India s Free Trade and Double Tax Agreements

Issue 37 December 2017 From Dezan Shira & Associates India s Free Trade and Double Tax Agreements P.04 P.08 Evaluating India s Free Trade Agreements for Your Business How to Use India s Double Tax Agreements P.13 Access India and ASEAN through Singapore www.india-briefing.com

Introduction Years 1992-2017 ROHIT KAPUR Country Manager Dezan Shira & Associates www.dezshira.com www.asiabriefing.com www.aseanbriefing.com India has attracted global attention this year for the country s ambitious new goods and service www.china-briefing.com tax (GST): consolidating procedures while bringing more industries into the formal economy. www.indonesiabriefing.com The Indian government is making it easier to penetrate the country s growing markets and businesses the world over are taking notice. In fact, the 2016 financial year marked a record amount of foreign direct investment entering India in a single year US$60.1 billion. www.vietnam-briefing.com A surge in isolationist polices in Western countries are encouraging many businesses to rethink once taken for granted trade relations and explore new, emerging markets. India s free trade and double tax agreements with individual countries and groups of nations alike present new trading routes throughout Asia. These agreements can, at times, appear convoluted and confusing. The benefits of each respective agreement must be analyzed for applicability to ensure fiscal improvements to foreign business models. In this issue of India Briefing magazine, we take a look at the bilateral and multilateral trade agreements that India currently has in place and highlight the deals that are still in negotiation. We analyze the country s double tax agreements, and conclude by discussing how foreign businesses can establish a presence in Singapore to access the Indian and ASEAN markets. With kind regards, Reference India Briefing and related titles are produced by Asia Briefing Ltd., a wholly owned subsidiary of Dezan Shira Group. Content is provided by Dezan Shira & Associates. No liability may be accepted for any of the contents of this publication. Readers are strongly advised to seek professional advice when actively looking to implement suggestions made within this publication. For queries regarding the content of this magazine, please contact: editor@asiabriefing.com All materials and contents 2017 Asia Briefing Ltd. Asia Briefing Ltd., Unit 507, 5/F, Chinachem Golden Plaza 77 Mody Road, Tsim Sha Tsui East Kowloon, Hong Kong Rohit Kapur Credits Publisher / Adam Livermore Editor / Melissa Cyrill, Bradley Dunseith Design / Kking Lu 2

FTA DTAA Table of Contents P.04 Evaluating India s Free Trade Agreements for Your Business P.08 How to Use India s Double Tax Agreements P.13 Access India and ASEAN through Singapore This Issue s Topic India s Free Trade and Double Tax Agreements Online Resources from India Briefing Capital Gains Tax in India: An Explainer The IT Sector: Time to Invest in India An Introduction to Doing Business in India 2017 Tax, Accounting and Audit in India 2017-18 (3rd Edition) Annual Subscription India Briefing Magazine is published six times a year. To subscribe, please Click Here This publication is available as an interactive PDF and epublication with additional clickable resource icons below: Online Resources on Emerging Asia Strategic Advisory & Commentary Professional Services Knowledge Sharing Platform ASEAN-Hong Kong Free Trade Agreement Signed Hong Kong Finalizes FTA with ASEAN, DTAA with India Vietnam and the ASEAN-Hong Kong Free Trade Agreement Hong Kong s Advance Pricing Arrangement Program Regulatory Framework & Updates Legal, Tax, Accounting News Cross Region Comparisons Industry Studies Magazines, Guides, Reports This Month s Cover Art from Rang Art Gallery Sudhir.P.Talmale, Vibrance, Oil on canvas, 30 x 41 inches rangartgallery@gmail.com +91 98 1107 8742 http://www.rangartgallery.com Podcast & Webinar 3

