Doing Business in India
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Transcript of Doing Business in India
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Doing Business in India
Contractor, Nayak & KishnadwalaChartered Accountants, Mumbai, India
Tel. +91-22-6623 0600Fax. + 91 -22- 2261 5814
e mail [email protected]
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Reasons for Doing Business in India 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 CountriesRank
Country Cumulative Inflows (April 2000 to Nov
2010) USD Million
% of total value
1 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%
6 Japan 4,631 4%
7 Germany 2,903 2%
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FDI Equity Inflows – Top SectorsRank Sector Cumulative Inflows (April
2000 to November 2010)USD Million
% of total 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%
5 Construction activities 8,887 7%
6 Power 5,611 5%
7 Automobile 5,129 4%
8 Metallurgical industry 4,090 3%
9 Petroleum & Natural Gas 3,195 3%
10 Chemicals 2,767 2%
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Establishment of Business Applicable Laws governing
Establishment of Business Options for foreign companies/citizens Applicable taxes
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Applicable Laws Industrial Policy of Government of India Foreign Exchange Management Act,
1999 (FEMA) Companies Act, 1956
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Options for foreign companies/citizens Liaison Office Branch Investment in Subsidiary company/joint
venture/other company
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Applicable taxes Central
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 VAT Profession Tax
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Industrial Policy 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) 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 Incorporation process takes 20-30 days Cost of incorporation of a company
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… Public limited company requirements:
Minimum capital of Rs.500,000 At least 7 shareholders At least 3 directors
Private limited company requirements: 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 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 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…. Permitted activities –
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 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 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 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 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 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 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 All others, including
Software BPO/KPO Drugs & Pharmaceuticals Advertising Roads, Highways, Ports, Harbours Shipping Power
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Certain Restrictions under Different Statutes/Policies 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 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 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
Scope of Taxation 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 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
10.5575%
Dividends Nil
Short Term Capital Gains 15.83625%
Long Term Capital Gains 21.115%
Other Income 42.23%
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Other tax provisions 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 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 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 TreatiesCountry Interest Royalty FTS
Belgium 15 10 10
Cyprus 10 15 10
Denmark 15 20 20
France 10 10 10
Germany 10 10 10
Italy 15 20 20
Ireland 10 10 10
Malta 10 15 10
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Double Taxation Avoidance Agreements – Some Treaties
Country Interest Royalty FTS
Netherlands 10 10 10
Norway 15 10 10
Portugal 10 10 10
Spain 15 10/20 20
Sweden 10 10 10
Switzerland 10 10 10
United Kingdom 15 10/15 15
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Transfer Pricing Applicable to transactions between related
entities, at least one of which is a non-resident 5 recognised methods for ALP determination
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 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 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 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 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 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 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 …. 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