[ESTABLISHING A BUSINESS ENTITY IN INDIA]
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For reasons of taxation, deputation of employees of foreign parent companies to their Indian subsidiaries is ordinarily avoided. As per the Ministry of Home Affairs, Government of India latest guidelines, employment visas are only granted to foreign nationals drawing salaries in excess of a prescribed amount per annum. The salary threshold limit is worked out considering the salary and all other allowances paid to the foreign national in cash and also perquisites like rent free accommodation etc. which are included in the salary for the purpose of calculating income tax. The minimum salary stipulation however does not apply to ethnic cooks, translators and language teachers brought for project related work in India. The employment visa has to be issued from the country of origin or domicile of the foreigner. Foreign nationals may also use the ‘Project’ visa regime for coming to India for execution of specific projects in the power and steel sectors subject to fulfillment of conditions as may be specified. Persons travelling to India on long term employment visas i.e., for a period of more than 180 (one hundred eighty) days will need to register themselves with the jurisdictional Foreigners Regional Registration Office within specified time (ordinarily fourteen days) of arrival in India. 4.4 Any restrictions on remitting funds out of India (withholdings, etc.): Foreign investors can repatriate funds out of India through a number of options including dividends, fees for technical and administrative services, royalties, interest, capital appreciation, etc., after payment of applicable taxes. India also has double taxation avoidance agreements (“ DTAA ”) with all major economies of the world including Australia,
China, Germany, France, Spain, Singapore, USA, UK and Japan to name a few. 4.4.1 Repatriation of Profits: Indian companies can remit their profits to a foreign investor by way of dividends subject to dividend distribution tax at 20.00% (twenty percent) plus applicable surcharge and cess, subject to beneficial tax rates as provided under DTAA, if availed. 4.4.2 Repatriation of Fees and Royalties: The royalties/fees for technical services can be remitted to non-residents subject to deduction of withholding tax at rates prescribed under the Income Tax Act, 1961. If the foreign collaborator belongs to a country having a DTAA with India providing for a lower withholding tax, it can avail the benefit of lower withholding taxes paid in India by furnishing certain additional information and documents in the manner prescribed under law. As discussed above, the lump sum technical know-how fee and/or royalty may also be converted into shares of the Indian company, subject to regulatory compliances. 4.4.3 Renunciation of Rights of Equity Instruments held on Repatriable Basis: Foreign investors can acquire equity instruments (other than share warrants) on repatriable basis based on the right renounced by a person resident in India and by a person resident outside India holding equity instruments on a non-repatriation basis. The investment would, however, need to adhere with entry routes, sectoral caps or investment limits, pricing guidelines and other attendant conditions as applicable for investment by a person resident outside India.
ILN Corporate Group – Establishing a Business Entity Series
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