Evaluating India s Free Trade Agreements for Your Business By: Dezan Shira & Associates Free trade agreements (FTAs) are arrangements between two or more countries, or between a country and a trading bloc to abolish or reduce tariffs, quotas, and preferences on goods and services traded. Countries often agree to FTAs if their economic structures are complementary, not competitive. FTAs also cover areas such as intellectual property rights (IPRs), investment, and government procurement and competition policies. At the regional level, every customs union, trade common market, economic union, and customs and monetary union negotiate free trade areas. India looks favorably upon these regional trading arrangements (RTAs), which include FTAs as well as Preferential Trade Agreements (PTAs) and Comprehensive Economic Cooperation Agreements (CECAs). India s trade promotion strategies India s trade promotion strategies are briefly outlined below. Early Harvest Scheme An Early Harvest Scheme (EHS) is a precursor to an FTA between two trading partners. At this stage, the negotiating countries identify certain products for tariff liberalization pending the conclusion of actual FTA negotiations. The EHS is, therefore, used as a mechanism to build greater confidence between the trading partners, and structurally prepares them for subsequent, deeper economic engagement. India is keen on such schemes, and some EHS agreements are incorporated within existing treaties. India and Thailand signed an EHS in October 2003, where both countries agreed to reduce tariff duties on 83 products to zero, in a phased manner. Trade agreements These are bilateral or multilateral treaties, or any other enforceable accord, which commit two or more countries to specified terms of trade and commerce. They mostly involve mutually beneficial concessions. Framework agreements Prior to negotiating trade accords, potential trading partners sign framework agreements, which set the period for future substantive liberalization by defining the scope and provisions of orientation for some new area of discussions. India has previously signed framework agreements with the ASEAN (Association of Southeast Asian Nations) and MERCOSUR (Southern Common Market in Spanish) trade blocs, and countries like Japan and Korea. 4

Issue 37 December 2017 India Briefing Aside from FTAs, India has negotiated other types of agreements to promote trade liberalization: Preferential Trade Agreements (PTAs) In this type of agreement, two or more partners give preferential right of entry to certain products. This is done by reducing duties on an agreed number of tariff lines. A PTA is established through a trade pact, and is a stepping stone towards better economic relations with the concerned country. India enjoys PTAs with several countries, including Bangladesh, China, South Korea, and Sri Lanka. The key difference between an FTA and a PTA is that in a PTA there is a positive list of products on which duty is to be reduced; in an FTA, there is a negative list on which duty is not reduced or eliminated. India places great importance on developing its relationship with ASEAN given the organization s economic, political, and strategic significance in the larger Asia-Pacific region. Strong ties with ASEAN is necessary to expand India s market access, and to build greater connectivity between India s northeastern states that border the Southeast Asian region. Towards this, India inked the framework agreement to activate its CECA with ASEAN on October 8, 2003. This initial agreement provided for an EHP, which covered areas of economic cooperation and a common list of items for exchange as an assurance building measure. Subsequently, the ASEAN-India Free Trade Area (AIFTA) was negotiated, and came into force on January 1, 2010. India also signed an FTA in services and investments with ASEAN in 2014, which came into force in 2015. Comprehensive Economic Cooperation Agreement (CECA) and Comprehensive Economic Partnership Agreement (CEPA) These terms refer to integrated trade negotiations on goods, services, and investments as well as agreement on a broad range of areas such as trade facilitation and customs cooperation, investment, competition, and IPR. India has signed CEPA with Korea (in effect since 2010) and Japan (in effect since 2011) and CECA s with Singapore (2005) and Malaysia (2011). India s bilateral and multilateral FTAs India has negotiated trade liberalization arrangements with several countries and trade groupings, including pre-fta level schemes and alternative trade relaxation programs. ASEAN Founded on August 8, 1967, ASEAN consists of Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam. 2017 marked 25 years of India s dialogue partnership with ASEAN, 15 years of summit level meetings, and five years of strategic partnership. In 2016-17, ASEAN accounted for about 10.4 percent of India s exports and 10.6 percent of India s imports. While ASEAN has committed to tariff reduction on over 4,000 products and tariff liberalization of over 90 percent India currently suffers a trade deficit with the region. This is in the case of five ASEAN member states Malaysia, Indonesia, Thailand, Brunei, and Lao PDR. The biggest deficit is with Indonesia, which has eliminated tariffs on only 50.1percent items out of those named in the FTA agreement. MERCOSUR Formed in 1991, MERCOSUR is a sub-regional trading community in Latin America, and comprises of Argentina, Brazil, Paraguay, and Uruguay. Chile, Bolivia, Peru, Colombia, Ecuador as well as Guyana and Suriname are its associate members. While Bolivia is still negotiating membership status (Protocol of Accession stage), Venezuela s membership was suspended in 2016. MERCOSUR is the third largest integrated market in the world after the European Union (EU) and the North American Free Trade Agreement (NAFTA). India and MERCOSUR signed an initial framework agreement on June 17, 2003, which outlined mutual tariff preferences and proposed a free trade area between the two parties in line with the rules of the World Trade Organization (WTO). Subsequently, India signed a PTA with MERCOSUR, which came into effect on June 1, 2009. 5

