Establishing Business in India

Transcription

1 Establishing Business in India Vijay Saini & Associates 104, Tower-1, Assotech Business Cresterra, Sector-135, Noida, Uttar Pradesh , India [Type Phone: the document subtitle] Website: 1

2 Introduction to Vijay Saini & Associates Vijay Saini & Associates (VSA) was established in 1999 as an auditing and consulting firm. With a cumulative consulting experience of over 20 years, our aim is to deliver complete business solutions to business entrepreneurs by taking up their challenging projects and transforming them into reality. We are a one-stop solution firm engaged in a multidisciplinary practice. VSA has a team of highly qualified professionals comprising chartered accountants, company secretaries and advocates. Taking full responsibility, right from the planning stage to implementation, our expert professionals do an in-depth analysis so as to deliver qualitative rather than quantitative results. Our services include business establishment and registration, corporate finance, raising corporate finance consultancy, finance and accounts outsourcing, research and analysis, management consultancy and much more. 2

3 Index Introduction to Vijay Saini & Associates... 2 I. INDIA FACT FILE... 4 II. ENTRY OPTIONS... 5 Operating as an Indian Entity... 5 Operating as a foreign company... 5 III. FUNDING OPTIONS... 6 IV. SIGNIFICANT EXCHANGE CONTROL REGULATIONS... 7 Current account transactions... 8 Capital account transactions... 8 V. COMPANY FORMATION IN INDIA PRIVATE LIMITED Pre-registration Requirements Name Approval Preparation of Documents Payment of RoC fees and stamp duty Obtaining Certificate of Incorporation VI. COMPANY FORMATION (PROCEDURE, TIME & COST): VII. COMPLIANCE REQUIREMENTS FOR COMPANIES IN INDIA VIII. CORPORATE TAXATION IN INDIA Corporate Tax Rates for FY IX. INDIAN TAX STRUCTURE AT A GLANCE (RELEVANT TO FY ) Direct Taxes Indirect Taxes X. SPECIAL ECONOMIC ZONES IN INDIA XI. BUSINESS AND EMPLOYMENT VISA SCHEMES FOR FOREIGNERS IN INDIA Business Visa/ B Visa Employment Visa/ E Visa XII. GUIDE TO BUSINESS LICENSES IN INDIA XIII. GUIDE TO EMPLOYMENT LAWS IN INDIA Disclaimer

4 I. INDIA FACT FILE Geographic Profile: Region South Asia Time Zone 5 hours 30 minutes ahead of Greenwich Mean Time (GMT) Capital New Delhi Land Area 3.29 million square km Climate Broadly, India s climate can be classified as tropical monsoon. The country has four seasons: summer (March-June), monsoon (June- September), post-monsoon (October November) and winter (December February). Natural Coal (fourth-largest reserves in the world), manganese, bauxite, iron ore, Resources mica, chromite, diamond, limestone, titanium ore, natural gas, petroleum, arable land. Coastline 7,516.6 km including the mainland, the Andaman and Nicobar Islands, and Lakshadweep. Demographic Profile: Population Religions 1,210,193,422 (2011 Census of India, Government of India) 1,324,171,354 (World Population Prospects: The 2017 Revision, United Nations Department of Economic and Social Affairs) Hinduism, Islam, Christianity and Sikhism are the four major religions followed in India. Other religions include Buddhism, Jainism and Zoroastrianism. Languages Business language English; 22 officially recognized languages (most prominent: Hindi) Literacy 74% (Census 2011) Rate Labour Million (2011 Census of India, Government of India) Force Economic Profile: Currency Indian Rupee (INR) GDP Growth rate of 7.1% ( ) FDI FDI inflows to India in were $60.1 trillion GNI per 6,490 PPP Intl$ capita 4

