speakers are over 125 million. Furthermore, the country has over 380 universities, 11,200 colleges and 1,500 research institutions which has produced the world’s largest pool of English speaking scientists and engineers;
- Resident manufacturing companies are eligible to claim a deduction equivalent to 30% of wages of the newly hired employees for 3 consecutive financial years;
- Companies investing at least US$40,300 in agriculture based projects will receive refund worth 150% of the total cost of training and guiding local farmers. However, these projects must be approved by the Department of Agriculture and the Income Tax Department;
- The Ministry of Commerce and Industry (MCI) provides funding under the Marketing Development Assistance Scheme, to local firms who wish to promote their businesses in international trade shows and exhibitions. These companies can also apply for financial grants to study the international markets, under a scheme operated by the Small Industries Development Organization (SIDO);
- The Export Credit Guarantee Corporation of India Limited (ECGC) offers exporting companies the following services i) guarantees on behalf of the companies to banks and other financial institutions ii) credit risk insurance to companies in case of loss of export goods/services and iii) investment insurance to resident companies if they are involved in joint ventures (JVs) with foreign firms;
- As a result, Deloitte ranks India as the 4th most competitive global destination for setting up a manufacturing company and projects the country to become the 2nd most competitive by 2018.
- Foreign investors should establish a services company in India because:
- Companies looking to incorporate in the Software Technology Parks (STPs) in India will receive benefits including i) 100% custom duty exemption on all imports ii) 100% central excise duty exemption and central sales tax exemption on locally procured goods and iii) accelerated depreciation of 100% on computers;
- IT companies incorporating in Bangalore (India’s IT hub) will be eligible for i) 100% exemption from payment of tax on capital goods and purchase of computer hardware ii) sales tax exemption for 10 years iii) exemption from payment of electricity tax. Furthermore, companies looking to work in Bangalore’s IT Park will, additionally, receive 50% exemption from stamp duty and registration charges for land purchase in the area;
- Entrepreneurs incorporating either i) a new bank ii) subsidiary of an international bank or iii) a unit of an international financial service centre in the SEZ will be eligible for 100% deduction in certain income for the first 5 years and 50% deduction in the next 5 years;
- Companies investing in operating or maintaining infrastructure facilities including roads, highways, airports or seaports will receive 100% corporate tax exemption for 10 years. These incentives will also be available to companies involved in developing and maintaining SEZs;
- Companies investing in renewable energy sources are eligible for i) refunds up to 20% of their total cost and ii) accelerated depreciation of 80% on the value of the solar panels and wind mills. Furthermore, companies engaged in recycling waste material to generate power will receive 100% corporate tax exemption for the first 5 years;
- Resident companies involved with setting up and operating i) cold chain facilities ii) inland container depots iii) container freight stations and iv) warehousing facilities for agricultural products are eligible for re-imbursement up to 150% of the total cost of operations;
- R & D companies i) investing in in-house biotechnology projects or ii) outsourcing their science based projects to other Indian companies, universities and research associations are eligible to receive refund up to 200% of their total costs;
- Indian companies exporting services worth US$16,150 (INR 1,000,000) in a fiscal year can utilize the duty credit script (Served from India Scheme) to make payments for either custom duties on imports or excise duties on domestic goods;
- Consumer demand for India’s Business Process Outsourcing (BPO) industry continues to remain high as 56% of the world’s outsourcing business is handled by the country. As a result, our Clients must setup a company in India to take advantage of this massive demand;
- The SMERA Rating Agency Pte. Ltd. provides credit ratings to small and medium enterprises (SMEs). Our Clients can use these credit ratings in order to obtain benefits including i) cheap loans from banks and other financial institutions and ii) better business image to prospective Clients and suppliers;
- As a result, India has the 2nd fastest growing service sector in the world after China, growing at an average rate of 9% per year.
- India is an excellent country to setup a manufacturing company because:
Choose a suitable business entity type(Back to Top)Choosing the right vehicle and strategy for starting a business in a new jurisdiction is an important decision to make, especially in countries like India where red tape is plentiful. Healy Consultants has the expertise and experience to advise our Clients on the optimum corporate structure for India business setup. There are several ways of doing business in this country, most popular being through a private limited company. Please read further for additional information on the different types of business entities available in India.