Grouping Asia-Pacific Trade Agreement (APTA) Number of member countries India s Free Trade Agreements Member countries 5 Bangladesh, China, South Korea, Sri Lanka Type of agreement, stage of implementation Preferential Trade Agreement (PTA), in effect India-ASEAN Trade in Goods Agreement (India-ASEAN TIG) 11 Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam, and India FTA Bangladesh India Myanmar Sri Lanka Thailand Economic Cooperation (BIMSTEC) 7 Bangladesh, India, Myanmar, Sri Lanka Thailand, Bhutan, and Nepal FTA, under negotiation Global System of Trade Preferences (GSTP) 43 Algeria, Argentina, Bangladesh, Benin, Bolivia, Brazil, Cameroon, Chile, Colombia, Cuba, Ecuador, Egypt, Ghana, Guinea, Guyana, India, Indonesia, Iran, Iraq, Libya, Macedonia, Malaysia, Mexico, Morocco, Mozambique, Myanmar, Nicaragua, Nigeria, North Korea, Pakistan, Peru, Philippines, South Korea, Singapore, Sri Lanka, Sudan, Thailand, Trinidad and Tobago, Tunisia, Tanzania, Venezuela, Vietnam, Zimbabwe PTA, in effect South Asia Free Trade Agreement (SAFTA) 7 Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka FTA, in effect India Sri Lanka FTA (ISLFTA) 2 India, Sri Lanka FTA, in effect India Malaysia Comprehensive Economic Cooperation Agreement (IMCECA) 2 India, Malaysia CECA, in effect Japan India Comprehensive Economic Partnership Agreement (JICEPA) 2 Japan, India CEPA, in effect India Korea CEPA (IKCEPA) 2 India, Korea CEPA, in effect India Brazil and South Africa (IBSA) Bilateral Trade and Investment Agreement (BTIA) 3 India, Brazil, and South Africa Under negotiation 29 India and the EU (Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxemburg, Malta, Netherlands, Poland, Romania, Slovakia, Slovenia, Spain, Sweden, and the U.K.) FTA, under negotiation India Israel FTA 2 India, Israel FTA, under negotiation India Canada CEPA 2 India, Canada CEPA, under negotiation India Peru FTA 2 India, Peru FTA, under negotiation India New Zealand FTA 2 India, New Zealand FTA, under negotiation 6

