TOP10THINGSTOKNOWABOUTDOINGBUSINESSININDIA

ByDezanShira&Associates,DelhiOffice
delhi@dezshira.com

1.Whataremyoptionsforinvestment?
ForeigninvestmentintoIndiacancomeinavarietyofdifferentlegalentities.Your
choiceofentitydependsonthekindofworkyouplantododuringyourtimein
thecountry.

LiaisonOffices
AforeigncompanycanopenaliaisonofficeinIndiatoengageinthefollowingactivities:
Representingtheparentcompany/groupcompaniesinIndia
Promotingexport/importfrom/toIndia
Promotingtechnicalorfinancialcollaborationbetweenparent/groupcompaniesandIndian
companies
ActingasacommunicationschannelbetweentheparentcompanyandIndiancompanies

Aliaisonofficeisnotallowedtocommenceanycommercial,tradingorindustrialactivities,
directlyorindirectly,andisrequiredtosustainitselfoutofprivateremittancesreceivedfromits
foreignparentcompanythroughusualbankingchannels.

BranchOffices
ForeigncompaniesengagedinmanufacturingandtradingactivitiesoutsideofIndiamayopen
branchofficesforthepurposesof:

Representingtheforeignparentcompanyorotherforeigncompaniesinvariousmattersin
India,suchasactingasbuyingandsellingagents
Conductingresearchinwhichtheforeignparentcompanyisengaged
PromotingtechnicalandfinancialcollaborationsbetweenIndianandparentoroverseasgroup
companies
Renderingprofessionalorconsultancyservices
Renderingservicesininformationtechnologyanddevelopmentofsoftware
Renderingtechnicalsupportforproductssuppliedbyparent/groupcompanies

Abranchofficesallowablescopeofactivitiesisbroaderthanthatofaliaisonoffice,however
branchofficesarestillgenerallyforbiddenfromengaginginretailtrading,manufacturingor
processingactivitieswithinIndia.

ProjectOffices
Aprojectoffice,whichisessentiallyabranchofficesetupwiththelimitedpurposeofexecuting
aspecificproject,allowscompaniestoestablishapresenceforalimitedperiodoftime.Project
officesareparticularlycommonamongforeigncompaniesengagedinturnkeyoperations.

WhollyOwnedSubsidiariesandJointVentures
Foraforeignenterprisetoengageinactivitiesnotlistedwithinthelimitsofliaison,branchand
projectoffices,whollyownedsubsidiariesorjointventurecompaniescanbeestablished.

Bothwhollyownedsubsidiariesandjointventurecompanieshaveindependentlegalstatusas
Indiancompaniesdistinctfromtheforeignparentcompany.

Whollyownedsubsidiariesandjointventuresaresetupasprivatelimitedcompanies.Private
limitedcompaniesarethemostsuitableandwidelyusedformofbusinessenterpriseforforeign
investorsinIndiabecausetheyallowtotalcontroloverbusinessoperations,providelimited
liability,andhavefewerrestrictionsonbusinessactivitiesthanliaisonofficesandprojectoffices.

2.HowdoIestablishacompany?
EstablishingacompanyinIndiacanbealengthyadministrativeprocessthatrequires
communicationwithmanydifferentauthorities.Amongsttheseareaninitialclarificationasto
whetherthebusinessactivitiesrequiresReserveBankofIndiaapprovalornot.Seeking
professionalhelpwillensurethatyougetitrightfirsttimeanddonothavetomakecostly
changeslateron.

Privatelimitedcompaniesarethemostcommoncompanyformusedbyforeigninvestors.
PrivatelimitedcompaniesmaybeintheformofjointventurecollaborationswithanIndian
partnerand/orpublicissues,orwhollyownedsubsidiarieshaving100percentforeign
ownership.EstablishingaprivateliabilitycompanyinIndiatakesapproximatelysixtoeight
weeks.

Shareholderliabilityislimitedtothepaidandunpaidcapital.Theminimumpaidupshare
capital,alsoknownasauthorizedcapital,isINR100,000.Thecompanymustmaintainthefull
amountofauthorizedcapitalinaspecifiedbankaccountforthedurationofitsexistence;this
capitalcanonlybewithdrawninthecaseofliquidationorinthecasethattheamountof
authorizedcapitalisloweredbyaresolutionatameetingofshareholders.Penaltiesmayapplyif
acompanyfailstomaintainthefullamountofauthorizedcapital.

Theincorporationofprivatelimitedcompaniesfallsundertheautomaticrouteorthe
approvalroute.Investmentsmadeundertheautomaticroutearedonewithoutapprovalof
thecentralgovernment.TheapprovalrouterequirespriorapprovaloftheForeignInvestment
PromotionBoard.

Afterestablishingbutbeforecommencingbusiness,allcompaniesincorporatedinIndia,
whetherlocallyorforeignowned,mustapplyforaPermanentAccountNumber(PAN)for
taxationpurposes.Thisuniqueidentificationcodeisusedforcommunicationsbetweenthe
companyandthetaxauthorities.

