Foreign Investment Reporting Compliance in India

Foreign Investment Reporting Compliance in India

Foreign Investment Reporting Compliance in India

India’s central bank, the Reserve Bank of India (RBI), requires all Indian entities receiving foreign investments of any kind – to report the same by July 12. The deadline was announced last month through the A.P. (DIR Series) Circular No. 30, dated June 7, 2018. To secure this information, the RBI has introduced a new system of compliance.

New reporting compliance for foreign invested entities

Firms in India should note that the new application – the Foreign Investment Reporting and Management System (FIRMS) – subsumes all other forms of reporting compliance, and will be implemented in two phases.

In the first phase, a dedicated online module called the Entity Master was made accessible for public data entry on the RBI’s website from June 28 till July 12. The registration deadline on the FIRMS interface has now been extended to July 20, but firms should ensure reporting compliance ahead of time to avoid regulatory risks.

In the second phase, a second module containing nine reports will be released on August 1, 2018.

Single reporting format

Under the online FIRMS interface, the RBI provides a single reporting format called – the Single Master Form (SMF) – through which details of the total foreign investments made in an entity will be recorded.

The SMF must be filed irrespective of the mode or structure of foreign investment into the entities.

Any entity found to be non-compliant may not be able to receive further foreign investments, including foreign direct investment (FDI), as regulated by the provisions of the Foreign Exchange Management Act of 1999.

Which entities must comply with the new reporting requirements?

The new reporting compliance is meant for the following types of entities:

A company as per section 1(4) of the Companies Act, 2013;

A Limited Liability Partnership (LLP) registered under the Limited Liability Partnership Act, 2008; and,

A startup, which complies with the conditions laid down in Notification No. G.S.R 180(E) dated February 17, 2016 issued by Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India.

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International Association between PrimeGlobal and SP Chopra & Co

International Association between PrimeGlobal and SP Chopra & Co

International Association between PrimeGlobal and SP Chopra & Co

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Statutory Audit including Reporting on Internal Financial Control (IFC),

Management and Internal Audit, IFRS Convergence and Reporting, Transaction support, Valuations, Due Diligence, Post Investment, Cash burn audit for Investors, Standard operation procedures (SOPS), Formation of an appropriate business, Obtaining Registration, Periodic Compliances, Assessment of Statutory Compliances, Tax Compliances, Routine Compliances Matters etc.

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Doing Business in INDIAISO 9001:2015 & 14001:2015

Doing business in India

doing business in India

doing business in India

Doing business in India – the fastest growing economy in the world, the second-most popular country with over 1.33 billion people, the world’s largest democracy and the seventh-largest country by area.

World Bank Report on Ease Of Doing Business In India – the Indian economy will grow at 7.6 % in 2016-17, followed by further acceleration to 7.7 % in 2017-18 and 7.9 % in 2018-19. The new visionary political leadership, favorable demographics with over 50% of the population below the age of 24 years and 65% of the population below the age of 35 years and large educated workforce have further fueled this growth.

Doing business in India offers numerous opportunities for UAE, Canada, Australia companies. It should not be seen as one market, but a series of interconnected regional markets where the legislative and investment climate may change from one state to another.

SP Chopra would advised to obtain the current and detailed information from our experienced professionals for the companies are doing business in India, or have plan to do so. Countries may be UAE, Canada, Australia etc – large or small.

 SP Chopra guide will help you in doing business in India.

The key areas to consider are understanding the market, Doing Business in India serves as a guide to India’s business:

Specific Tax Concerns Related to Establishing a Company

Legal Issues Related to Establishing a Company in India

Cultural Concerns Related to Establishing A Company in India

Other Country-Specific Issues Related to Establishing A Company in India

Permanent Establishment in India | Branch or Subsidiary?

Tax And Accounting Obligations in India

Registration Formalities in India

Standard Legal Obligations and Formalities for a Branch in India

How to Hire My First Employee in India?

Design and Contents of an Employment Contract in India

Can Somebody do Business for Me and not be an Employee in India?

To facilitate the ‘Ease of Doing Business in India’, the Indian Government has taken significant measures on the taxation and the legal fronts by launching other initiatives like ‘Make in India’ and ‘Digital India.’

The Indian government has also taken up a series of measures to improve the ease of doing business in India by simplifying and rationalizing existing rules and using information technology to make the governance more efficient and effective.

India is set to climb up in Ease of doing business:

“I leave India with a profound admiration for the remarkable development gains this country has achieved in recent decades. India’s experience holds valuable lessons for the World Bank Group and for countries around the world”

Jim Yong Kim, World Bank Group President March 2013.

“The fundamentals of our country are very brilliant and I don’t see any reason why the great Indian story has lost so fast its sheen and the reason for the pessimism”

Indra Nooyi, Chairperson and Chief Executive, Pepsico, November 2013

“It is important to take a moment to remind ourselves of this country’s extraordinary achievements. Some are well known in the world at large — the emergence of a world-class IT industry, the rapid growth of exports and the development of a sophisticated financial sector. India has a strong voice in the global discussion of many key issues, including trade and climate change … These successes highlight the gradual process of reform India has undergone during these years of rapid growth. Regulatory changes have been significant… From abroad, India fits comfortably into the category of countries that  are doing well. Its growth is strong by advanced country standards …”

Naoyuki Shinohara, Deputy Managing Director, International Monetary Fund May 2013.