Issue 37 December 2017 India Briefing As of 2017, India has requested for a third round of PTA expansion talks with MERCOSUR. Under the existing terms of the PTA India has brought down duties on 452 items, ranging from 10 to 100 percent. These include meat products, chemicals, raw hides and skins, leather articles, wool, cotton yarn, glass and glassware, iron and steel, machinery and equipment, optical, photographic, and cinematographic apparatus. Meanwhile, India has secured preferential access for organic chemicals, pharmaceuticals, essential oils, plastics and articles, rubber and rubber products, tools and implements, machinery items, as well as electrical machinery and equipment. India s bilateral trade with the bloc was US$10.08 billion in the 2015-16 financial year, but India now wants to expand PTA coverage to up to 2,500 tariff lines. BIMSTEC The Bay of Bengal Initiative for Multi Sectoral Technical and Economic Cooperation (BIMSTEC) is a technical and economic cooperation forum formed in 1997, and including Bangladesh, India, Myanmar, Sri Lanka, and Thailand. Bhutan and Nepal joined the group in February 2004. BIMSTEC includes five members of the South Asian Association for Regional Cooperation (SAARC) India, Bangladesh, Bhutan, Nepal, and Sri Lanka as well as two ASEAN members, Thailand and Myanmar, and is seen as a bridge between the two major regional organizations. Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. During the organization s 12th SAARC Summit in Islamabad in January 2005, all member states approved to establish an FTA within their region. Consequently, SAFTA came into force on January 1, 2006. SAFTA has eliminated trade blockages, facilitated the cross-border movement of goods between the territories of the contracting states, promoted fair competition, created mechanisms to achieve joint administration and resolution of disputes, among other things. How to evaluate India s FTAs for your business FTAs are, by nature, complicated documents. To establish whether the contents are applicable to your business, the following questions need to be addressed: Is your product or service included within the FTA s remit? If so, what are the dutiable advantages? What are the implementing rules and documentary requirements on claiming lower duties? Are there any tax advantages that may apply to my business operations? How can I implement and claim these? India is pushing for the conclusion of an FTA with BIMSTEC, which has been pending since talks began in 2004. Currently, India and Thailand disagree on matters related to market access for professionals and duty cuts on traded goods and policy relaxation. Another major obstacle is India s demand to negotiate fresh terms to the initial framework agreement, whereas all the other members want to maintain status quo. Otherwise, Bangladesh and Sri Lanka have been pushing for China s entry, as an observer, which India is not open to considering. SAFTA South Asia s FTA is linked to the regional body SAARC, which was formed in Dhaka in December 1985. SAARC members are: Afghanistan, Bangladesh, Such advice typically needs to be handled by a professional firm that is familiar with India s FTA agreements and can assist with on-the-ground administration in order to ensure benefits can be obtained. India has tended to be somewhat long-winded and bureaucratic about some of its trade agreements. Despite this, certain FTAs, such as those with the ASEAN region have provided significant reductions on trade tariffs. While navigating India s FTAs can be a protracted process, their benefits cannot be overstated and should always form part of your overall business strategy for investing in India. 7

How to Use India s Double Tax Agreements By: Dezan Shira & Associates Double taxation avoidance agreements (DTAs or DTAAs) aim to prevent the same income from being taxed by two or more states, while also eliminating tax evasion and encouraging cross-border trade efficiency. DTAAs within a bilateral agreement enshrine the treatment of many forms of tax, including corporate income tax, individual income tax, withholding tax, and dividends tax. DTAAs prevent double taxation by allowing the tax paid in one of the two countries to be offset against the tax payable in the other country. This is secured by providing exemptions or reduced tax rates for specific income types, such as interest, royalties, and dividends. For instance, in India, the withholding tax rate on dividends is 15 percent as per the Income-tax Act, 1961, but DTAAs serve to reduce interest and royalty rates. India has taken a largely positive view when it comes to entering into double tax agreements with other nations it now has over 90 such treaties, many of them coming into effect recently. DTAAs are useful for companies that have a presence in multiple countries, but also for trading companies that do not have a permanent presence in India but provide services to an India-based entity. Such services are typically subject to withholding tax, but effective use of the applicable DTAA can lessen this burden significantly. Typical DTAA benefits Apart from the principal of an individual or corporation not being subject to double taxation being taxed both in one country and then back home most DTAAs also include tax sweeteners that international businesses can take advantage of. These include, but are not limited to, the following reductions. Dividends distribution tax In addition to a 40 percent corporate income tax (CIT) for foreign investors, India charges a 15 percent dividends distribution tax (DDT) upon profit repatriation overseas. Many DTAAs provide for a clause that reduces the dividends tax portion by 50 percent. RELATED READING Procedures for remitting profits from India are dependent on a firm s investment model. It is important to stay updated with the latest rules and regulations. To learn more about what you need to know, please see our related publication on the subject. DOWNLOAD 8