5 II. ENTRY OPTIONS Operating as an Indian Entity a. Wholly-owned subsidiary company A foreign company can set up a wholly-owned subsidiary in India to carry out business activities. Such a subsidiary is treated as an Indian resident. At least two shareholders for a private limited company and seven shareholders for a public limited company are mandatory. In addition, there is also the requirement that the director should be an Indian resident. The activities of such a company need to comply with the provisions of the foreign direct investment (FDI) policy. b. Joint venture (JV) with an Indian partner (equity participation) Although a wholly-owned subsidiary is generally the preferred option in view of the associated brands and technologies involved, foreign companies also consider carrying out operations in India by forming strategic alliances with Indian partners. Typically, foreign companies identify partners in the same area of activity, or those that can add synergies to the foreign investor s strategic plans in India. Sometimes, JVs are necessitated due to restrictions on foreign ownership in select sectors under the FDI policy. c. Limited liability partnership (LLP) An LLP is a hybrid form of entity structure in India. It combines the advantages of a company, such as being a separate legal entity having perpetual succession, along with the benefits of organizational flexibility associated with a partnership. At least two partners are required to form an LLP, and they have limited liability. With less stringent annual statutory compliance requirements and ease of set-up, maintenance and exit, compared to a company form, LLP is becoming a preference. There is no tax on distribution of profits in an LLP, unlike in a company, where dividend distribution tax or buy-back tax is applicable. The setting up of an LLP requires prior approval of the Foreign Investment Promotion Board (FIPB). Operating as a foreign company a. Liaison offices (LOs) Setting up an LO or representative office is common practice for foreign companies seeking to enter the Indian market. The role of LOs is limited to collecting information about the market and providing information about the company and its products to prospective Indian customers. Such offices act as communication channels between the foreign company and its existing or prospective Indian customers. An LO is not allowed to undertake anything other than liaison activities in India, and therefore, cannot earn any income in the country under the terms of approval granted by the Reserve Bank of India (RBI). b. Branch offices Foreign companies engaged in manufacturing and trading activities abroad can set up branch offices in India for the following purposes, with RBI s prior approval: Export and import of goods; Professional or consultancy services; Research work in which the parent company is engaged, promote technical or financial collaboration between Indian companies and the parent company; Representing the parent company in India and acting as a buying or selling agent in India; Information technology (IT) and software development services in India; 5

6 Technical support for products supplied by the parent or group companies; Acting as a foreign airline or shipping company. c. Project offices Foreign companies planning to execute specific projects in India have the option of setting up temporary project and site offices. The RBI grants general permission to foreign companies for establishing project offices in India, provided they have secured a contract from an Indian company or a project sanctioning authority for executing the project, and meet any of the following conditions: The project is funded directly by inward remittance from abroad; It is funded by a bilateral or multilateral international financing agency; It has been cleared by an appropriate authority; A company or entity in India awarding the contract has been granted a term loan by a public financial institution or a bank in India for the project. III. FUNDING OPTIONS a. Equity Capital The issue of equity shares by an Indian company to a foreign resident must comply with the sectoral caps as stated in the foreign direct investment (FDI) policy of the Government of India. Partly paid equity shares and warrants can also be issued by an Indian company to a foreign resident in accordance with the provisions of the FDI policy, Companies Act, 2013, and the Securities and Exchange Board of India (SEBI) guidelines, as may be applicable. b. Fully and compulsorily convertible preference shares and debentures Indian companies can also receive foreign investment through the issue of fully and compulsorily convertible preference shares and debentures. The conversion formula or price for issue of equity shares upon conversion must be determined upfront at the time of their issue. c. External commercial borrowings (ECBs) ECBs refers to commercial loans (in the form of bank loans, buyers credit, suppliers credit, securitized instruments (e.g. floating rate notes and fixed rate bonds) obtained from non-resident lenders with minimum average maturity of three years or more. ECB can be availed of either under the automatic or the approval route. Eligible borrowers such as corporates in the industrial, infrastructure and service sectors raise funds through ECBs for permissible end uses from recognized lenders. Under the approval route, prior permission of the RBI is required for raising ECBs. d. Pledge of shares Promoters of an Indian company can pledge shares of the borrowing company or those of its associate resident companies to secure ECBs 6

