FAQ

Welcome to GGP Consultants

For doing business in India, what are the various business structures in India?

Foreign Representation Incorporated Entity Distribution Only Liaison Office (‘LO’)
Wholly Owned Subsidiary (‘WOS’) Distributor/Importer Branch Office (‘BO’) Joint Venture (‘JV’)
Franchisee/ Agent Project Office (‘PO’) Limited Liability Partnership (‘LLP’)*

* Foreign Direct Investment (FDI) in LLP

is only under Approval Route & Conditional

What form of Business is most appropriate?

Business ‘Form’ purely depends on the business need. Such need could be to execute one time project in India, promote the product, understand the market, appoint a distributor, just have a place of business or hire an employee in India etc.

Can I do business in India without incorporating there?

Till the time investment decisions are not firm, business in India can be done by appointing an agent, distributor in India or directly providing services from abroad. Such arrangements are subject to applicable tax withholding rules in India. The payment from India is governed

by rules of Foreign Exchange Management Act (FEMA) and controlled by Reserve bank of India (RBI).

What is a general tax structure in India?

India has a federal system of levying tax on businesses. Income Tax, CGST, IGST, SGST, Customs Duty etc. are levied & collected by Central Government, however Local Body Tax, Municipal Taxes, etc are state subjects.

Basic difference in Private Limited Company and Public Limited Company?

Both forms, allows a Limited Liability for the Shareholders. A recent amendment in 2015 has done away with requirement of a minimum share capital in both the formats. Minimum 2 Shareholder required in a Private Limited, however you need o have minimum 7 shareholders

in a Public Limited setup. Maximum number of members /shareholders is restricted to 50 in case of a Private Limited, however it’s unlimited in case of a Limited Company. Transferability of shares in a Private Company is ‘Restricted’ however its permitted in a Limited Company (subject for Foreign Exchange Regulations)

Most foreign businesses, SMBs prefer to register as a ‘Private Limited’ also due to a minimum regulatory & compliance disclosure requirements.

What is the general tax structure of a back Office?

An incorporated entity in India becomes a tax resident, tax rate of a domestic company (presently 30.09%) applies on its Profit before Tax (PBT). In case the India entity work s for the parent company in a foreign territory, Transfer Pricing Regulations gets applied,

which requires establishing that the financial transactions between related parties are done at a Arms Length Pricing.

Is there any Tax Benefit to US Companies in India?

There are no tax benefits now days to WOS from any country. In case the WOS is 100% exporting its services, it may prefer in establishing in a Special Economic Zone (SEZ), to avail benefit of tax exemption on input services.

What legal registration required in order to start a Back Office in India?

Back Office operates as a fully fledged business unit, however for the captive consumption of output by the Parent Company. Indian entity is generally established as a WOS, however it can also be a JV or Associate. In case the activities are under 100%

automatic route, no prior approval from RBI or FIPB is required.

Apart from registering a PLC, you also require to get domestic registrations such as PAN, Tax Account Number, Service Tax, Shops & Establishment etc. Other registrations are conditional. Import Export Code (IEC) only in case of specified services. Provident Fund, once your employee level reached at 20, Value Added Tax in case you also trade in goods.

How can I fund my Wholly Owned Subsidiary (WOS), until it breaks even?

Initial funding can be done though injecting share capital i.e. FDI. A loan from parent company (External Commercial Borrowing- ECB) is permissible only for Capex. ECB for working capital is permitted subject to certain conditions and a lock in period of seven years for

capital repatriation. Local financing is always available subject to required collaterals.

Do I need a physical business address to register in India?

An address to be termed as a “Registered Office’ is required. Commercial or business address can be at a different location. There is no requirement of any minimum area, location etc. A business incorporated at any place in India, can do business throughout India.

State Government however may require some local registrations.

Is there any threshold on Capital, Shareholders, Directors etc.?

Recently the requirement of Minimum Share capital (Private Limited- INR100K, Public Limited- INR500K) is being lifted by Indian Government. There is however requirement of minimum 2 Shareholders & 2 Directors (at least 1 to be resident director). There is also a provision of One

Person Company (OPC), however it is allowed only to a resident Indian.

Is there any restriction in Foreign Direct Investment (FDI) in India?

Most of the business sectors don’t require a prior approval and 100% FDI is permissible. In all such cases, only reporting is required to RBI, within 30 days of receipt of equity/allotment of shares. Where ever automatic route is not available i.e. sectors which

has a cap on FDI, prior approval from Foreign Investment Promotion Board (FIPB) is required e.g Whole Sale Trading.

What is Goods and Services Tax (GST)?

It is a destination based tax on consumption of goods and services. It is proposed to be levied at all stages right from manufacture up to final consumption with credit of taxes paid at previous stages available as setoff. In a nutshell, only value

addition will be taxed and burden of tax is to be borne by the final consumer.

Which of the existing taxes are proposed to be subsumed under GST?

The GST would replace the following taxes:

Taxes currently levied and collected by the Centre:

a. Central Excise duty
b. Duties of Excise (Medicinal and Toilet Preparations)
c. Additional Duties of Excise (Goods of Special Importance)
d. Additional Duties of Excise (Textiles and Textile Products)
e. Additional Duties of Customs

(commonly known as CVD)
f. Special Additional Duty of Customs (SAD)
g. Service Tax
h. Central Surcharges and Cesses so far as they relate to supply of goods and services

State taxes that would be subsumed under the GST are:

a. State VAT
b. Central Sales Tax
c. Luxury Tax
d. Entry Tax (all forms)
e. Entertainment and Amusement Tax(except when levied by the local bodies)
f. Taxes on advertisements
g. Purchase Tax
h. Taxes on lotteries, betting and gambling

The GST Council shall make recommendations to the Union and States on the taxes, cesses and surcharges levied by the Centre, the States and the local bodies which may be subsumed in the GST.

