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Greetings
- Men and Westernized Indian women will offer to shake hands
with foreign men.
- Western men should not initiate handshakes with Indian
women. If Indian women initiate handshake, then respond with
handshake; otherwise perform traditional Indian greeting, the
namaste.
- To perform the traditional Indian greeting, the namaste,
hold the palms of your hands together below the chin, and nod
or bow slightly.
Introductions
- Titles are highly valued. Advanced degrees (Ph.D.) are
listed on business cards and mentioned in introductions.
- Status is determined by age, university degrees and
profession.
- There are numerous ethnic/linguistic/religious groups in
India. Hindus, Muslims and Sikhs generally use different
traditional naming conventions.
Appointments
- Late mornings and early afternoons are preferred.
- Meetings are not scheduled during India's numerous
religious holidays.
Negotiating
- Business is highly personal, and conducted at a leisurely
pace.
- The word "no" has harsh implications. Evasive refusals,
like "I'll try" are acceptable. Sometimes, yes means no.
Make sure to have an expert lawyer trained in Indian and
western legal systems during negotiations.
Entertaining
- Most of the Indians are vegetarians
- Hindus do not eat beef and Muslims do not eat pork.
- Never offer another person food from your plate.
- Eat with your right hand.
- Do not give leather gifts, like leather belts or purses.
The major kinds of Offshore
Outsourcing are as follows:
Direct Off-shore
Indirect Off-shore
BOT
Captive
Special attention should be paid in having
comprehensive service agreements between the parties and local
laws should be complied with. The following are the standard
steps in an outsourcing agreement:
Outsourcing to India Free Guide |
Legal Services
Outsourcing
Contact us for Setting up BPO in India
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India is a common law country with a written
constitution which guarantees individual and property rights.
There is a single hierarchy of courts, with the Supreme Court of
India at the top. Indian courts provide adequate safeguards for
the enforcement of property and contractual rights. However,
case backlogs often result in procedural delays. Most of the
laws are codified. Regulations and policies fill in the details.
The major bodies of law in India affecting foreign investment
includes the following:
- The Foreign Trade
(Development and Regulation) Act, 1992
- The Industries Act,
1951
- The Indian Contract
Act, 1872
- The Sales of Goods
Act, 1930
- The Partnership Act,
1932
- The Negotiable
Instruments Act, 1881
- The Consumer
Protection Act, 1986
- The Monopolies and
Restrictive Trade Practices Act, 1969
- The Copyright Act,
1957
- The Trade and
Merchandise Mark Act, 1958
- The The Trade Marks
Act, 1999
- The Information
Technology Act, 2000
- The Company Act, 1956
- The Income Tax Act,
1961
- The Customs Act, 1962
- The SEBI Act, 1992
- Air (Prevention and
Control of Pollution) Act,1981
- The Industrial
Disputes Act, 1947
- The Factories Act,
1948
- The Benami
Transactions (Prohibitions) Act, 1988
The Foreign Trade (Development and Regulation) Act of 1992 ("FTA"),
the Industries Act of 1951, the Companies Act of 1956, the
Monopolies and Restrictive Trade Practices Act of 1969 and the
Industrial Policies issued from time to time are the major
statutes and regulations governing foreign investment in India.
Foreign collaboration and equity participation in India is
regulated by the Foreign Trade (Development and Regulation) Act,
1992. The Industries (Development Regulation) Act of 1951
governs industrial regulation. The Companies Act of 1956
regulates corporations and their management in India. The
Monopolies and Restrictive Trade Practices Act of 1969 ("MRTP")
governs restrictive and fair trade practices. The New Industrial
Policy of 1991 ("NIP") which lays down the policy and procedure
for foreign investment has liberalized and simplified the
investment procedures.
The major changes introduced by NIP are as follow:
(i) NIP brings about a streamlining of procedures,
deregulation, de-licensing, a vastly expanded role for
the private sector and an open policy towards foreign
investment and technology.
(ii) Foreign investors are allowed to hold more than
up to 76% equity ownership in most of the sectors, and
100% percent equity ownership in some sectors.
(iii) Foreign Institutional Investors ("FII's) from
reputable institutions (like pension funds, mutual
funds) may participate in the Indian capital markets.
(iv) Joint ventures
with trading companies and imports of secondhand plants
and machinery are allowed.
(v) Monopoly and restrictive trade practice
restraints (i.e., antitrust laws) have been eased.
