International Taxation & FEMA Services

FEMA and Non Resident Services

Advising on Entry Strategies for Foreign Companies in India

There are several strategies by which a foreign enterprise can set up Indian operations.

Broadly, entry strategies may be classified into two major types:-

  • A foreign investor may directly set up its operations in India through a branch office or liaison office or project office of the foreign Company ; or
  • It may do so through an Indian arm i.e. through a subsidiary company or a Limited Liability Partnership (LLP) set - up in India under Indian laws;

A Foreign company is one that has been incorporated outside India and conducts business in India. These companies are required to comply with the provisions of the India Companies Act, 2013 as far as their Indian operations are concerned. Foreign companies can set up their operations in India through opening of liaison, project and branch offices. This is possible only after taking written permission for this from the Reserve Bank of India. This is qualitatively different from a case where the foreign company sets up another distinct legal incorporated entity in India as a subsidiary company or LLP which would itself be a domestic entity duly registered under the Indian Laws.

Various structures given above can be evaluated as under:

Entry with or without Government Approval

Entry under Automatic Route

India’s foreign direct investment (FDI) rules have been substantially liberalized over the past several years. Most sectors are now open to 100% FDI, meaning thereby, that the foreign companies do not need a prior approval for investment either by the Government or the Reserve Bank of India. The investors are only required to intimate the Regional office concerned of the Reserve Bank within 30 days of receipt of inward remittance. The automatic route allows Indian companies engaged in various industries to issue shares to foreign investors up to 100% of their paid up capital in Indian companies. The investors are also required to file necessary documents within 30 days of issue of shares.

Entry with Government Approval

Foreign Investment Promotion Board (FIPB) has been set up by the Government of India to increase the flow of foreign direct investments into the country. FIPB is the only agency in the country that deals with foreign direct investments and investments into India. One of the main functions of FIPB is to quickly approve the foreign investment proposals.

The main objective of Foreign Investment Promotion Board (FIPB) is to encourage foreign direct investment and facilitating investments in the country by foreign companies, Non – Resident Indians (NRIs) and other foreign investors in projects which are beneficial for the Indian economy but do not qualify for automatic approval by the Reserve Bank of India (RBI).

FEMA Retainership Services

With our knowledge of international markets, the Foreign Exchange Management Act (FEMA), 1999, Foreign policies and expertise in cross border transactions, we can:

  • Support for regular compliances
  • Advice on regular foreign exchange transactions considering the guidelines and sectoral & investment restrictions
  • Various Filings with the Reserve Bank of India
  • Maintain a check on compliance (FDI, ODI, Export, Import etc.)
  • Half yearly foreign exchange transactions audit
  • Regular updates on foreign exchange laws

Approvals from Foreign Investment Promotion Board (FIPB) and RBI for Investment or Formation of a New Co.

We assist in obtaining approvals from Foreign Investment Promotion Board (FIPB) and from Reserve Bank of India (RBI) for making investment in Indian company / LLP or formation of new company / LLP in India i.e. subsidiary company / LLP of Foreign Company.

The main objective of Foreign Investment Promotion Board (FIPB) is to encourage foreign direct investment and facilitating investments in the country by foreign companies, Non – Resident Indians (NRIs) and other foreign investors in projects which are beneficial for the Indian economy but do not qualify for automatic approval by the Reserve Bank of India (RBI).

Global Business Set Up Services

We provide the necessary advisory & execution support to ensure that Business Set up is smooth and hassle free.

We provide the following services in relation to Global Business Set up:

  • Advisory to understand regulatory and cultural environment.
  • Advisory on structuring the investment route.
  • Advisory on Foreign Exchange laws.
  • Assistance in complying with business setup compliances.
  • Opening of Bank account/tax registrations.
  • Constant and ongoing regulatory and statutory compliance support.

Valuation of Shares

In 2010, the Reserve Bank of India (RBI) has amended the pricing guidelines applicable for issue of shares by an Indian company to a non-resident and also for the transfer of shares of an Indian company from a resident to a non-resident, or vice versa. In all such cases, the guidelines stipulate that the value of shares is to be determined using discounted free cash flow (DCF) method.

On April 1st 2014, the RBI issued a press release saying that as regards foreign direct investment (FDI), it has been decided to withdraw all the existing guidelines relating to valuation in case of any acquisition/sale of shares and accordingly, such transactions will henceforth be based on acceptable market practices.’

Accordingly, we can assist in valuation of shares as per applicable method in case of FDI / transfer of shares.

