- Through automated or approval route in the form of LLP, Private Limited or Public Limited.
- This is further divided into as ‘Foreign entity’ & ‘Indian company’ with option of Liaison Office, Branch Office or Project office and JV/Acquisition or WOS (Wholly Own Subsidiary) respectively.
Permanent Establishment (PE) in India
According to Article 5 of Double Taxation Avoidance Agreement (DTAA) and the concepts underpinning Permanent Establishment in India, any profits of an enterprise of one Contracting State are taxable in the other state, only if the enterprise maintains a Permanent Establishment in the second country, and only for profits are attributable to that Permanent Establishment. Thus, a Permanent Establishment is the legal compromise between your source country and resident country for the purposes of taxation of business profits. There are six categories of Permanent Establishment:
- Place of Management Permanent Establishment
- Fixed place Permanent Establishment (branch, office, factory, workshop, warehouse, sales outlet, website, etc.)
- Construction Permanent Establishment (building site or construction)
- Installation or assembly project Permanent Establishment (criteria duration of each installation project)
- Service Permanent Establishment
- Dependent Agency Permanent Establishment, i.e., the enterprise does not have any economic or functional independence
In a landmark decision in CIT Vs. Vishakhapatnam Port Trust [(1983), 144-ITR-146 (AP)] on the subject of “Permanent Establishment”, the Andhra Pradesh High Court observed: “The words “Permanent Establishment” postulate the existence of a substantial element of an enduring or permanent nature of a foreign enterprise in another, which can be attributed to a fixed place of business in that country. It should be of such a nature that it would amount to a virtual projection of the foreign enterprise of one country onto the soil of another country.”
The liabilities of Permanent Establishment can be avoided by modifying the business model appropriately. Few identifications are needed:-
- Place of Business / Location / Right to use / Permanency / Business Activity