7 raised by the borrowing company, provided that a no objection is obtained from the AD (Authorized Dealer) bank and the prescribed conditions are met. A non-resident shareholder in an Indian company can also pledge its stake in the company in favour of an AD bank in India in order to secure a credit facility extended to such an Indian company. e. Global depository receipts (GDRs), American depository receipts (ADRs) and foreign currency convertible bonds (FCCBs) Foreign investment through GDRs, ADRs and FCCBs is also treated as FDI. Indian companies are permitted to raise capital in the international market through the issue of GDRs, ADRs and FCCBs, subject to restrictions. The issue of ADRs or GDRs does not require any prior approval (either from the Ministry of Finance, Foreign Investment Promotion Board (FIPB) or RBI), except when the FDI after such issue exceeds sectoral caps or policy requirements, in which case prior approval from FIPB is required. There are no end-use restrictions on ADRs or GDRs, except for a ban on their deployment in the real estate business or the stock market. f. Foreign currency exchangeable bonds (FCEBs) FCEBs are bonds expressed in foreign currency, the principal and interest of which is payable in the same currency. An FCEB is issued by a company which is part of the promoter group of a listed company (offered company) and shall hold the equity share(s) being offered at the time of the issuance of FCEB. The offered company should be engaged in a sector eligible to receive FDI. The FCEB is subscribed to by a person residing outside India and is exchangeable into an equity share of the offered company on the basis of any equity related warrants attached to debt instruments. IV. SIGNIFICANT EXCHANGE CONTROL REGULATIONS The RBI has delegated its powers relating to monitoring and permitting remittances under the current account window to authorized dealer (AD) banks (entities authorized by the RBI). All current account transactions are generally permitted unless specifically prohibited or restricted. Transactions that alter the assets or liabilities, including contingent liabilities, outside India of a person residing in India, or assets or liabilities in India of a person residing outside India, including transactions referred under Section 6(3) of the FEMA, are classified as capital account transactions. Transactions other than these are classified under current account transactions. The INR is fully convertible for current account transactions, subject to a negative list of transactions which are either prohibited or which require prior approval of the central government or the Reserve Bank of India (RBI). 7

8 Current account transactions The RBI has delegated its powers relating to monitoring and permitting remittances under the current account window to authorized dealer (AD) banks (entities authorized by the RBI). All current account transactions are generally permitted unless specifically prohibited or restricted. As per the CAT Rules, drawl of foreign exchange for the following purposes is prohibited: Remittances from lottery winnings; Remittance of income from racing, riding or any such hobby; Remittance for the purchase of lottery tickets, banned or proscribed magazines, football pools, sweepstakes, etc. Payment of commission on exports made towards equity investments in joint ventures (JVs) or wholly-owned subsidiaries abroad of Indian companies; Remittance of dividend by any company to which the requirement of dividend balancing is applicable; Payment of commission on exports under the rupee state credit route, except commission up to 10% of the invoice value of exports of tea and tobacco; Payment related to call-back services of telephones; Remittances of interest income of funds held in a non-resident special rupee (account) scheme. The CAT Rules further specify those transactions for which drawl of foreign exchange is permitted only with prior approval of the government. However, government approval is not required when payment is made out of funds held in the resident foreign currency account of the remitter. Capital account transactions The general principle for capital account transactions is that these are restricted unless specifically or generally permitted by the RBI, which has prescribed a list of permitted capital account transactions for persons residing in or outside India: Investment by a person residing in India in foreign securities; Investment in India by a person residing outside the country; Borrowing or lending in foreign exchange; Deposits between persons residing in India and those residing outside India; Export or import of currency; Transfer or acquisition of immovable property in or outside India, etc. Under the LRS, resident individuals can remit up to 250,000 USD per financial year for any permitted capital account transaction. The permissible transactions are as follows: Opening of foreign currency account outside India; Purchase of property abroad; Making investments abroad; Setting up wholly-owned subsidiaries and JVs abroad; Extending loans including those in INR to NRI relatives. For overseas investments in a JV or a wholly-owned subsidiary, the limit of financial commitment has been restored to 400% (from 100% in 2013) of the net worth of the Indian entity as on the last audited balance sheet date. However, any financial commitment exceeding 1 billion USD (or its equivalent) in a financial year requires RBI s prior approval, even when the total financial commitment of the Indian party is within the eligible limit under the automatic route (i.e. within 400% of the net worth as per the last audited balance sheet). For the purpose of setting up offices abroad, AD banks may permit remittances towards initial expenses up to 15% of the average annual sales or income, or turnover during the last two financial years, or up to 25% of the net worth, whichever is higher. However, for meeting recurring expenses, remittances up to 10% of the average annual sales or income, or turnover during the last two financial years may be made for 8