Local business entities available
The Indian Limited Liability Company (private limited company)
- In India, this entity is officially called the Private Limited Company (Pvt. Ltd). It can be incorporated with a low minimum paid up capital of US$1,650 (INR100,000) and 2 directors and 2 shareholders. Although the shareholders can be of any nationality, at least 1 director must be an Indian resident;
- All the directors and shareholders will be required to register their personal details for public records. All directors are also required to obtain DIN and DSC numbers (directors identification numbers). See this page for further details on the steps required to register an Indian limited liability company;
- Best uses: The Indian LLC is recommended entity to enter into the local market and limit the liability of foreign investors, especially for export and direct sales, manufacturing and software development companies. Foreign investors with this permanent establishment will have access to a wide range of government subsidies that incentivize re-investment into the country.
The India limited liability partnership
- Foreigners can register limited liability partnerships in India. Under the Limited Partnership Act of 2008, all partners can now benefit from limited liability for the activities of the partnership and no minimum contribution is fixed. Partnerships formed by nonresident foreigners are required to appoint one resident manager in India;
- An Indian LLP is required to submit each year financial statements to the Indian tax authority. Such statements must be audited, unless the partnership is receiving income below US$500 (INR40,000) and has assets below US$375 (INR25,000);
- Best uses: A limited liability partnership is a flexible vehicle, subject to less compliance rules than a LLC. Its income is also directly taxed at the partners’ level.
The India free zone company (EPZ company)
- For our Clients willing to manufacture and export their products from India, registration of a company in an export processing zone is often an attractive solution. Registration requirements are the same as those applicable to a standard limited liability company, although the free zone authorities can require the owners to allocate higher amounts of paid-up capital;
- See this page for further information on Indian free zones and their taxation benefits;
- Best uses: manufacturing products to be exported to overseas markets.
The Indian Public Limited Company
- A public company can be incorporated with a minimum paid up share capital of US$8,060 and 3 directors and 7 shareholders. Although the shareholders can be of any nationality, at least 1 director must be an Indian resident. Such company is also required to go through an annual audit of its financial statements;
- Best uses: although it is not mandatory for a public limited company to be listed on the Indian stock exchange(s), an IPO is usually the purpose of the registration of such entity.
Registration by a foreign company
- This entity only functions within the scope defined by the parent company. In India, a branch office can engage in trade, professional consultancies, export/import of goods, invoicing and signing contracts. In order to incorporate a branch office, our Client will be required to obtain approval from the Reserve Bank of India (RBI). A branch incorporated in a Special Economic Zone (SEZ) can only conduct business activities within the zone itself;
- Best uses: registration of a branch is usually not advisable in India. An Indian branch of a foreign company has indeed not only as much administrative requirements as a subsidiary but also the disadvantages of incurring 43% corporate tax and presenting higher risk to liabilities directly borne by the parent company.
Representative office (liaison office)
- In India, this entity is called the liaison office. A liaison office assists the parent company in i) promoting export/import to and from India and ii) promoting technical and financial collaborations with other resident firms. Consequently, this business entity acts as a channel of communication between the parent company and potential customers/suppliers in India;
- Best uses: a representative office is a good option if you want to test the Indian market before committing major resources through the setup of a permanent establishment in the country. As an RO is a non-revenue generating entity, it is also the ideal setup to provide after sales customer support to local clients.
- This entity may be set up to carry out a specific contract for a specified time period within India. After the project is complete, the entity will be terminated. The operations of a project office will be taxed in the same way as the operations of a branch office. Remittance of profits outside India is allowed, subject to the prevailing exchange controls;
- Best uses: registration of a project office is a good vehicle for one off project. They indeed are much easier to de-register than a permanent establishment (branches and subsidiaries), which can turn into a complex affair.