Additionalgovernmentalapprovalsmayalsoberequired.Thesemayincludeanindustrial
licenseorstatutoryclearancesrelatingtopollutioncontrol,dependingonindustry,investment
amountandlocation.Otherapprovalsandclearancesatthestatelevelincludeland,water,
electricityandadditionalregistrations.

3.WhatarethekeypositionsinanIndiancompany?
Incorporatingaprivatelimitedcompanyrequiresaminimumoftwodirectors,andbetweentwo
andfiftyshareholders.Shareholder(s)arethehighestauthorityofthecompany.Thedirectoror
boardofdirectorssetstheagendaofthecompanysoperationsaccordingtoshareholder
decisions.Directorscanbemanagingdirectors,executivedirectorsornonexecutivedirectors.

Aspartofannualcompliancerequirements,companiesmustappointanauditortoundertakea
fullauditofcompanyaccountspriortotheAnnualGeneralMeeting(AGM).Theauditormustbe
acharteredaccountantappointedbytheboardofdirectors.Sheorhemaynotbeanemployee
orpartnerofthecompany,holdsecurityofthecompanynorbeindebtedtoit.Sheorheis
alwaysappointedfromoneAGMtoanotherbytheshareholders,exceptforthefirstauditor,
whoisresponsiblefromstartofbusinessuntilthefirstAGM.Auditorsshallhaverightofaccess
atalltimestothebooks,accountsandvouchersofthecompany.

ForcompanieswithpaidupcapitalofmorethanINR1million,acompanysecretarymustbe
appointedtosignanannualcompliancecertificate;forthosewithpaidupcapitalofmorethan
INR50million,afulltimecompanysecretarymustbeappointedtoactasacomplianceofficer.

4.WhatkindofIPRconsiderationsshouldbetakenintoaccount?
AnimportantissuethatneedstobetakencareofwheninvestinginIndiaisregistrationofyour
trademark.

Registrationinvolvesseveralfilingprocedures,takesabout12monthsfromcommencementto
issuanceofthecertificate,andcanbecarriedoutbylicensedIndiantrademarklawyersat
TrademarkRegistryOfficesinAhmadabad,Chennai,Kolkata,MumbaiorNewDelhi.

Atrademarkcanbeplaceduponabrand,heading,label,ticket,name,signletter,text,word,
numeral,slogan,baseline,shape,colororanycombinationofanyofthese.Theobjectofthe
markmustbedistinctive,mustnotbeidenticalorsimilartoamarkalreadyregisteredor
pendingapplicationforregistration,mustnotbeprohibitedbylaw,andmustbeownedbythe
applicant.

5.WhatareIndia'smajortaxes?

TaxReformhasbeenonthepoliticalagendaforsometime,withdecreasestoexpectedinboth
CorporateandIndividualIncomeTaxes.However,politicalwranglingbetweendifferentregional
governmentsandthecentralgovernmentoverthecontrolofVATandGSTrateshave
consistentlyinterruptedtheintendedreforms.Anestimatedtimeframeforchangewouldbe
2014.AsatSeptember2012,themaintaxesimpactingforeigninvestorsareasfollows:

IndiaTaxRates
(September2012)
Corporateincometax 30%40%
Standardtaxondividends
(Overseasparentco.)
15%
Valueaddedtax 12.5%

6.Howisaccountingandbookkeepingdone?
InIndia,accountingisdoneaccordingtotheAccountingStandardsissuedbythe
InstituteofCharteredAccountantsofIndiaandapprovedbytheParliamentofIndia.
Therearemorethan30accountingstandards,eachgoverningdifferentaspectsof
accountingstatements.Theseaccountingstandardshavelegalrecognitionthrough
theCompaniesAct.

TheAccountingStandardsareformulatedonthebasisoftheInternationalFinancial
ReportingStandardswithaviewtoharmonizingIndiasaccountingstandardswith
therestoftheworld.Theyincludestandardsonthevaluationofinventories,cash
flowstatements,netprofitorlossfortheperiodofaccounts,accountingforfixed
assetsandrevenuerecognition.

TheRBIregulatesthecountrysforeignexchangemarketsandprescribesexchange
controlnorms.TheIndianrupeeisfullyconvertibleonthecurrentaccount,which
meansthatforeignexchangeisfreelyavailableformakingandreceivingtraderelated
payments.However,onthecapitalaccount,theIndianrupeeisonlypartially
convertible.

7.Whataretheannualcompliancerequirements?
Annualcompliancerequirementsdifferforentitiesdependingonwhethertheyareforeign
representativeofficesorcompanies.

Allincorporatedcompanies,whetherpublicorprivate,arerequiredtoundertakeanannual
auditofaccounts.Auditedfinancialreportsalongwiththeauditorsreportmustbesenttothe
shareholderswellbeforetheAnnualGeneralMeeting(AGM)isheld.Companyaccountsmust
besubmittedtotheofficeoftheconcernedRegistrarofCompanies(ROC)annually,followingan
AGM.

