The scope of managing finances in India is very wide. The session aims to briefly touch on important aspects of what are the various options available to a foreign company to raise money for their business in India.

Managing finances falls broadly into 3 categories:

  •       Taxation
  •       Profit repatriation options, and
  •       Funding

The discussion started out, to begin with, the kind of taxation system present in India.

Taxation:

  • Domestic and Foreign companies in India have to pay corporate taxes.

  • However, Tax percentage varies on the basis of the turnover and income range of the businesses

  • Moreover, the concept of transfer pricing applies to all the international transactions done by any two associated enterprises. This is in regards to purchasing and sale of properties, provision of services or lending and borrowing money. All the transactions have to occur at arm’s length prices.

  • India and Europe follow the same methods in regards to calculating Arm’s length prices between transactions.

  • Goods and Services Tax: Indirect tax levied on manufacture, sale, and consumption of goods as well as services at the national level.
  • GST rates vary from 0%-28% on various categories of goods and services.

  • Registered persons are entitled to a credit of input tax charged on supply of goods and services to him subject to certain exceptions.

Profit Repatriation:

  • Dividend option: When a foreign company sets up a wholly-owned subsidiary (WHOS) in India, shareholders receive dividend from Indian company is not taxable. But the WHOS has to pay dividend distribution tax.

  • Buyback of shares: Foreign Company could return the shares that it holds in its Indian subsidiary. Alternatively, in return the Indian company would pay the consideration at a pre-determined price.

  • Royalties: If the Indian company is using a technology patented by the parent foreign company then the Indian company is liable to pay a royalty to the foreign company.

  • Payment for services: If the Indian company is using the resources of the foreign company then the Indian Company is liable to pay service fees for the resources used by the foreign company.

Funding:

  • Investment through Shares and convertible instruments: Foreign companies can finance their subsidiary in India either through investment in equity shares, convertible preference shares, and convertible debentures subject to amount restrictions.

  • External commercial Borrowing (ECB): Furthermore, a foreign shareholder can fund its Indian subsidiary through debt by raising funds through ECB.

  • By way of Business arrangements: Indian subsidiaries can enter into a service contract with the foreign shareholders and receive income as a part of providing services to such shareholders.

To conclude with, on 11th November Maier+Vidorno (M+V) organized an insightful session on “Everything you should consider while Managing finances in India”.

M+V’s Praveen Singhal moderated by Maarten van der Schaaf of India Connected conducted the session.

Reach out to us, so that we can help you to establish your subsidiary in India.

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