(vi) Customs duties have been slashed considerably;
duty-free imports are allowed in some cases.
(vii) The rupee is completely convertible; 100% of
foreign exchange earnings can be converted at free
market rates.
(viii) Export policies have been liberalized.
(ix) The Foreign Trade Act of 1992 has been enacted
to encourage foreign investments in India.
(x) Tax holidays are available for a period of 5
continuous years in the first 8 years of establishing
exporting units.
(xi) A tax holiday for up to 5 to 8 years is
available and 100% equity participation is allowed for
the power projects in India.
(xii) Concessions in tax regime are available for
foreign investors in high-tech areas.
Joint Venture
companies are the most preferred form of corporate entities for
investment in India. There are no separate laws for joint
ventures in India. The companies incorporated in India, even
with up to 100% foreign equity, are treated the same as domestic
companies. Click
here for Types of companies and corporations in India.
Foreign companies are also free to open branch offices in India.
However, a branch of a foreign company attracts a higher rate of
tax than a subsidiary or a joint venture company. The liability
of the parent company is also greater in case of a branch
office.
The Government has outlined 37 high priority areas covering
most of the industrial sectors. Investment proposals involving
up to 74% foreign equity in these areas receive automatic
approval within two weeks. An application to the Reserve Bank of
India in the form FC (RBI) is required. The application can be
made either by the Indian party or the foreign party. Existing
companies having foreign equity holding and desiring to increase
it to 74% can also obtain automatic approval if they are in
priority areas. Besides the 37 high priority areas, automatic
approval is available for 74% foreign equity holdings setting up
international trading companies engaged primarily in export
activities.
Approval of foreign equity is not limited to 74% and to high
priority industries. Greater than 74% of equity and areas
outside the high priority list are open to investment, but
government approval is required. For these greater equity
investments or for areas of investment outside of high priority
an application in the form FC (SIA) has to be filed with the
Secretariat for Industrial Approvals. A response is given within
6 weeks. Full foreign ownership (100% equity) is readily allowed
in power generation, coal washeries, electronics, Export
Oriented Unit (EOU) or a unit in one of the Export Processing
Zones ("EPZ's").
For major investment proposals or for those that do not fit
within the existing policy parameters, there is the high-powered
Foreign Investment Promotion Board ("FIPB"). The FIPB is located
in the office of the Prime Minister and can provide
single-window clearance to proposals in their totality without
being restricted by any predetermined parameters.
Foreign investment is also
welcomed in many of infrastructure areas such as power, steel,
coal washeries, luxury railways, and telecommunications. The
entire hydrocarbon sector, including exploration, producing,
refining and marketing of petroleum products has now been opened
to foreign participation. The Government had recently allowed
foreign investment up to 51% in mining for commercial purposes
and up to 49% in telecommunication sector. The government is
also examining a proposal to do away with the stipulation that
foreign equity should cover the foreign exchange needs for
import of capital goods. In view of the country's improved
balance of payments position, this requirement may be
eliminated.
Selection of a good local partner is the key to the success
of any joint venture. Personal interviews with a prospective
joint venture partner should be supplemented with proper due
diligence. Once a partner is selected generally a memorandum of
understanding or a letter of intent is signed by the parties
highlighting the basis of the future joint venture agreement.
Before signing the joint venture agreement, the terms should be
thoroughly discussed to avoid any misunderstanding at a later
stage. Negotiations require an understanding of the cultural and
legal background of the parties.
Joint Ventures in India
Click
here for Types of Companies and corporations in India
Click
here for Incorporating a company in India
There are following type of business entities in
India:
Private Limited Company
–is not open to public and it has from 2 to 50
shareholders whose liability is limited
Public Limited Company
–is open to public and it has 7 or more shareholders,
whose liability is limited, and at least 3 directors
Unlimited Company
–does not restrict the liability of its shareholders
Partnership
–has 2 or more members whose liability is not limited
Sole Proprietorship
–has 1 member whose liability is not limited
In addition to the above, the following
types of business entities are available for foreign investors
doing business in India:
Click
here for more details on types of companies and corporations in
India
Click
here for Incorporating a company in India
India permits Foreign Direct
Investment (FDI) or collaborations in almost all sectors except
the following:
Atomic Energy
Arms and ammunition
Railway Transport
Coal and lignite
Mining of iron, manganese, chrome,
gypsum, gold, diamonds, copper and zinc
A prior government approval is required for
every foreign Investment or collaboration/joint venture in India
in most cases. The approval may be automatic or special, as
mentioned below.