India s DTAAs and WHT Rates Recipient WHT (%) Recipient WHT (%) Dividend Interest Royalty For technical services Dividend Interest Royalty For technical services Albania 10 10 10 10 France 15 0/10/15 20 10 Armenia 10 10 10 10 Georgia 10 10 10 10 Australia 15 15 10/15 10/15 Germany 10 10 10 10 Austria 10 10 10 10 Greece N/A N/A N/A N/A Bangladesh 10/15 10 10 N/A Hungary 10 10 10 10 Belarus 10 /15 10 15 15 Iceland 10 10 10 10 Belgium 15 10 /15 20 10 Indonesia 10 10 10 N/A Bhutan 10 10 10 10 Ireland 10 10 10 10 Botswana 7.5 /10 10 10 10 Israel 10 10 10 10 Brazil 15 15 25/15 15 Italy 15/25 15 20 20 Bulgaria 15 15 15/20 20 Japan 10 10 10 10 Canada 15/25 15 10/15 10/15 Jordan 10 10 20 20 China (People s Republic of China) Chinese Taipei (Taiwan) 10 10 10 10 Kazakhstan 10 10 10 10 12.5 10 10 10 Kenya 15 15 20 17.5 Colombia 5 10 10 10 Korea, Republic 15 10 10 15 Croatia 5/15 10 10 10 Kuwait 10 10 10 10 Cyprus 10 10 10 10/15 Kyrgyz Republic 10 10 15 15 Czech Republic 10 10 10 10 Latvia 10 10 10 10 Denmark 15/25 10/15 20 20 Libya N/A N/A N/A N/A Egypt N/A N/A N/A N/A Lithuania 5/15 10 10 10 Estonia 10 10 10 10 Luxembourg 10 10 10 10 Ethiopia 7.5 10 10 10 Macedonia 10 10 10 10 Fiji 5 10 10 10 Malaysia 5 10 10 10 Finland 10 10 10/15 10 Malta 10 10 10 10 9

India s DTAAs and WHT Rates Recipient WHT (%) Recipient WHT (%) Dividend Interest Royalty For technical services Dividend Interest Royalty For technical services Mauritius 5/15 7.5 15 N/A South Africa 10 10 10 10 Mexico 10 10 10 10 Spain 15 15 10/20 20 Mongolia 15 15 15 15 Sri Lanka 7.5 10 10 10 Montenegro 5/15 10 10 10 Sudan 10 10 10 10 Morocco 10 10 10 10 Sweden 10 10 10 10 Mozambique 7.5 10 10 N/A Switzerland 10 10 10 10 Myanmar 5 10 10 N/A Syria 5/10 10 10 N/A Namibia 10 10 10 10 Tajikistan 5/10 10 10 N/A Nepal 5/10 10 15 N/A Tanzania 5/10 10 10 N/A Netherlands 15 10/15 20 10 Thailand 10 10 10 N/A New Zealand 15 10 10 10 Trinidad & Tobago 10 10 10 10 Norway 10 10 10 10 Turkey 15 10/15 15 15 Oman 10/12.5 10 15 15 Turkmenistan 10 10 10 10 Philippines 15/20 10/15 15 N/A Uganda 10 10 10 10 Poland 10 10 15 15 Ukraine 10/15 10 10 10 Portugal 10/15 10 10 10 United Arab Emirates 10 5/12.5 10 N/A Qatar 5/10 10 10 10 United Kingdom 10/15 0/10/15 10/15 10/15 Romania 10 10 10 10 United States 15/25 10/15 10/15 10/15 Russian Federation 10 10 10 10 Uruguay 5 10 10 10 Saudi Arabia 5 10 10 N/A Uzbekistan 10 10 10 10 Serbia 5/15 10 10 10 Vietnam 10 10 10 10 Singapore 10/15 10/15 10 10 Zambia 5/15 10 10 10 Slovenia 5/15 10 10 10 10