Table of comparison between business entities
LLC LLP EPZ company PLC branch RO Project office Operations and logistics Bank Signatory must travel? No No No No No No No Is doing business in India permitted? Yes Yes Yes Yes Yes No Yes Allowed to sign contracts with local clients? Yes Yes Yes Yes Yes No Yes Allowed to invoice local clients? Yes Yes Yes Yes Yes No Yes Can rent local office premises? Yes Yes Yes Yes Yes Yes Yes Tenancy agreement required before incorporation? No No No No No No No Allowed to import raw materials? Yes Yes Yes Yes Yes No Yes Allowed to export goods? Yes Yes Yes Yes Yes No Yes Accounting and tax Corporate tax payable? 34% 0% Up to 0% 34% 43% None 43% Corporate bank account? SCB India HDFC India HSBC India SCB India Citibank India Axis India Citibank India Statutory audit always required? No Yes No Yes Yes Yes Yes Annual tax return to be submitted? Yes Yes Yes Yes Yes No Yes Access to double taxation treaties? Yes No Yes Yes Yes No Yes Company law Issued share capital required? US$1,650 US$1 US$1,650 US$8,060 None None None Resident director/manager required? Yes Yes Yes Yes Yes Yes Yes India shareholder/trustee/partner required? No Yes No No No No No Minimum number of directors/managers? 1 1 1 3 1 1 1 Minimum number of shareholders/partners? 1 2 1 7 Parent company Parent company Parent company Individual shareholders/partners allowed? Yes Yes Yes Yes No No No Corporate director(s)/managers allowed? No No No No No No No Public register of shareholders and directors Yes Yes Yes Yes Yes Yes Yes Immigration Can the entity hire expatriate staff? Yes Yes Yes Yes Yes Yes Yes Fees and timelines How long to set the company up? 2 months 2 months 2 months 2 months 3 months 3 months 3 months How long to open corporate bank account? 1 month 1 month 1 month 1 month 1 month 1 month 1 month Estimate of engagement costs US$14,355 US$16,355 US$15,505 US$16,355 US$15,605 US$15,435 US$15,605 Draft invoice
Register a company in 10 steps(Back to Top)
- Before Healy Consultants commences the incorporation process, we request our Clients to i) sign our engagement letter and courier us ii) the signed letter along with all the required due diligence documents (click link) and iii) settle Healy Consultants’ engagement fees;
- Our experts will draft a detailed engagement plan (click link) for our Clients, detailing by week every step towards engagement completion. This plan will optimize work transparency and settle our Client’s expectations;
- After Healy Consultants and our Client agree the corporate structure and our Client provides i) 2 passport size photographs and ii) notarized copies of passport and address proof for each director and shareholder, Healy Consultants will submit a) an application for Digital Signature Certificate (DSC) at a Certifying Authority and b) obtain a Director Identification Number (DIN) by filling a DIN-3 application form together with a signed DIR-4 declaration form on the Ministry of Corporate Affairs (MCA) website;Note: The DSC will enable the Indian company directors to e-sign and upload forms of the Registrar of Companies (ROC) and MCA;
- After approval of DSC and DIN, Healy Consultants will file the Integrated Incorporation Form INC-29 which includes: company name reservation (Form INC-1), the Memorandum and Articles of Association (MOA & AOA) and subscriber sheets. which must be handwritten and our Client’s signatures must be witnessed by a Public Notary in their home country. No embassy legalization is required;Note: For company name reservation our Client will be required to provide 6 different company name options to ensure approval according to MCA guidelines. Check the availability of company names;
- After obtaining the MCA issued Certificate of Incorporation, Healy Consultants will complete online tax registrations with the Income Tax Department (ITD). Healy Consultants will e-file i) Form 49A to obtain a Permanent Account Number (PAN) and ii) Form 49-B to secure a Tax deduction and collection Account Number (TAN). If required, we will also register the company for VAT;
- After PAN approval, Healy Consultants will assist our Client open a local multi-currency corporate bank account with a top tier Indian bank with internet banking facilities;
- Once the corporate bank account has been approved, within 2 months our Clients must deposit the minimum share capital amount of US$1,650 (INR 100,000) from their personal bank account to the newly opened corporate bank account.
- Our Client provides Healy Consultants the bank transfer advice slip and/or certificate of deposit for the receiving bank in India to issue a Foreign Direct Investment (FDI) Certificate for the Reserve Bank of India (RBI);
- Lastly, Healy Consultants registers the new company for medical insurance with the Employee’s State Insurance Corporation (click link) (ESIC);
- The process of India company registration is now complete. With the engagement complete, Healy Consultants will courier a full company kit to our Client; the kit includes the original corporate documents, unopened bank correspondence and a feedback form.