9 the purpose of normal business operations subject to the following terms: The overseas branch or office has been set up or a representative is posted overseas for conducting normal business activities of the Indian entity. The overseas branch, office or representative shall not enter into any contract or agreement in contravention of the act, rules or regulations made. The overseas office (trading or nontrading), branch or representative should not create any financial liabilities, contingent or otherwise, for the head office in India, and not invest surplus funds abroad without RBI s prior approval. Any funds rendered surplus should be repatriated to India. Repatriation of capital Foreign capital invested in India is generally repatriable, along with capital appreciation, if any, after the payment of taxes due, provided the investment was originally made on a repatriation basis. Acquisition of immovable property in India Foreign nationals of non-indian origin residing outside India are not permitted to acquire any immovable property in India unless it is inherited from a person who was residing in India. However, they can acquire or transfer immovable property in India on lease not exceeding five years without RBI s prior permission. Foreign companies that have been permitted to open a branch or project office in India are allowed to acquire any immovable property in India which is necessary for or incidental to carrying out such activity. In case of foreign companies that have been permitted to open a liaison office (LO), property can be acquired by way of lease not exceeding five years. Royalties and technical know-how fees Indian companies can make payments against lump sum technology fees and royalties without any restrictions under the automatic route. Remittances by branch or project office No prior approval is required for remitting profits earned by the Indian branches of foreign companies to their head offices outside India. However, such remittance is subject to furnishing of prescribed documents to the satisfaction of the AD bank through which the remittance is made. Remittances of the winding-up proceeds of a branch or liaison or project office of a foreign company in India are permitted, subject to furnishing of prescribed documentation to the AD bank. 9

10 V. COMPANY FORMATION IN INDIA PRIVATE LIMITED Pre-registration Requirements A Private Limited Company must have a Paid-up capital of INR 100,000 and a Public Limited Company must have a paid-up capital of INR 500,000. A Private Limited Company must have a minimum of two directors and two shareholders and Public Limited Company must have a minimum of three directors and seven shareholders. The directors must have a valid Director Identification Number (DIN), allotted by the Ministry of Corporate Affairs. At least two directors should have a valid Digital Signature Certificate issued by the Certifying Authorities (CA) and approved by the Ministry of Corporate Affairs. Name Approval The first step in the process of formation is the application for MCA s approval of the desired name for the proposed company. Once, Company name is allotted, company registration documents are filed with respective RoC for registration. Preparation of Documents After obtaining name approval from the RoC the following forms must be filed/uploaded on the MCA website: 1. Form INC-7: Application of Incorporation of the company a. Mandatory attachments to e- form INC 7: i. MOA; ii. AOA; iii. Declaration by professionals in INC-8; iv. Affidavit from the subscriber to the Memorandum in Form No. INC-9; v. Proof of residential address which should not be older than 2 months; vi. Proof of identity. b. Optional attachments depending upon case: i. Proof of nationality in case the subscriber is a foreign national; ii. PAN card of subscribers for Indian nationality subscribers. 2. Form INC-22: Notice of situation of registered office a. Attachments to e-form INC-22: i. Proof of registered office address; ii. Copies of utility bills; iii. Certification of e-form INC- 22 by CS/CA/CWA (in whole time practice). 3. Form DIR-12: Providing information about particulars of appointment of directors of the company and key managerial personnel. Payment of RoC fees and stamp duty After filing of documents, we need to make payment of RoC fees and stamp duty electronically which varies with the authorized capital of the company. Obtaining Certificate of Incorporation The RoC will issue the digitally signed Certificate of Incorporation (only in the electronic format) after careful review of documents submitted. A private limited company can start its business immediately on receiving the Certificate of Incorporation. 10