“Despite the current downturn, long-term prospects remain bright for India. India possesses the fundamentals to grow at sustained high rates over the next several decades”

Martin Rama, World Bank’s Chief Economist for the South Asia region April 2013.

“India’s biggest strength in the coming years is going to be her demographic dividend. More than 50% of our population is under 25 years and soon, one-fifth of the worlds working age population will be in our country”

Pranab Mukherjee, President of India while receiving the National Innovation Council’s Report to the People 2013 in November 2013.

“In the past two decades, the rate of growth more than doubled to an average rate of over 7% per annum and the Indian economy was put on an upward growth trajectory. Naturally, there will be periods of ups and downs. The economic cycle presents us years of high performance and years of modest performance. But the important thing to note is that highs are getting higher, and so are the lows”

Dr. Manmohan Singh, Prime Minister, India, at his address at the Hindustan Times Summit, 2013 in December 2013.

“India is already adding more than China to the world’s working-age population. Although this increment will lessen in the coming decades, India’s share of the global workforce will climb towards 30% by 2030 …”

Standard Chartered,  6 November 2013.

“FDI flows into India are Quite positive… think we can absorb – easily absorb – US $50b of FDI every year into India.

P. Chidambaram, Finance Minister, India April 2013.

Fundamental are still better than people believe, People are caught up in all the doom and gloom that surrounds India at the moment. But if we take a step back and do think about those fundamentals, then it seems to me that there are good reasons to believe that growth will be stronger in this current fiscal year than the last fiscal year. Fiscal policy, monsoon and the exchange rate are clearly more helpful”

–  Robert Prior-Wandesforde, Director, Asian Economics Research, Credit Suisse, September 2013.

Can Somebody do Business for Me and not be an Employee? – Doing Business in India

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Can Somebody do Business for Me and not be an Employee in India? – Doing Business in India

Yes, it is permitted in India for a person to work an entity and not being employee. These are the ways a person can be hired to work:

  1. Consultant / Contractual Worker: A person can be engaged directly act as a consultant or contractual worker for an organization without being an employee. Here liability for withholding taxes shall trigger above a particular threshold.
  2. As an Agent to Foreign Entity: A person can work as an agent of foreign entity. An agent does all acts on behalf of the principal, and the principal is bound by the acts of agent for which an authority is granted to the agent.
  3. Outsourced Workers: An entity can hire a manpower supply agency, which in turn will select workers based on requirement of entity and engage them with the business entity. These workers work under control and supervision of the business entity. Normally all the statutory compliances in this regard are taken care by the manpower supply agency; failing that, the entity shall be liable. Here the entity is responsible for the supervision and direction of such workers.
  4. Outsourcing of Services: Many services can be outsourced or done by freelancers. This work may include accounting, manufacturing, website design, marketing ,and public relations. Here the work responsibility also lies with the outsourced agency.

Design and Contents of an Employment Contract | Doing Business in India

Doing Business in INDIA, Establishing Company in India, Employment Contract in India

Design and Contents of an Employment Contract – Doing Business in India

The Employment contract is generally quite flexible and is made to cover the needs of an entity. It will generally cover the following salient features:

  1. Period of employment
  2. Areas of work and reporting responsibility
  3. Work location and working hours per week
  4. Compensation
  5. Vacation and leaves
  6. Compliance with Company Policies and Laws
  7. Confidentiality
  8. Non compete clause
  9. Termination and Notice period

How to Hire My First Employee? | Doing Business in India

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How to Hire My First Employee? – Doing Business in India

India has around 487 million workers, the second largest after China. Indian young workforce is growing rapidly and increasing energy in Indian Markets. Despite having second largest workforce in India manpower is economical.

Main Legal Steps to Follow to Hire A First Employee

Hiring first employee in India is an easy task in India.
A) For domestic employee, an entity is required to take care of two aspects only, which are as follow:

  1. Compliance with Minimum Wages, which is at present around USD $3,000 Per Annum.
  2. Compliance with provisions of withholding taxes applicable in India.

B. Hiring a Foreign resident is subject to fulfillment of certain conditions. Some of them are as follows:

  1. Employee is required to obtain an employment visa.
  2. Employment visas will not be granted for jobs for which qualified Indians are available. Employment visas will also not be granted for routine, ordinary, or secretarial / clerical jobs.
  3. Minimum Wages prescribed are USD $25,000 Per Annum.

Other Statutory Compliances
In India, labour laws related to social security of employees becomes effective when there are at least 10 employees in the entity. Some of the Labour laws applicable in India are as follows:

  1. Provident Fund (Social Security)
  2. Gratuity
  3. Employees State Insurance
  4. Professional Tax and
  5. Contribution to Labour Welfare funds etc.

