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1 Doing Business in India Contractor, Nayak & Kishnadwala Chartered Accountants, Mumbai, India Tel. +91-22-6623 0600 Fax. + 91 -22- 2261 5814 e mail

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Presentation on theme: "1 Doing Business in India Contractor, Nayak & Kishnadwala Chartered Accountants, Mumbai, India Tel. +91-22-6623 0600 Fax. + 91 -22- 2261 5814 e mail"— Presentation transcript:

1 1 Doing Business in India Contractor, Nayak & Kishnadwala Chartered Accountants, Mumbai, India Tel. +91-22-6623 0600 Fax. + 91 -22- 2261 5814 e mail

2 2 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

3 3 FDI Equity Inflows – Top Investing Countries RankCountryCumulative Inflows (April 2000 to Nov 2010) USD Million % of total value 1Mauritius52,39842% 2Singapore11,5579% 3U.S.A.9,2047% 4U.K.6,2695% 5Netherlands5,2894% 6Japan4,6314% 7Germany2,9032%

4 4 FDI Equity Inflows – Top Sectors RankSectorCumulative Inflows (April 2000 to November 2010) USD Million % of total value 1Services (Fin & Non-Fin)26,19721% 2Computer Software & Hardware 10,4468% 3Telecommunications10,0238% 4Housing & Real Estate9,3568% 5Construction activities8,8877% 6Power5,6115% 7Automobile5,1294% 8Metallurgical industry4,0903% 9Petroleum & Natural Gas3,1953% 10Chemicals2,7672%

5 5 Establishment of Business Applicable Laws governing Establishment of Business Options for foreign companies/citizens Applicable taxes

6 6 Applicable Laws Industrial Policy of Government of India Foreign Exchange Management Act, 1999 (FEMA) Companies Act, 1956

7 7 Options for foreign companies/citizens Liaison Office Branch Investment in Subsidiary company/joint venture/other company

8 8 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

9 9 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: ) Secretariat of Industrial Approvals (SIA)/ Foreign Investment Promotion Board (FIPB) for cases not covered by Automatic Route

10 10 Foreign Exchange Management Act (FEMA) Exchange Control Regulations Administered by Reserve Bank of India (RBI) – website 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

11 11 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

12 12 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.

13 13 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

14 14 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)

15 15 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

16 16 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

17 17 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

18 18 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

19 19 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)

20 20 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

21 21 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

22 22 Sectors under Automatic Route with no sectoral caps All others, including Software BPO/KPO Drugs & Pharmaceuticals Advertising Roads, Highways, Ports, Harbours Shipping Power

23 23 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

24 24 Some Sector Specific Issues - Trading Single Brand Retail Trading permitted under FIPB route Test Marketing permitted under FIPB route Franchise?

25 25 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

26 26 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

27 27 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%)

28 28 Withholding Tax Rates for Payments to Foreign Companies Nature of PaymentRate Interest on Foreign Currency Loan21.115% Royalties & Fees for Technical Services 10.5575% DividendsNil Short Term Capital Gains15.83625% Long Term Capital Gains21.115% Other Income42.23%

29 29 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

30 30 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

31 31 Double Taxation Avoidance Agreements Override domestic tax law, to the extent that treaty more beneficial to taxpayer Comprehensive Treaties with 79 countries

32 32 Double Taxation Avoidance Agreements – Some Treaties CountryInterestRoyaltyFTS Belgium1510 Cyprus101510 Denmark1520 France10 Germany10 Italy1520 Ireland10 Malta101510

33 33 Double Taxation Avoidance Agreements – Some Treaties CountryInterestRoyaltyFTS Netherlands10 Norway1510 Portugal10 Spain1510/2020 Sweden10 Switzerland10 United Kingdom1510/1515

34 34 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

35 35 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

36 36 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

37 37 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

38 38 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

39 39 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

40 40 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

41 41 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

42 42 Thank You!

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