Phase 1 – Digital Signature Certificate (DSC) and Director Identification Number (DIN)
Phase 2 – Company name reservation and company incorporation
Phase 3 – Corporate income tax registrations (PAN and TAN)
Phase 4 – Corporate Bank account opening and injection of share capital
Open a local corporate bank account(Back to Top)Healy Consultants will assist our Clients with opening corporate banking account in India. Our services will include preparing all the requisite documentation and then submitting them to the bank. If required, our representative will attend the account opening interview on your behalf. Please find below more information regarding business banking in India.
India banking sector
- India’s commercial banking market is dominated by 26 public sector banks which hold almost 73% of the total assets of the banking sector. In addition, there are 63 commercial banks in the private sector, 43 of which are foreign institutions;
- The State Bank of India is the largest public sector bank in the country, while ICICI Bank is the largest private sector bank. Additionally, international banks like Citibank, HSBC, SCB and Barclays have also set up their branches in India;
- When operating in India, our Clients can choose to open their accounts in international banks including HSBC and Citibank. Alternatively, they may choose to work with renowned local banks including HDFC and ICICI Bank;
- It can be challenging to open a corporate bank account in India. On an average, it can take up to two months to obtain bank account approval, account number and internet banking access. The major reasons for these delays are the increased due diligence requirements and generally, sluggish bank bureaucracy.
Healy Consultants services
- Our services include assisting our Clients with i) opening the company bank account and ii) obtaining access to internet banking facilities. As you can appreciate, it is a difficult task to obtain bank account approval through a newly formed company, when shareholders and directors and bank signatories reside overseas. Healy Consultants will prepare a business plan for the bank to optimize the probability of corporate bank account approval. Our fee for this service will be US$3,950. Please note this fees does not include the initial deposit required by the bank;
- Healy Consultants will liaise with the banks to prevent our Clients from travelling for the interview. However, there is still a 10% chance that the bank may require our Clients to travel for a one hour interview. There will be a fee discount of US$1,450 if you have to travel;
- The banks enjoy the ultimate power of approval over corporate bank account applications. Consequently, guaranteed success is outside our control. What is inside our control is the preparation and submission of a high quality bank application that maximizes the likelihood of approval. To date, we enjoy a 100% approval record because of our global banking relationships and determination;
- Following account opening approval, the bank will directly and independently email our Client the corporate bank account number.
Steps to opening a corporate bank account
- Healy Consultants banking team will provide proof of company incorporation to the bank and receive the corporate bank account opening application and a list of supplementary documents;
- Our experts will complete the application form on behalf of our Client, and assist with preparing the supplementary documentation. These documents will be sent to the Client for their signature who will courier them to our India affiliate office along with notarized copies of passports and proof of addresses for all directors and shareholders;
- Our experts will also prepare a detailed Business Plan relating to our Client’s company to support the account opening application;
- Healy Consultants banking team will submit all the prepared documents to the bank. After we receive the approval from the bank, we will apply for the internet banking facilities on our Clients’ behalf;
- Lastly, our Client receives the i) bank account Internet login and password information and ii) corporate cheque books and iii) corporate cards in a sealed letter.
Foreign exchange controls
- The Indian Government has established a regulatory regime for the exchange of foreign currency under the Foreign Exchange Management Act (FEMA), 1999. Under this act, most forex transactions will be permitted unless specifically prohibited by the RBI;
- In India, the rupee has full current account convertibility for all purposes except for making loans and investments. Hence, our Clients will be able to repatriate their funds from the country. However, all capital account transactions will be monitored by the RBI.
Repatriating Funds from IndiaWhile the Indian Government has significantly simplified the process of repatriating funds from the country, certain bureaucratic checks still continue to remain in place. So, in order to remit currency from India, our Clients will be required to fill out certain forms and submit them to the Income Tax Department, the Reserve Bank of India and their bank. Please find below the steps taken by Healy Consultants to assist our Clients repatriate their money from India.