Filing FCGPR with RBI

Upon the issue of shares to non-resident investors, within 30 days from the date of issue of shares, a report in Form FC-GPR, PART A needs to be filed with the concerned Regional Office of the Reserve Bank of India.

Approvals for ECB loan

Obtaining approvals from RBI for ECB loan from Foreign Companies in accordance with guidelines given, rules made and conditions laid by the RBI including certification work.

ECB can be accessed under two routes, viz., (i) Automatic Route (ii) Approval Route. We also assist in keeping a check on eligibility criteria.

Approvals From RBI For The Allotment/Transfer Of Shares

Obtaining approvals from RBI for the allotment/transfer of shares to foreign nationals /NRI’s.

Annual Return of Foreign Liabilities and Assets

In order to capture the statistics relating to Foreign Direct Investment (FDI), both inward and outward in a more comprehensive manner as also to align it with international best practices, RBI has stipulated ‘Annual Return on Foreign Liabilities and Assets’ to be filed by all the entities having foreign investment.

Annual Activity Report

Branch Offices / Liaison Offices are required to submit Annual Activity Certificate from their Auditors to the Reserve Bank, certifying that it has carried out only those activities which are approved by the Reserve Bank.

Compounding of offences with RBI

Reserve Bank of India has issued guidelines regarding compounding of offence under Foreign Exchange Management Act. The Reserve Bank is empowered to permit compounding of offences under the Act. Compounding an offence involves RBI condoning certain offences committed in lieu of payment of necessary fines.

Other Services for Non Resident Individuals

  • Timely preparation and filing of statutory documents including Income tax Return and Wealth Tax Return with the authorities.
  • We assist in obtaining Remittance Certificate required for overseas remittances like remittance on account of sale of investment or property, rent, dividend, interest etc.
  • Assisting in obtaining Tax Refunds from the revenue department
  • Litigation support services like compiling details for presentation before the revenue and the appellate authorities etc.
  • Returning NRIs Planning covering provisions related to
    • Residential Status
    • Bank Accounts in India
    • Tax Liability in India
    • Assets Outside India under FEMA
    • Tax liability of Income from Assets outside India
 

Transfer Pricing

Transfer pricing law is contained in the Income-tax Act, 1961 [i.e. Sections 92 to 92F under Chapter X-Special Provisions Relating to Avoidance of Tax]. It applies to foreign entities on their international transaction between associated enterprises and to domestic entities on their specified domestic transaction. It involves benchmarking the pricing of such transaction to the arm's length under the various methods considering the nature of transaction.

Under the arm’s length price principle, the transaction pricing of a controlled transaction between associated enterprises and of specified domestic transaction should be same as that of an uncontrolled transaction between unrelated parties in the open-market.

Our transfer pricing services includes the following:

Advisory

We render advisory services on transfer pricing involving integration of commercial factors and tax factors considering the business strategy and the operating structure of the entities. It is rendered before the transaction is entered into where we advise on the adoption of pricing methodology in respect of a forward looking transaction and after the transaction is entered into where we advise on the justification of the arm’s length price of the historical transaction.

Audits

Transfer pricing audit is carried out, in accordance with the provisions of the Income-tax Act, 1961 [i.e. Sections 92 to 92F under Chapter X-Special Provisions Relating to Avoidance of Tax], and an Accountant report is issued under Section 92E in respect of an international transaction between associated enterprises and of specified domestic transaction. It covers documentation as well as benchmarking the pricing of such transaction to the arm's length under the most appropriate methods carrying out the factual, functional and economic analysis of various factors of the transaction.

Representation

We represent before the tax authorities in respect of proposed international transaction i.e. forward looking international transaction so as to have an advance pricing agreement and

We also represent before the tax authorities in respect of historical transaction where the tax authorities seek to verify and assess the transfer pricing related transactions so as to conclude whether or not the arm’s length pricing principle is followed.

 

Advance Ruling

Term 'advance ruling' means

  • The determination of a question of law or fact in relation to a transaction which has been undertaken or is proposed to be undertaken by a non-resident applicant and also includes the determination of the tax liability of a non-resident arising out of such transaction with a resident applicant;
  • The determination or a decision on a question of law or fact relating to the computation of total income which is pending before any Income-tax authority or the Appellate Tribunal.

Advisory

We at Ambavat Jain & Associates LLP render advisory services on advance ruling by deeply analysing client’s case to be place before Advance ruling authority and prepare the necessary documents required to be filed with relevant authority.

Representation

Our services also include representational services that involve representing client before ruling authority and post facto analysis of the dictated decision by the ruling authority

 
 
     
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