Issue 37 December 2017 India Briefing Withholding Tax Withholding Tax (WHT) is an obligation on the payer (either resident or non-resident) of income to withhold tax when making payments of a specified nature, such as rent, commission, salary, professional services, contracts, etc. at rates specified in India s tax regime. The tax rate is the rate prescribed in the IT Act, 1961, or DTAA, whichever is lower. Non-residents are liable to pay taxes in India on source income, including: Interest, royalties, and fees for technical services paid by a resident; Salary paid for services rendered in India; and Income arising from a business connection or property in India. For a taxpayer to avail the benefit of the tax treaty, they are required to demonstrate residency of the country with which India has a DTAA. This means furnishing the following documents: Tax residency certificate from the tax authorities of home country certifying residency; Self-declaration in the form prescribed by the Indian tax authorities; and, Self-declaration certifying that the taxpayer does not have a Permanent Establishment in India. Transfer pricing India enacted transfer pricing (TP) rules in 2001, which prescribe that income arising from international transactions or specified domestic transactions between Associated Enterprises (AE) should be computed using the arm s-length price principle, that is, the amount payable if the trading companies were unrelated. The rules are enumerated under Sections 92 to 92F of the IT Act, 1961. International transactions refers to transactions between two (or more) AEs involving the sale, purchase, or lease of tangible or intangible property, the provision of services or cost-sharing agreements, the lending and borrowing of money, or any other transaction with a bearing on the profits, income, losses, or assets of such enterprises. New safe harbor rules for TP have come into effect from April 1, 2017, which align accepted safe harbor margins with industry standards. They will remain in force for two years, up to Assessment Year (AY) 2019-2020. Advance Pricing Agreements In 2012, the government introduced Advance Pricing Agreements (APAs) with a view to reduce transfer pricing litigation. It comes under Section 92CC of the IT Act. An APA is an agreement between the tax authority and a taxpayer to determine, in advance, the arm s length price in relation to the taxpayer s international transactions with its associated groups (AGs) for future years. Through the APA, the tax authority may accept not to look for a TP adjustment for enclosed transactions as long as the taxpayers follow the terms and conditions as agreed under the APA. Mutual Agreement Procedure In addition to APAs, countries usually agree to a Mutual Agreement Procedure (MAP) at the time of concluding a DTAA. The procedure is usually contained in Article 25 of the DTAA, which requires two contracting countries to endeavor to amicably resolve tax disputes (by way of arbitration) that arise from the DTAA. India s tax department now allows TP disputes to be settled through MAP and bilateral APAs, even with DTAA partners where specific provisions to this effect are absent. Transfer pricing documentation An enterprise entering into an international transaction with an associate enterprise must maintain transfer pricing documentation, the requirements of which are set out in Section 92D of the IT Act and Rule 10D of the Income Tax Rules. The rules require enterprises to submit details of international transactions in Form 3CEB, which is appended to the tax return. Any supplementary documentation must be produced before the tax authority upon request. 11

India Briefing Issue 37 December 2017 Transfer pricing documentation is pivotal in defending the enterprise s own transfer pricing treatment and avoiding transfer pricing penalties. A penalty is applicable where the enterprise has failed to file Form 3CEB, or where the enterprise fails to submit all necessary details of international transactions and associated enterprises, and where submitted, the details provide an inaccurate account of particulars of income. benefits such as withholding or dividend tax reductions; Include any applicable treaty benefits into your pre-incorporation business plan and Articles of Association; Examine any Indian tax registration processes that may require additional registration, and advise them of your intent to invoke treaty status (this is a specific registration process in India). Taking advantage of India s DTAAs The practical steps to take when looking to utilize India s DTAAs are as follows: If you have not completed this process or are unsure how to proceed, seek professional advice. The tax amount saved will almost certainly cover any fees involved in year one alone. Examine whether or not applicable services are included under the specific DTAA; Examine whether the DTAA includes any other RELATED NEWS India Hong Kong DTAA By Vasundhara Rastogi India Briefing News India and the Hong Kong Special Administrative Region (HKSAR) of China recently entered into a double tax avoidance agreement, after years of negotiation, on November 10, 2017. When it comes into force, the DTAA will hold important tax implications for international businesses having operations in both India and Hong Kong. The agreement will also benefit trading companies that do not have a permanent presence in India but service to an India-based entity. Some of the benefits in the India-Hong Kong DTAA include: Lower withholding tax (tax deducted at source or TDS) rates, which can be as high as 40 percent in the absence of a DTAA; Lower dividend distribution tax (DDT) that is an additional tax levied on foreign investors besides the corporate income tax; and, Credits for taxes paid on the double-taxed income can be encashed at a later date, in certain circumstances. READ MORE 12