- Healy Consultants will prepare and file Form 15CA online on the Income Tax Department website. In this document, following information will be included: i) bank account details of the remittee and the remitter ii) personal details of the remittee and the remitter iii) amount to be remitted iv) amount of tax to be deducted at source (TDS) and v) any tax relief (applicable under DTAAs). We will print a hard copy of the completed form 15CA which will be submitted to the RBI at a later stage;
- Next, our Client must proceed to settle their TDS liability (withholding tax) applicable to the amount being remitted. After this step is completed, Healy Consultants will proceed to prepare Form 15CB. This document is a certificate prepared by your chartered accountant that all tax liability has been settled with the Income tax department. Healy Consultants will be pleased to provide our Client with our accounting and tax services, if required;
- Healy Consultants will now submit the hard copy of form 15CA and form 15CB at the Reserve Bank of India (RBI) for their approval. Kindly note, RBI only needs to confirm if the TDS payment has been successfully made i.e. if the TDS account has been settled, then you should receive the remittance approval from the RBI;
- After receiving approval from the RBI, our experts will prepare Form A2 and submit it to the bank along with the RBI remittance approval document. The bank will verify your documents and proceed to process your payment which should be completed immediately.
How corporate taxation works in India(Back to Top)
- In India, domestic companies are taxed at 31%. However, if the annual income exceeds US$161,000 (INR 10,000,000), the tax rate increases to 32% and if the annual income exceeds US$1,610,000 (INR 100,000,000), the tax rate increases to 34%;
- Branch companies will be taxed at 40%. However, if the annual income exceeds US$161,000 (INR 10,000,000), the tax rate increases to 42% and if the annual income exceeds US$1,610,000 (INR 100,000,000), the tax rate increases to 43%;
- The average VAT rate in India is 14%. All companies with an annual turnover higher than US$8,050 (INR 500,000) must register for VAT. VAT returns will be filed monthly, quarterly or half-yearly, depending on the state in which the company is incorporated;
- Dividends paid by a domestic company are subject to the dividend distribution tax (DDT) of 20%. Dividends received by a domestic company from a foreign company will be taxed at 40%. However, if a domestic firm owns 26% stake in the foreign firm, the tax rate is reduced to 15%;
- Interest payments and royalty payments to non-resident entities will be subject to a withholding tax of 20% and 25% respectively.
- Companies will be subject to a minimum alternate tax (MAT) at 19% if their current tax liability on total corporate profits is currently less than 19%;
- Import and export duties are charged at an average rate of 12%;
- Central excise duty by the federal government is levied at 12%;
- A wealth tax of 1% applies to individuals who own assets which are not being used for business purposes including precious metals, cars and yachts worth US$48,300 (INR 3,000,000).
Tax reporting, audit and other considerations
- Resident companies must file their tax returns before 30th September every year. Filing of consolidated tax returns is not permitted under Indian tax law;
- It is mandatory for the directors of an Indian company to appoint an auditor within 30 days of the date of company incorporation;
- India, has signed Double Taxation Agreements (DTA) with 90 countries like Australia, China, Japan, Malaysia, Singapore and USA to reduce withholding tax on payments abroad;
- Healy Consultants Compliance Department will assist our Clients with i) documenting and implementing accounting procedures ii) implementing financial accounting software iii) preparation of financial accounting records and iv) preparing forecasts, budgets and sensitivity analysis;
- It is important our Clients’ are aware of their personal and corporate tax obligations in their country of residence and domicile; and they will fulfill those obligations annually. Let us know if you need Healy Consultants’ help to clarify your annual reporting obligations.
Legal and compliance considerations(Back to Top)
- An Indian LLC must be setup with a minimum of 2 directors and 2 shareholders. While all shareholders can be foreigners, at least 1 director must be an Indian resident;
- The minimum share capital required to register an LLC will be US$1,650 (INR 100,000). To register a public company, the minimum share capital required will be US$8,060 (INR 500,000);
- If the share capital of the company exceeds US$811,600 (INR 50,000,000), a resident company secretary must be appointed;
- Before an individual can be appointed as the director of the company, he/she must apply for a DIN (Director Identification Number). Also, at least 1 director must have a digital signature;
- Before incorporating a branch office or a liaison office, prior approval from the Reserve Bank of India (RBI) is mandatory. Furthermore, parent companies will need to submit their latest audited balance sheets showing assets worth at least US$100,000 (in case of branch office) and at least US$50,000 (in case of liaison office);
- Every listed company in India must have at least 1/3rd of its directors as independent directors.