Standard Legal Obligations and Formalities for a Branch | Doing Business in India

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Standard Legal Obligations and Formalities for a Branch – Doing Business in India

BRANCH OFFICE

A. Filings:

  1. Yearly filings include the filing of audited accounts of Branch Office, World Accounts with Registrar of Companies.
  2. Yearly submission of Activity Certificate with RBI and AD Bank.
  3. Annual return with the Income Tax Department.
  4. Filing of Quarterly / Monthly TDS returns, VAT, Service Tax Returns.

B. Other Legal Obligations/Provisions:

  1. The Branch Office will not accept any deposits in India
  2. The commission earned by the Branch Office from parties abroad for any agency business will be repatriated to India through normal banking channels.
  3. The Branch office shall not undertake any retail trading activity
  4. A Branch Office is not allowed to carry out manufacturing or processing activities in India, directly or indirectly.
  5. The Branch Office is not allowed to borrow locally unless the prior approval of RBI is given.

Registration Formalities | Doing Business in India

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Registration Formalities – Doing Business in India

Branch Office

(i) Parent company must have a profit making track record during the immediately preceding five years and net worth of not less than USD $100,000 or its equivalent.
(ii) Required to Obtain PAN / TAN, Service tax code, Shops and Establishment Act Registration, Importer Export Code, VAT, Registrar of Companies (ROC) Registration.
(iii) Normally registration is allowed for a period of three years.

Subsidiary

(i) A private company is required to be incorporated with a minimum authorized & paid up capital as may be prescribed and minimum two subscribers. No requirement of track record of parent company as shareholder.

(ii) Required to Obtain PAN / TAN, Service tax code, Shops and Establishment Act Registration, Importer Export Code, VAT.

(iii) Once registration is granted it can do business, until the company decides to close down its operations.

Tax And Accounting Obligations | Doing Business in India

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Tax And Accounting Obligations – Doing Business in India

  1. A Subsidiary Company incorporated in India is subject to minimum base rate of tax @ 30.9% (In case of turnover below 5 Crore base rate will be 29.87%), , whereas a Branch office is liable to pay minimum base rate of tax @ 41.2%
  2. Dividends can be paid after payment of Dividend Distribution Tax @ 18.176% by a subsidiary, whereas dividend distribution is free for a branch office.
  3. Tax Obligations applicable are: Income Tax, withholding taxes, Service Tax, Professional Tax, custom duty etc. for branches as well as subsidiaries.
  4. Provisions of Transfer pricing are applicable for branches as well as subsidiaries.

5. Annual Accounts of Branches as well as subsidiaries are required to be audited by a Chartered Accountant of India.

Permanent Establishment in India | Branch or Subsidiary? | Doing Business in India

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Permanent Establishment in India | Branch or Subsidiary? – Doing Business in India

The Indian Income Tax Act defines permanent establishment as follows: A permanent establishment includes a fixed place of business through which the business of the enterprise is wholly or partly carried on and does not include liaison office.

Definition and Main Differences Between a Branch and a Subsidiary

Definition of Subsidiary
An incorporated entity formed and registered under the Companies Act, 2013. It is a distinct legal entity, apart from its shareholders.

Distinguishing features of a Subsidiary:

  1. Company form of organization and separate legal entity.
  2. The liability of the Parent company is limited to the extent of its shareholding in the Wholly Owned Subsidiary (WOS). The assets of the foreign company are not subject to any attachments
  3. Minimum two directors are required, one of them being Indian.
  4. Quarterly board meeting & annual meeting of shareholder is compulsory in every year.
  5. Subsidiary is not treated as permanent establishment of foreign company, its income is taxed based on residential status.
  6. Transfer of shares is restricted, and deposits may not be accepted from the public.
  7. Only activities covered and approved in the Memorandum of Association are permitted.

Definition of Branch Office

Companies incorporate outside India and engaged in manufacturing or trading activities are allowed to setup Branch Offices with specific approval of the Indian Central Regulatory Bank (RBI).

Distinguishing features of a Branch:

  1. It is an extension of Head Office with right to accrue income in India and has no separate legal standing of its own.
  2. It can export / import goods, render professional/consultancy and information technology services, carry out research work in line with parent activities, promote technical & financial collaboration, represent the parent company in India, act as buying / selling agent, and render technical support for the products of the parent company.
  3. The liability of the Branch is unlimited. The assets of the parent company are at risk of attachment in case the liabilities of the branch exceeds its assets.
  4. Branch offices are managed by an Authorized Representative, resident in India (Country Manager).
  5. From a taxation perspective, a branch of a foreign company is deemed to be a ‘business connection’ of its parent, and thereby constitutes a taxable permanent establishment of the foreign enterprise.
  6. The entire expenses in India will be met either out of the funds received from head office through normal banking channels or through income generated by it in India.
  7. It cannot expand its activities or undertake any new trading, commercial, or industrial activity other than that is expressly approved by the RBI.