11 VI. COMPANY FORMATION (PROCEDURE & NORMAL TIME) No. Procedure Completion Time 1 Obtain digital signature certificate (DSC) 1-2 day 2 Obtain director identification number (DIN) 1-2 days 3 Reserve the company name with the Registrar of 2-3 days Companies (ROC) 4 File all incorporation forms and documents, pay 3-7 days stamp duty, apply for PAN and TAN and obtain the certificate of incorporation 5 Make a common seal of the company and print memorandum and articles of association 5-7 day 6 Open bank account and deposit share 7 days subscription money by the subscriber(s) to the memorandum of association 7* Register for GST 5 days 8* Register for profession tax (if applicable) 2 days, simultaneously with procedure 7 9* Register with Employees Provident Fund (EPF) 12 days, simultaneously with Scheme (if applicable) 10* Register with Employees State Insurance Corporation (ESIC) (if applicable) * Takes place simultaneously with another procedure procedure 7 9 days, simultaneously with procedure 7 Starting a foreign company: Any foreign company can establish its place of business in India by filling Form 44 (Documents delivered for registration by a foreign company). The e-form has to be digitally signed by authorized representative of the foreign company. There is no need to apply and obtain DIN for Directors of a foreign company but DSC of the authorized representatives is mandatory, which again is not required to be registered on MCA Application 11

12 VII. COMPLIANCE REQUIREMENTS FOR COMPANIES IN INDIA The Companies Act, 2013 has elaborate provisions relating to Governance of Companies, which deal with management and administration of companies. It contains special provisions with respect to the annual compliance requirements. Companies incorporated under the Act have to file various forms, returns and documents under various sections with the Registrar of Companies (RoC) in an electronic mode within the prescribed time along with the prescribed fees or with payment of additional fees in the event of delayed filing. VIII. CORPORATE TAXATION IN INDIA For the purpose of taxation companies in India are broadly classified into domestic companies and foreign companies or in other words resident or non-resident. Based on their residence, they are subject to different tax treatments. Companies that are registered in India according to the Companies Act, 2013 or any other previous company law are deemed to be domestic companies, and companies whose chief control and management are located wholly within India are also known as domestic companies. A domestic company may be a public company or a private company. If a company is not registered in India and managerial control is exercised on it from a foreign country, it is treated as a foreign company. Key Provisions: A domestic/resident company is taxed on: 1. Any income which is received or is deemed to be received in India in the relevant Previous Year by or on behalf of such company; 2. Any income which accrues or arises or is deemed to accrue or arise in India during the relevant Previous Year; 3. Any income which accrues or arises outside India during the relevant Previous Year. A Foreign/non-resident company is taxed on: 1. Any income which is received or is deemed to be received in India during the relevant Previous Year by or on behalf of such company; 2. Any income which accrues or arises or is deemed to accrue or arise to it in India during the relevant previous year. A domestic/resident company would be subjected to an additional tax called dividend tax on the amount of dividend declared, distributed or paid. Dividend tax is charged on the company and not charged on the hands of the shareholders. Such tax must be paid within 14 days of declaration or distribution, whichever is earlier. Any deduction on account of such tax is not allowed to the company. Companies with a total income of more than INR 10 million are subject to a surcharge on their taxes. Domestic companies pay a surcharge of 5% as against foreign companies that pay a surcharge of only 2%. Withholding tax is applicable on payments made to foreign companies operating in India without permanent establishment. Capital gains are subjected to tax. 12

