Frequently Asked Questions (FAQ)

• 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

Historically India was pertained to lot of bureaucratic processes with a system favouring our colonial rulers. With time the traditions are infused into working population and that is the harsh reality of India. The core functionary habits remains more or less similar which is often  frustrating for foreign players. Of lately with the new political mindset in power there have been attempts to ease the doing business experience in India and this got reflected in the World Bank’s “ease of doing business” rankings for 2018 where India jumped 30 places in overall global rankings.

• It takes around 10 days
• Better to get it done through a local agent

BIS – Bureau of Indian Standards

• Product registration depends upon the industry & product we are catering to. The Bureau lists 18,663 standards in      total.
• Getting approval takes 3-4 months depending on factors like factory inspection or product testing or both (Inspection of the manufacturing facility obviously takes longer when that facility is abroad)

  FSSAI – Food and Safety Standards Authority of India

• Food items need product registration from FSSAI.
• There is no inspection of the factory needed, but the sample of the product will be tested in India
• Once a product is tested and approved there may be testing in the future randomly.

• Income tax benefit
• Online governance
• Specially demarcated tax holiday zones
• Compliance benefits

• Corporate  compliances
• Taxation compliances
• Labour laws compliance
• Property laws compliances
• These compliances can be further divided into periodic, which is quarterly/ half yearly/ yearly, & ad-hoc reporting, which can be asked as per the needs of the moment.

• Credit worthiness of a company to be checked before hand
• The common payment practices in India vary from advance payment to 90 days credit.
• ‘PDC – Post dated cheques’ could be used while collecting purchase order
• “Cheque on Delivery (COD)” are offered by most of the reputed transporters / courier companies
• Under the Goods and Services Tax (GST), the customer has to pay a supplier within 180 days of the date of invoice, in order to avail the input credit.
• In cases where cheques haven’t been collected and a customer is delaying the payment, legal notice must be sent using ‘registered post’ giving   reference to the purchase order and sales invoice. Usually, such notices are effective and with the first such notice, customers release the outstanding   payment. Such notices must be sent via a practicing lawyer of the court. Non-payment at this stage enters the legal system.

India is a Union of individual States where the constitution provides for ‘Union List’& ‘State List’ with clear articles of bifurcation.   So we see a different legal apparatus existing here.

The tax structure though have a centralized GST but it is divided among Central GST & State GST

Few factors to be kept in mind:-

• timings and routines: the work day in India typically starts between 9:30 am and 10:00 am so meetings should be scheduled after 11 am.
• people are laid back and little relaxed
• punctuality is absent so be prepared to witness delays
• Western formal dress
• sensitive to cultural values and possibility of ruining a relationship if those sensitive values are touched. Like religion, cricket, food
• multiple negotiations. Indians like to bargain
• Working class is hardworking and informed
• A top down approach in business decisions is mostly prominent and acceptable
• Government dealings are time taking if networking is absent. You need to have contacts inside government to move your file quickly
•   – politics in India influence the working environment as we have local political fans who take it seriously. So the best is to maintain neutrality throughout.
•   – try to bring families into conversations. Indian like to discuss their personal life as they see it as strengthening of relations.

Simply, we need an expat only in specialised positions but otherwise its recommended to hire local talent. Why?

• Indian education system is highly competitive and the business understanding is infused right from the Secondary schooling
• Cheaper in comparison to foreign national salary
• Sales network is stronger and influential
• more adjustable to crisis
• ad hoc needs are facilitated easily
• less conflicts in top management
• multi tasking possible
• Government laisoning easy
• Deal breaking & making depends a lot on the nationality
• Expat is more prone to undiscovered cost to company like efficiency of employees
• Local language & culture understanding reflect in the communication both within & outside organisation. For every 20 KM radius we see differences in   accent & customs. So a local leader can handle situations efficiently & effectively

Sexual harassment at workplace exist but to a significant level reduced post Sexual Harassment at Work Place Act

Companies are now required to have a policy & complaint centre is workforce is more than certain number.. Any sexual misconduct by an employee   while on duty with your company is counted under the act – whether it took place in your office, on the road or on the way home so there is a very   broad definition.