EXPERT COMMENTARY Access India and ASEAN through Singapore BRADLEY DUNSEITH Associate Dezan Shira & Associates Mumbai Office A key incentive of Indian trading both inbound and outbound is the relationship India enjoys with the Association of South East Asian Nations (ASEAN). India has a complete free trade agreement (FTA) with ASEAN, which reduces tariffs on 90 percent of all good from two to zero. Furthermore, the 2015 ASEAN-India Investment and Services Agreement empowered India s business process outsourcing (BPO) industry to export their talent across emerging South East Asian markets. The highway will eventually extend into Cambodia, Laos, and Vietnam. Singapore is an ASEAN member which can service firms interested in doing business not only with India, but other nations within ASEAN. With a highly skilled workforce and reliable financial services, the city-state has become a global investment hub. Foreign investors qualify to participate in ASEAN s FTAs by simply being incorporated there. India is also improving its connectivity to ASEAN by land and sea. The ambitious Trilateral Highway is in the process of developing roads joining the northeastern states of India to Myanmar and Thailand. In the 2016 financial year (FY), foreign direct investment (FDI) from Singapore to India accounted for US$8.7 billion nearly a fourth of India s US$43.4 billion FDI inflow for the entire 2016 FY. ASEAN-India Trade in Goods 2014-2016 (US$ Billion) Imports from ASEAN Exports to ASEAN Singapore-India FDI Flows (US$ Billion) Indian FDI to Singapore Singpore FDI to India 43.7 40.5 37.6 24.3 19.5 20.8 1.2 0.84 0.87 6.7 15.1 8.7 50 40 30 20 10 25 20 15 10 5 2014 2015 2016 2014 2015 2016 13

India Briefing Issue 37 December 2017 India-Singapore DTAA: New taxes on capital gains Foreign investors active in India are beginning to witness the effects of the current government s crackdown on black or untaxed money. The Indian government recently amended its double taxation avoidance agreements (DTAAs) with Cyrus, Mauritius, and Singapore, granting India more power to tax capital gains. Effective April 1, 2017, capital gains made off the sale of shares in India by a Singapore company will now be taxed by the Indian government. India and Singapore have agreed to several conditions to the new protocol in order to better facilitate the transition. First, any capital gains from the sale of shares purchased before April 1, 2017 will not be taxed in India irrespective of when said shares are sold. Secondly, Indian shares acquired after April 1, 2017, but sold before April 1, 2019, will be subject to only 50 percent of the applicable Indian tax rate. To avail both conditions, however, third party residents must meet the conditions set out in the Limitation of Benefits (LoB) provision incorporated into the DTAA. Capital gain from Indian shares purchased by a Singapore company after April 1, 2017 and sold after April 1, 2019 will be taxed at applicable Indian tax rates. While the new amendment on capital gains ultimately dilutes the strength of the India- Singapore DTAA, the amendment also adds legal legitimacy to investors who access India through Singapore. Furthermore, the new amendments to India s DTAA with Singapore include deeper relief for double taxation in instances of transfer pricing making it easier for multinational corporations to do business between India and Singapore. Both Mauritius and Singapore continue to be the greatest sources of FDI to India. But, foreign investors should be wary of investing in India through countries reputed as tax havens. Singapore s probusiness policies and positive relations with the Indian government will prove enticing even to Mauritius-based companies contemplating India s changing DTAAs. Establishing a company in Singapore When incorporating in Singapore, a professional services firm must be engaged to register on the behalf of companies with non-singapore National Registration Identity Card (NRIC) holders, non- Employment Pass holders, and non-dependent Pass holders in the role(s) of director, company secretary, and shareholder. A Singapore private limited company should have at least one shareholder, but no more than 50. The shareholder can be a person or another legal entity (such as a foreign company). Singapore permits 100 percent foreign shareholding. New shares can be issued or existing shares can be transferred to another person any time after the Singapore company has been incorporated. However, at least one director must be a Singapore resident. A resident is defined as a Singapore citizen, a Singaporean permanent resident, an inprinciple approval (IPA) Employment Pass holder, or a person who has been issued an Employment Pass. This means that a foreigner intending to be employed by the Singapore company can be the sole director of that company, providing they obtain an employment pass and pay taxes in Singapore. There is no limit on the number of additional local or foreign directors a Singapore private limited company can appoint. Most companies will have at least two directors, as banks and other financial institutions usually require two signatories. The sole shareholder and sole director can be the same person, but nonshareholders may also be appointed as directors. 14