13 Domestic Company Foreign Company Corporate Tax Rates for FY Companies with turnover and All other cases gross receipt less than INR 50 million in FY % + Surcharge (if applicable) 30% + Surcharge (if applicable) % + Surcharge (if applicable) + In addition to the basic corporate tax rate, the following taxes are also applicable: 1. For domestic companies, where total income exceeds INR 10 million but does not exceed INR 100 million, rate of surcharge shall be 7% of income tax. Where total income exceeds INR 100 million, rate of surcharge shall be 12% of income tax. However, surcharge shall be subject to marginal relief. 2. For foreign companies, where total income exceeds INR 10 million but does not exceed INR 100 million, rate of surcharge shall be 2% of income tax. Where income exceeds INR 100 million, rate of surcharge shall be 5% of income tax. However, surcharge shall be subject to marginal relief. 3. In order to provide relief to newly setup domestic companies in manufacturing, it has been proposed that manufacturing companies established on or after 1 March 2016 have an option to offer income at a concessional base tax rate of 25% (plus surcharge and cess) provided it does not claim specified tax incentives/ exemptions. 4. An eligible start-up registered from 1 April 2016 to 31 March 2019 shall get a 100% tax deduction for any three consecutive years out of five years beginning from the year in which it is incorporated subject to MAT (Minimum Alternate Tax). 5. Rate of MAT payable by a company is 18.5%. 6. Dividend distribution tax at 15% is payable by companies that declare, distribute or pay any amount as dividend. 7. Additional income tax at 10% of gross amount of dividend will be payable by a recipient receiving dividend in excess of INR 1 million during a year. 8. Short term capital gain on sale of equities and equity oriented mutual funds shall be taxed at 15%. Long term capital gain on sale of equities and equity oriented mutual funds are exempt for tax. 9. Deduction of tax at source on payment to non-residents shall be as follows: Nature of payment Tax rate Interest 20% Royalty 10% Fees for technical 10% services Any other income 30% Note: Applicable to non-resident belonging to countries that are not party to DTAA with India. Rates will be competitive for DTAA partner countries. 10. In addition, several other taxes will be charged as indirect charges like CENVAT, VAT, Service Tax, Customs duty etc. 13

14 IX. INDIAN TAX STRUCTURE AT A GLANCE (RELEVANT TO FY ) Direct Taxes Individual Income Tax & Corporate Tax The provisions relating to income tax are contained in the Income Tax Act, 1961 and the Income Tax Rules, The Income Tax Department is governed by the Central Board for Direct Taxes (CBDT) which is part of the Department of Revenue under the Ministry of Finance. In terms of the Income Tax Act, 1961, a tax on income is levied on individuals, corporations and body of persons. Tax rates are prescribed by the government in the Finance Act, popularly known as the Union Budget, every year. Capital Gains Tax The central government also charges tax on capital gains that are derived from sale of assets. A capital gain is the difference between the money received from selling the asset and the indexed cost of the asset. Securities Transaction Tax (STT) Transactions in equity shares, derivatives and units of equity-oriented funds entered in a recognized stock exchange attract securities transaction tax. Service tax, surcharge and education cess are not applicable on STT. Taxation of profit or loss from securities transactions depends on whether the activity of purchasing and selling of shares/derivatives is classified as an investment activity or a business activity. Treatment of STT also depends upon whether the income from these securities transactions is included under the head Income from Capital Gains or Profits and Gains of Business or Profession. Indirect Taxes Customs Duty Customs duty in India falls under the Customs Act, 1962 and Customs Tariff Act, Customs duty is the tax levied on goods imported into India as well as on goods exported from India. Additionally, educational cess is also charged. Customs duty is evaluated on the value of the transaction of the goods. The Central Board of Excise and Customs under the Ministry of Finance manages the customs duty process in the country. Goods and Services Tax Goods and Services Tax (GST) came into effect from 1 July 2017 through the implementation of the 101st amendment of the Constitution of India. GST is a comprehensive, multi-stage, destinationbased indirect tax levied on the supply of goods and services. The introduction of GST removed cascading effect of various taxes levied by the central and state governments in the previous regime. The tax rates, rules and regulations are governed by the Goods and Services Tax Council which comprises of finance ministers of centre and all the states. GST simplified a slew of indirect taxes with a unified tax and is therefore expected to dramatically reshape the country's 2 trillion dollar economy. Stamp Duty It is a tax that is levied on the transaction performed by means of a document or instrument as per the regulations of Indian Stamp Act, Stamp duty is paid on instruments, which are essentially documents to create, transfer, limit, extend, extinguish or record a right or liability. A document acquires legality once it is stamped properly after the payment of the requisite stamp duty charges. Stamp duty is payable on transfer of shares, share certificates, partnership deeds, bills of exchange, leave and license agreements, debentures, gift deeds, bank guarantees, bonds, demat shares, development agreements, demergers, powers of attorney, home loans, purchase of property, lease deeds, loan agreements and lease agreements. Other State/Local Taxes Certain indirect taxes which were not subsumed by GST continue to be levied by the state/local governments and are governed by their respective Acts, Rules and rates which differ from state to state. Some of these are tax on alcoholic and petroleum products, tax on sale and consumption of electricity, etc. 14