Inadditiontotherequiredfourboardmeetingsperannum(whichcanbeconductedinIndiaor
abroad),anAGMmustbeheldonceineverycalendaryearbeforeSeptember30,withthetime
periodbetweentwoAGMsnotlastingmorethan15months.Themainagendapointsinany
AGMincludepresentationoftheannualaccounts,andappointmentofstatutoryauditors.

Inaddition,companieswithpaidupcapitalofbetweenINR1millionandINR20millionare
requiredtofileanAnnualComplianceCertificatealongwiththeAnnualReport.Companieswith
paidupcapitalofmorethanINR20millionarerequiredtoemployafulltimecompanysecretary
whowillactastheircomplianceofficer.

Sinceliaisonofficesandbranchofficesarepermittedtoconductonlyalimitedsetofactivities,
theseofficesareobligedtodemonstratethattheyareoperatingwithintheirlegallypermissible
areasofactivityonceayear.ThisreportingtakestheformofanAnnualActivityCertificate,
whichmustbeproducedinaspecifiedformatprovidedbytheofficesauditor.Itprovides
detailsandsourcesoffundsreceived,andthenatureofexpensesonwhichfundshavebeen
spent.

8.Howistransferpricingconducted?
Transferpricingconcernsthepriceschargedbetweenassociatedenterprises(thoselinked
throughmanagement,controlorcapital)establishedindifferenttaxjurisdictionsfortheir
intercompanytransactions.

Fortaxandauditingpurposes,internationaltransactionsbetweenassociatedenterpriseshave
tobeassessedonthebasisofthearmslengthprinciple.Thisarmslengthnaturehastobe
supportedbydocumentationsignedandverifiedbyanaccountant.Taxpayersinvolvedin
internationallyrelatedpartytransactionsarealsorequiredtomaintainaseriesofmoredetailed
documentsshowingtheownershipstructure,property/serviceinvolvedandsoon.

TransferpricingdocumentsneedtobesubmittedbyOctober31followingthecloseofthe
relevantyear.Recordsalsoneedtobemaintainedforatleast8yearsfromtheendofthe
relevantfiscalyear.Atransferpricingauditisrequirediftherelatedpartytransactionexceeds
INR150million.EvenifarelatedpartytransactionislowerthanINR150million,anauditisstill
possible.Therefore,documentsontransferpricingshouldbemaintainedbyallfirms.

9.Whatvisasareneededformyforeignstaff?
AllforeignersvisitingIndia(excludingoverseascitizensofIndia,personsholdingaPersonof
IndianOrigincardandNepaleseorBhutanesenationals)needavisa.

Indiaissuestouristvisas,generallyfor180dayswithmultipleentries.Atouristvisaonarrival
(TVOA)schemehasbeensetupbytheIndianImmigrationDepartmentforupto30daysfor
nationalsofCambodia,Finland,Indonesia,Japan,Laos,Luxembourg,Myanmar,NewZealand,
Philippines,Singapore,andVietnam.Applicationsmustbemadeattheconsularsectionatthe
nearestembassyorhighcommission.ForUKnationals,Indiahasoutsourceditsvisaapplication
servicestoVFServicesandapplicationsattheembassyinLondonarenolongeraccepted.Inthe
UnitedStates,IndiasvisaapplicationservicesarehandledbyTravisaOutsourcing.

Forbusinessactivities,twoothertypesofvisaareimportanttonote:businessvisa(forwhich
theperiodofstayinIndiapervisitislimitedtosixmonths)andemploymentvisa.Forthelatter,
thereareadditionalrequirementsforemployeesoftheITandjournalismsectors,andaless
restrictiveregimeforthepowerandsteelsectors.

ForallforeignersintendingtostayinIndiaforlongerthan180days(onanytypeoflongterm
visa),thereisarequirementtoregisterwiththelocalForeignersRegionalRegistrationOffice
(FRRO).Inmostcases,thisregistrationneedstobedonewithin14daysofarrivalinIndia.

10.WhatshouldIlookoutforwhensigninglaborcontracts?
Indianlaborlawsprovideaminimumofguaranteesandbenefitstoallemployeesandthese
lawssupersedetheprovisionsoflaborcontracts.

TherearethreetypesofcontractsinIndia:
Permanent(direct)contract
Fixedcontract
Temporarycontract

InvestorsshouldpayspecialattentiontotheIndustrialDisputesAct,whichprovidesalarge
numberofprotectionsforemployees;theShopsandEstablishmentsAct,whichgovernsthe
hoursofwork,paymentofwages,leave,holidays,termsofserviceandotherconditions;aswell
astheseveralwageandremunerationacts,whichregulatethepaymentofwages,bonuses,and
equalizepayformenandwomen.

Anyterminationpolicyshouldbecheckedagainstthecurrentlawpriortoitiscarriedout.For
example,companiesthatemploymorethan100workersneedgovernmentpermissionto
conductlayoffs.

Besidescompanyrulesandregulations,clausesrelatedtothefollowingpointscanbe
incorporatedintocontracts:
Nondisclosure
Employeepoaching
Unfaircompetition
Trademarks,patentsandtradesecrets