Which are the commodities proposed to be kept outside the purview of GST?

Article 366(12A) of the Constitution as amended by 101st Constitutional Amendment Act, 2016 defines the Goods and Services tax (GST) as a tax on supply of goods or services or both, except supply of alcoholic liquor for human consumption. So alcohol for human consumption

is kept out of GST by way of definition of GST in constitution. Five petroleum products viz. petroleum crude, motor spirit (petrol), high speed diesel, natural gas and aviation turbine fuel have temporarily been kept out and GST Council shall decide the date from which they shall be included in GST. Furthermore, electricity has been kept out of GST.

Why is Dual GST required?

India is a federal country where both the Centre and the States have been assigned the powersto levy and collect taxes through appropriate legislation. Both the levels of Government have distinct responsibilities to perform according to the division of powers prescribed in the Constitution

for which they need to raise resources. A dual GST will, therefore, be in keeping with the Constitutional requirement of fiscal federalism.

Which authority will levy and administer GST?

Centre will levy and administer CGST & IGST while respective states /UTs will levy and administer SGST/ UTGST.

What are the benefits which the Country will accrue from GST?

Introduction of GST would be a very significantstep in the field of indirect tax reforms in India. By amalgamating a large number of Central and State taxes into a single tax and allowing set-off of prior-stage taxes, it would mitigate the ill effects of

cascading and pave the way for a common national market. For the consumers, the biggest gain would be in terms of a reduction in the overall tax burden on goods, which is currently estimated at 25%-30%. Introduction of GST would also make our products competitive in the domestic and international markets. Studies show that this would instantly spur economic growth. There may also be revenue gain for the Centre and the States due to widening of the tax base, increase in trade volumes and improved tax compliance. Last but not the least, this tax, because of its transparent character, would be easier to administer.

What is IGST?

Under the GST regime, an Integrated GST (IGST) would be levied and collected by the Centre on inter-State supply of goods and services. Under Article 269A of the Constitution, the GST on supplies in the course of interState trade or commerce shall be levied

and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council.

Who will decide rates for levy of GST?

The CGST and SGST would be levied at rates to be jointly decided by the Centre and States. The rates would be notified on the recommendations of the GST Council.

Which are the commodities proposed to be kept outside the purview of GST?

Article 366(12A) of the Constitution as amended by 101st Constitutional Amendment Act, 2016 defines the Goods and Services tax (GST) as a tax on supply of goods or services or both, except supply of alcoholic liquor for human consumption. So alcohol for human consumption

is kept out of GST by way of definition of GST in constitution. Five petroleum products viz. petroleum crude, motor spirit (petrol), high speed diesel, natural gas and aviation turbine fuel have temporarily been kept out and GST Council shall decide the date from which they shall be included in GST. Furthermore, electricity has been kept out of GST.

Do I need to incorporate in India for executing a Time Bound Project?

You don’t need to incorporate. In case you have awarded a specific contract in India, you can set up a PO without prior approval of Reserve Bank of India. After completion for the project the net of tax, proceeds can be repatriated to the

Parent Company.

Can I open a Branch Office (BO) of my US company?

BO can be opened with a prior approval from RBI and it’s regarded as Foreign Company in India. As it’s not a separate entity from its parent company, all business risk and liabilities are directly assumed by the Parent company. It can conduct full

fledged business activities in India, except Manufacturing. It can however subtract such activities to Indian vendors. BO, being a foreign company taxed at a higher rate (presently 40%).

Who can be appointed as an Authorized Representative of LO?

There is a requirement to appoint an Authorized Representative of an LO. He/She can be a resident of India or US. An Authorized Representative can be changed at the will of the Board of Parent Company. The person however must have an Indian Permanent

Account Number (PAN). PAN is a unique number, obtained by registering at Indian Income Tax.

Can a Liaison Office (LO)/Representative Office (Rep Office) operate in India for an unforeseeable time period?

Initial approval of a LO is granted by Reserve Bank of India for 3 years. Subsequent request for an extension is generally approved for next 3 years. Further extensions can again be applied, however approval by Reserve Bank of India (RBI), is granted on

a case to case basis.

Can I transfer my shares in a PLC?

There is a restriction in transferring shares in a Private Limited Company. It can however be transferred to another shareholder or a related person, subject to certain conditions. A Non-Resident (NR) can transfer its shares to another NR without any permission from RBI. A

NRI however need to get prior permission from RBI to transfer his/her shares in an India PLC to another NR.

Can both the Directors of a PLC, be a resident of US?

It is permissible. Board meetings can even be held outside India. Recently a board meeting via video conferencing is also permitted subject to certain conditions. As per a recent amendment in 2014, at least one resident director is required in every PLC.

Is there any taxability issue, in India due to my Directorship in Indian Private Limited Company (PLC)?

No, taxability in India arises based on residential status in India and incomes accrue or arise in India. A Director is however is liable for any negligence or any wrong doing on behalf of the PLC, as he/she is termed as a Key Managerial

Person (KMP).

Can a US citizen become a Director in Indian PLC?

There is no restriction of any foreign citizen for becoming a Director in Indian PLC. The person is not necessarily be a Shareholder as well. He/She should however require obtaining a Directors Identification Number (DIN) in India. In case, the Director from US also

requires signing on behalf Board of Indian PLC, He/She also needs to get a Digital Signature (DSC).