E-commerce is an efficient selling platform in India given the size and diversity in India. Legal requirements to sell online in India   are:-

• Foreign companies are not allowed to sell directly on marketplaces like Amazon
• 100% FDI in marketplace allowed with only ‘brokerage fee’ revenue model
• Companies with a majority foreign shareholding (+50% FDI) are not permitted to sell in India using an inventory model in both B2B & B2C transactions
• A local partner is needed to explore e-commerce space for any foreign company

GST stands for Goods & Services Tax. GST is a value added tax (VAT) on goods and services and will be levied at all points in the supply chain. GST came into effect from July 1st, 2017. two forms are:-

•  CGST (Central GST)
•  SGST (State GST)

Implemented to:-

• Create a wider tax base and a more efficient tax system
• Eliminate the cascading or double effects (tax on tax) of applying taxes
• Rationalize the tax structure
• Make offset process convenient
• Simplify compliance processes in India

Taxes under GST:

• Central levies
• State levies
• Central Excise Duty
• Service Tax
• Duties of Excise (medicinal and toilet preparations)
• Additional Duties of Excise (Goods of special importance)
• Additional Customs Duty (known as CVD)
• Special Additional Duty of Customs (SAD)
• Cesses and surcharges relating to the supply of Goods or Services
• Swachh Bharat Cess
• Surcharges
• Value Added Tax (VAT)
• Central Sales Tax (levied by Centre and collected by States)
• Purchase Tax
• Luxury Tax
• Entry Tax
• Entertainment Tax (not levied by the local bodies)
• Advertisement Taxes
• Lottery, Betting and Gambling Taxes
• State cesses and surcharges as far as they relate to supply of Goods or Services

Taxes not under GST:

• Import taxes, such as the Basic Customs Duty, as well as the Research & Development Cess for Technology Imports (under   discussion),
• Stamp Duty and Taxes on specific products and Services, such as tobacco, electricity or alcoholic beverages, will remain.
• Road Permits for interstate movement of goods,

It is important to check which goods India falls under list for the GST – OR Sales and Excise Taxes will still be levied on those products.

• Sourcing: Inter-state buying more feasible and feasible to consolidate suppliers and vendors
• Distribution: Changes in tax system could change in procurement and distribution, network structures and product flows may need reviewing as current arrangements for distribution of your finished goods may not be optimal with the  removal of the concept of excise duty on manufacturing
• Cash flow: by removing excise duty cash flow and inventory cost may vary
• Pricing : with changing cost prices needs to be revised
• Profitability: Tax savings resulting from the GST
• Transaction: existing transactions and balances as on the cut-off date need to be migrated out

Annual Maintenance Contracts are common place across many product types, and warranties on products are increasingly valued by Indian customers.   Their buying habits, formed for many years, require an after sales support. Indian either buy cheap or those who look for quality/ high priced products   need an after sales support from the manufacturers else they shift to competitors.

• Key process to handle:-
• Customer interaction
• Problem review
• Spare parts shipment

Labour laws in India also known as employment law is the body of laws, administrative rulings, and precedents which address the legal rights of, and   restrictions on, working people and their organizations.

• minimum wages : statutory minimum wages regulation (160/day) but the skill, industry, age, location define the actual cost to the company
• hours of work : Factories Act (9hrs/ day; 48 hrs/ week; 6 days/week)
• In a week the Standard working hours + overtime may be maximum 60 hours; with a maximum of 50 overtime hours per month.
• GH (Government Holidays) 12/ year
• RH (Restricted Holidays) 2/year ,out of a list of holidays, decided by the employee as per ones religion/ faith/ liberty
• Sick pay in case of illness
• Paid Maternity leave of 26 weeks
• Probation period up to three months

Employee performance – We recommend a one full annual review (wide formats) and 1 to 2 mid-year reviews (short formats)

Hiring – hire your most senior people first –national sales manager, before hiring other staff.

•  As a registered importer if you want to start importing yourself and custom clearing agent networking as Indian customs ask too many questions & delays are sure
• Get the right registrations
• Calculate the end consumer delivery cost
• Price the product accordingly
• Maintain efficient stocks. Neither too much, as warehousing cost increases, nor too less, customers migrate with long waiting period.
• Find the right importer who fulfil the following: –
  • Importer & Exporter Certificate (IEC) from the Directorate General of Foreign Trade (DGFT)
  • Registration with Goods and Services Tax (GST)
  • Shops and Establishment Act, Legal Metrology Act (LMA)
  • Product registration
  • Market Credibility of the importer