Reporting and other compliances
- All resident companies must file audited annual financial statements with the Registrar of Companies (ROC). Listed companies will, additionally, submit their statements to the Securities and Exchange Board of India (SEBI) and the Stock Exchange;
- Companies are also required to file their withholding tax returns quarterly and their service tax returns half-yearly (only applicable for service providers);
- Every company with annual revenue of at least US$40,600 (INR 2,500,000) must submit its tax returns for a mandatory tax audit;
- Branch offices and liaison offices are required to file an Annual Activity Certificate every year with the RBI;
- Every Indian company must hold at least 1 board meeting every quarter i.e. at least 4 board meetings in one calendar year. It is also mandatory to hold an Annual General Meeting (AGM) within 6 months of the close of the accounting year i.e. before the 30th of September;
- All corporate entities must obtain prior approval from the ROC, the RBI and the Income tax authorities before they can wind up their operations.
- The maximum weekly working hours are fixed at 48 hours with a maximum of 9 hours a day. If employees work overtime, then they must be paid twice their current wage;
- Women workers can only be employed between 6AM and 7PM. Companies can request the respective state governments for exemptions but women still cannot be employed between 10PM and 5AM;
- Workers are entitled to 1 day of paid leave for every 20 days worked, provided they have worked for at least 240 days in the previous year;
- All companies with at least 20 employees must pay bonuses to employees earning a monthly wage up to US$160. The bonus paid will between 8% and 20% of the annual salary of the employee;
- All employers must contribute 12% of their employee’s wages to the latter’s pension fund and provident fund. Factories which employ at least 10 workers must also contribute an amount equivalent to 5% of their employee’s wage for the latter’s health insurance.
Apply for employment visas(Back to Top)Both foreign professionals and investors need to apply for an Indian visa, in order to be eligible to work and relocate in the country. Healy Consultants is ready to proficiently guide our Clients through the application process. Our fee for this service is US$3,950. Different applicable visa are as follows:
- To be self-employed in India, foreign investors need to apply for a business visa (or ‘B’ visa), valid for up to 5 years;
- Foreign entrepreneurs wishing to establish a JV company may be issued the visa for up to 10 years. However, applicants can only stay for up to 6 months during each visit;
- Documents to be submitted at the embassies or high commissions will include i) a valid passport ii) proof of India company formation and iii) proof of financial standing.
- Employment Visa (or ‘E’ visa) is granted to i) foreign employees working in India; ii) foreign paid interns in an India resident company and iii) foreigners volunteering in an NGO;
- Minimum annual salary of each applicant must be above US$25,000;
- Documents to be submitted at the embassies or high commissions will include: i) a valid passport; ii) employer sponsorship letter; iii) employee’s educational and professional credentials and iv) proof of India company formation;
- Foreign employees can obtain employment visa for a period of up to 3 years, which can later be extended for a total stay of up to 5 years;
- To be eligible to work in in India, applicants must further must register with the Foreign Regional Registration Office upon arrival in the country.
- A visitor (tourist) visa will be issued for a maximum period of 6 months;
- Positively, citizens of certain countries such as France, Germany and Luxembourg can obtain a visa for a period of up to 5 years. Furthermore, US citizens will be eligible for tourist visa for up to 10 years;
- Following documents will be required i) a valid passport; ii) proof of financial standing to cover the trip and iii) proof of travel medical insurance.
Alternative visa optionsOther than the visa mentioned above, the following specialty visa apply to descendants of Indian citizens as listed below:
- Persons of Indian Origin (PIO Card) – The PIO scheme applies to people of Indian origin, defined through their birth or residency, or that of their parents or grandparents and offers a long-term Indian visa solution. PIO cards are granted for a period of fifteen years, and allow their holders to enjoy visa free travel in and out of India. PIO cards allow their holders to freely engage in work or study in India and after the minimum seven-year residency requirement the option to apply for Indian citizenship is available;
- Overseas Citizenship of India (OCI) – Overseas citizenship of India allows Persons of Indian Origin who have obtained citizenship of another nation, to acquire long-term leave to remain in India.
Migrate to IndiaInternational entrepreneurs find migration to India straightforward thanks to Healy Consultants’ comprehensive relocation services. Kindly find below more information with regards to our services:
- Assistance to confirm the correct type of visa and document collection of required visa due diligence set;
- Liaison and submission of Indian employment and residence visa application with the Bureau of Immigration;
- Healy Consultants helps entrepreneurs and their families obtain permits allowing them to live and work in India. Healy Consultants’ fee to assist our Client obtain a work permit is US$3,950.
Healy Consultants’ video on registering a business in India