15 X. SPECIAL ECONOMIC ZONES IN INDIA Special Economic Zone (SEZ) is a specifically delineated duty-free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs. In order words, SEZ is a geographical region that has economic laws different from a country's typical economic laws The Special Economic Zone (SEZ) policy in India first came into inception on April 1, The prime objective was to enhance foreign investment and provide an internationally competitive and hassle free environment for exports. The idea was to promote exports from the country and realising the need that level playing field must be made available to the domestic enterprises and manufacturers to be competitive globally. The SEZ Act, 2005, provided the umbrella legal framework, covering all important legal and regulatory aspects of SEZ development as well as for units operating in SEZs. Business units that set up establishments in an SEZ would be entitled for a package of incentives and a simplified operating environment. Some of these are listed below. The incentives and facilities offered to the units in SEZs for attracting investments into the SEZs, including foreign investment include: Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units; 100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years; Exemption from minimum alternate tax under section 115JB of the Income Tax Act; External commercial borrowing by SEZ units up to US $500 million in a year without any maturity restriction through recognized banking channels; Exemption from Central Sales Tax; Exemption from Service Tax; Single window clearance for central and state level approvals; Exemption from state sales tax and other levies as extended by the respective state governments. The major incentives and facilities available to SEZ developers include: Exemption from custom/excise duties for development of SEZs for authorized operations approved by the BOA; Income Tax exemption on income derived from the business of development of the SEZ in a block of 10 years in 15 years under Section 80-IAB of the Income Tax Act; Exemption from minimum alternate tax under Section 115 JB of the Income Tax Act; Exemption from dividend distribution tax under Section 115O of the Income Tax Act; Exemption from Central Sales Tax (CST); Exemption from Service Tax (Section 7, 26 and Second Schedule of the SEZ Act). 15

16 XI. BUSINESS AND EMPLOYMENT VISA SCHEMES FOR FOREIGNERS IN INDIA Business Visa/ B Visa Eligibility A business visa is given strictly to those who would like to make only business related trips to India Duration and validity A business visa may be valid for 1 year or more with multiple validities (U.S. citizens can get 5 years or 10 years multiple-entry visa). However, the period of stay in India for each visit is limited to six months. A multiple entry business visa valid for 10 years may be available to foreign businessmen who have setup or intended to setup joint ventures in India. The visa duration starts on the day of issuance and not on the day of entry to India. Visa Extension If the business visa is granted for a period less than 5 years, it can be extended up to a maximum period of 5 years subject to following: The gross annual turnover from the business activities, for which the foreigner has been granted the visa, is not less than INR 10 million (to be achieved within two years of setting up the business. The first extension of the business visa shall be granted by Ministry of Home Affairs. Further extensions, if required, may be granted by state governments/ut administrations/frrs/fros on a year-to-year basis subject to good conduct, production of necessary documents in support of continued business activity and no adverse inputs, security related or otherwise, about the foreigner. Documents required The documents required may vary depending on the High Commission or Embassy processing it, therefore the following is not an exhaustive list. Please check with the relevant processing authority. 1. The foreign national must have a valid travel document and a re-entry permit, if required, under the law of the country concerned. 2. Proof of financial standing. 3. Proof of expertise in the field of intended business. 4. Documents/papers pertaining to proposed business activity such as the registration of the company under the Companies Act, proof of registration of the firm with the State Industries Department or the Export Promotion Council concerned or any recognized promotional body in the relevant field of industry or trade, etc. Employment Visa/ E Visa Eligibility An employment visa is granted to an employee or paid intern of an Indian company. Duration and Validity The embassy may grant an employment visa, which is valid for a year, irrespective of the duration of contact. Further extension of up to 5 years may be obtained from MHA/FRRO in the concerned state in India. The Visa duration starts on the day of issuance and not on the day of entry to India. A foreign technician may get an employment visa for a period of 5 years or the duration of the bilateral agreement between India and the foreign government, whichever is less, with multiple entries. For highly qualified foreign personnel being employed in the IT software and IT enabled sectors, the validity is of 3 years or the term of assignment, whichever is less with multiple entries. Others can be granted an employment visa with a validity up to 2 years or 16