Issue 37 December 2017 India Briefing Singapore companies must also: Appoint a company secretary, this individual must be a Singapore resident; Maintain a minimum paid-up capital (known as share capital) of S$1 (US$0.74); and, Provide a Singapore address. Typically, a private limited liability company can be incorporated in 1-2 days. Company registration is completed online with the Accounting & Corporate Regulatory Authority (ACRA). Company name approval To apply for a company name in Singapore, said company must propose the name and its principal activities as identified in the Singapore Standard Industrial Classification 2015 (SSIC) code. Directors and shareholders must provide the following information: Name; ID number; Nationality; Residential address; Contact number and email address; and, Position held. A company s name cannot be identical to that of another entity on the register while certain words (i.e. bank, finance, law, etc.) in a proposed name may require the review and approval of the relevant government authority. Company registration Following the approval of a company name, an application to incorporate a company should be submitted. The application for incorporation is similar for all types of businesses. A company is usually incorporated within 15 minutes after the registration fee is paid. Incorporation will only take longer typically an additional 14 to 60 days if the application needs to be referred to other authorities for approval or review. The company must submit the following information with the application: Name application number or approved company name; Company type; Registered office address; and, Share capital details. The required share capital details include: Allotment of shares; Group shares information; Class of shares; Memorandum and Articles of Association; and, Particulars of additional directors and shareholders. Following successful incorporation, the Company Registrar will send an official email notification, which is treated as the official certificate of incorporation. A business profile containing the particulars of the new company can also be obtained online for a small application fee. These two documents are sufficient in Singapore for all legal and contractual purposes, including opening of corporate bank accounts, signing an office lease, and subscribing to telephone and internet services. Once the company has been successfully incorporated and issued a Unique Entity Number (UEN), the company may begin operations. PROFESSIONAL SERVICES Dezan Shira & Associates has a dedicated tax practice, which covers international tax, transfer pricing, GST, and IIT. To arrange a free consultation, please contact us at india@dezshira.com. EXPLORE MORE 15

India Briefing Issue 37 December 2017 Business Intelligence Due Diligence Advisory Corporate Establishment Tax Accounting Audit Compliance Payroll IT Solutions Our Offices in India Delhi Mumbai +91 95 5544 0455 delhi@dezshira.com +91 22 2204 6117 mumbai@dezshira.com Unit No. T-15, 3rd Floor, Rasvilas Saket District Centre New Delhi 110017, India 35, 3rd Floor, Mittal Chambers Nariman Point Mumbai 400021, India China Hong Kong India Singapore Vietnam Dezan Shira Asian Alliance Members Indonesia Malaysia The Philippines Thailand Dezan Shira Liaison Offices Germany Italy United States www.dezshira.com Years 1992-2017