FDI in India Sector wise Guide
Click here for More Information on
Obtaining Approvals for Investing In India
A prior government approval is
required for every foreign Investment in India in most cases.
Kind of Approvals
1. Automatic Approvals are granted by the
Reserve Bank of India in sectors where up to 100%, 74%, 51%,
40% or 26% foreign equity is allowed as a rule
2. Special Approvals are granted by
Foreign Investment Promotion Board (FIPB) in New Delhi,
where a foreign equity is proposed to be above the automatic
rule limits
Click here for More Information on
Obtaining Approvals for Investing In India
SEZ's are duty free enclaves and are treated as foreign
territory for trade operations & duties and tariffs. SEZ's
provide internationally competitive & hassle free environment
for exports, units may be set up in SEZ’s for manufacture of
goods, rendering of services & trading. Up to 100% Foreign
Direct Investment (FDI) in manufacturing sector is allowed
through automatic route barring a few sectors. Units in
SEZ’s have to be net foreign exchange earners within 3 years.
Other benefits of SEZ's
Exemption from customs duty on import of
capital goods, raw materials, consumables & spares
Exemption from Central Excise duty on
procurement of capital goods, raw materials, consumables,
spares, etc. from the domestic market
100% income tax exemption for a block of
five years;
50% tax exemptions for two years; &
Up to 50% of the Profits ploughed back
for next 3 years under S.10-A of Income Tax Act
Reimbursement of Central Sales Tax paid
on domestic purchases
Contact us for Setting up SEZ in India
EOU program is similar to SEZ program
But there is no need to be physically
located in a SEZ; EOU can be established anywhere in India
All other incentives are same as
provided to SEZ units
Up to 100% FDI is allowed
Rates
Revenue accruing to foreign companies (including royalty and
technical services fees) from providing services concerning the
exploration or production of petroleum or natural gas is subject
to a maximum tax on a deemed profit of 10% of gross revenue.
Foreign companies engaged in the execution of
turnkey power project contracts approved by the government and
financed by international programs are subject to a maximum tax
on a deemed profit of 10% of gross revenue.
The corporate
income tax effective rate for domestic companies is 36.75%
while the profits of branches in India of foreign companies are
taxed at 42%. Companies incorporated in India even with 100%
foreign ownership, are considered domestic companies under the
Indian laws.
For Individual tax rates, Wealth tax rates, gift tax rates click
here
Non-Export
Incentives
India offers a
wide range of concessions to investors to provide incentives for
economic and industrial growth and development. India's tax
rates may not be one of the lowest in the world, but a careful
tax planning keeping in mind the tax holidays and the following
general tax incentives reduce the taxes considerably:
No corporate taxes are levied for a period of five years for
projects set up for domestic power generation and transmission
and also for projects in Electric Hardware Technology Park
Schemes.
Deduction of preliminary and preoperative
expenses incurred in setting up a project
Complete tax exemption on profits from exports
of goods
Full or partial exemption of foreign exchange
earnings on construction projects, hotel and tourism related
services, royalties, commission, etc.
Liberal depreciation allowances
Deduction of capital research and development
expenditures
New industrial undertakings may deduct 25% of
their gross total income for eight years
Tax Incentives
for Exporters
The New
Export-Import Policy provides substantial tax incentives for
investments in Export Oriented Units ("EOU's") and industries
located in the Special Economic Zones ("SEZ's"). Automatic
approvals are given by the Secretariat for Industrial Approval
for setting up 100% Export Oriented Units ("EOU"). Incentives
and facilities available under the EOU scheme include
concessional rent for lease of industrial plots, preferential
power allocation and supply, exemption from import duty for
capital goods and raw materials for power sector industries as
well as for trading companies primarily engaged in export
activity.
There are seven major SEZ's and 27 other SEZ's
or free trade zones located in different parts of the country.
These zones are designed to provide internationally competitive
infrastructure facilities and duty-free and low cost
environment. Various monetary and non-monetary incentives are
granted which include import duty exemption, complete tax
holiday, decentralized "single window clearance," etc.
For More
Information on Special Economic Zones (SEZ) click here
India has entered into tax treaties
with a number of countries including, Australia, Belgium,
Canada, Denmark, France, Germany, Indonesia, Japan, Korea,
Mauritius, Singapore, the United Kingdom and the United States.