17 the term of assignment, whichever is less, with multiple entries. Foreigner Registration Those with visa duration of 180 days or less do not require foreigner registration. An employment visa valid for 180 days has an endorsement indicating that the foreigner s registration with the FRRO/FRO is required within 14 days of arrival. For those whose registration is required, FRRO/FRO may issue a residential permit for the validity of visa period. Extension The employment visa can be extended by the state governments/uts/frros/fros beyond the initial visa validity period, up to a total period of 5 years from the date of issue of initial employment visa, on an annual basis, subject to good conduct, production of necessary documents in support of continued employment, filing of Income Tax Returns and no adverse security inputs about the foreigner. Documents Required The documents required may vary depending on the High Commission or Embassy processing it. Therefore the following is not an exhaustive list. Please check with the relevant processing authority. 1. Valid travel document and a re-entry permit, if required under the law of the country concerned. 2. Proof of employment of contract or engagement by the company / organization, etc. in India. 3. Documentary proof of educational qualifications and professional expertise. 4. Documents/ papers pertaining to the proposed employment, like the registration of the company under the Companies Act, proof of registration of the firm in the State Industries Department or the Export Promotion Council concerned, or any recognized promotional body in the field of industry and trade etc. 5. Undertaking in the prescribed format from the concerned company XII. GUIDE TO BUSINESS LICENSES IN INDIA The existence of several enforcement and regulatory authorities, at central, state and locals levels, governing a business entity requires quite a number of licenses and approvals to be obtained before commencing operations. The licenses and permits are required besides other basic registrations such as registration for PAN, VAT, TAN, ESI, PF, etc. A non-exhaustive list of the important licenses is given below. Industrial License Industrial licenses are regulated under the Industries Development Regulation Act, Industrial licenses are granted by the Secretarial of Industrial Assistance (SIA) on the recommendation of the Licensing Committee. Presently, Industrial Licensing for manufacturing is required in case of: Industries under compulsory licensing; Manufacture of item reserved for (Small Scale Industries) SSI sector by non SSI units; Projects affected by location restrictions. Environmental Clearance Factory License Shops and Establishment License Import License Export License Import Export Code (IEC) Central Excise License State Excise License Trade License Other Licenses 17

18 XIII. GUIDE TO EMPLOYMENT LAWS IN INDIA Ministry of Labour and Employment is responsible for formulation and administration of the rules and regulations and laws relating to labour and employment. Familiarizing with the employment laws and regulations will be immensely useful for a foreigner setting up an enterprise in India. The following article is a bird s-eye view of some of the important employment laws that will be of significance to employers and employees. Laws Relating to Working Conditions Factories Act, 1948 Mines Act, 1972 Dock Workers (Safety, Health & Welfare) Act, 1986 Laws Relating to Industrial Relations Industrial Disputes Act, 1947 (IDA) Trade Unions Act, 1926 (TUA) The Industrial Employment (Standing Orders) Act, 1946 Laws Relating to Wages & Benefits Minimum Wages Act, 1948 Payment of Bonus Act, 1965 Payment of Wages Act, 1936 Laws Relating to Social Security Employees Provident Fund and Miscellaneous Provisions Act, 1952 (EPFMPA) Employees State Insurance Act, 1948 (ESI) Workmen s Compensation Act, 1923 Maternity Benefit Act, 1961 The Payment of Gratuity Act, 1972 (PGA) Other Laws Shops and Establishments Act The Contract Labour (Regulation and Abolition) Act,

19 Disclaimer All information presented in Establishing Business in India, is from government and other public sources available as of January While efforts have been made to avoid errors or omissions in this publication, any mistake, error or discrepancy noted may be brought to the notice of our office. Detailed advice should be obtained before taking action or refraining from taking action, as a result of the information in this publication. Vijay Saini & Associates shall not be held responsible for any damage or loss of action to anyone, of any kind, in any manner there from. It is therefore strongly recommended that potential investors contact Vijay Saini & Associates to obtain the most recent information and professional advice related to establishing a business in India. 19

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