These treaties endeavor to avoid double taxation and attract
know- how and technology. In many treaties the withholding tax
on royalties and fees for technical services emanating from
India is lower than the general tax rate. A careful planning and
corporate structuring can reduce the tax obligations
considerably. The following treaties have been successfully used
by international investors to reduce their tax obligations in
India and in their home countries:
(a)Indo-U.S.
Treaty
The Indo-U.S.
tax treaty considerably reduces the withholding tax in India for
royalties, fees for technical services, and for interest paid to
the US banks and financial institutions. The withholding tax on
dividends arising out of India is 15%, if the parent company
owns at least 10% of the voting stock. The withholding tax on
royalties and technical services fees is at the rate of 15%. The
capital gains is taxed at a rate of 20%. The withholding tax on
rental of equipment and interest paid to U.S. banks and
financial institutions is at the rate of 10%. All these rates
are lower than the regular withholding tax rates.
(b)Indo-Mauritius
Treaty
The withholding
tax rates for dividends and capital gains can be reduced further
by a careful corporate structuring and tax planning. The
Indo-Mauritius tax treaty offers reduced withholding taxes for
companies incorporated in the island country of Mauritius.
Recently some U.S. companies have invested in India through
offshore subsidiaries incorporated in Mauritius. For companies
incorporated in Mauritius there is no withholding tax on capital
gains in India and the withholding tax on dividends is only 5%.
The companies incorporated in Mauritius, at present, can opt not
to pay any tax in Mauritius.
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Approvals
The Reserve Bank of India ("RBI") accords automatic permission
for foreign technology agreements in high priority industries up
to 5% royalty for domestic sales and 8% for exports, subject to
total payment of 8% of sales over 10 year period from date of
agreement or 7 years from commencement of production. In
addition, lump-sum technology payments up to Rs. 1 crore, i.e.,
(Rs. 10 million) are permitted under the automatic approval
system. The prescribed royalty rates are net of taxes and are
calculated according to standard procedures.
Subject to the aforesaid guidelines, automatic
approval is available in non-high priority industries, if no
foreign exchange is required for any payment.
Governing
Laws
Transfer of
technology agreements must be subject to the laws of India.
These agreements can be subject to arbitration under the rules
of international institutions like the International Chamber of
Commerce (the "ICC"). Arbitration can take place in India or
abroad. India is a party to the 1958 New York Convention on
Enforcement of Arbitration Awards. Foreign awards are,
therefore, enforceable in India. Under Indian law, upon
termination of the transfer of technology agreement after its
7-10 year period, the technology is deemed to be perpetually
licensed to the Indian party for use in India. Special rules
apply to the transfer of technology to Indian government
companies.
For
Intellectual property laws in India click here
One of the biggest concerns for foreign
investors is how to get dollars out of India? Historically, it
is not a problem to repatriate investments and profits from
India. The Overseas Private Investment Corporation ("OPIC"), a
U.S. government backed insurer of foreign commercial dealings,
has never had to pay a claim due to India's failure to provide
foreign exchange. Dividends, capital gains, royalties and fees
can be repatriated easily with the permission of the Reserve
Bank of India. In a short, specified list of consumer goods
industries, dividend balancing is required against export
earnings.
In case of an
exit decision, the overseas promoter can repatriate his share
after discharging tax and other obligations. He can also
disinvest his share either to his Indian partner, to another
company, or to the public. Even during the so-called worst
period no foreign company left India without proper and due
compensation. Problems do arise when people and businesses try
to go around the rules or from inexperience.
Rupee, the Indian currency, is convertible for
the current account. It means that:
Repatriation of foreign exchange at the existing
market rates has become easier.
Exporters can retain 25% of total receipts in
foreign currency accounts to meet requirements such as travel,
advertising, etc.
Foreign exchange will be available at market
rates for all imports except specified essential items.
Foreign exchange requirements for private
travel, debt servicing, dividend or royalty payments and other
remittances may also be obtained from banks or exchange dealers
at the current market rate.
The system has the advantages of completely
bypassing bureaucratic controls and freeing importers from
delays and inefficiencies.
Almost all the agriculture sector in
India is in private hands. Most of the industrial sector is open
to private participation. The number of industries reserved for
the public sector has been reduced to 6. The industries reserved
for public sector are arms and ammunition, defense equipment,
defense aircraft and warships, atomic energy, coal lignite,
mineral oils, and sulfur and diamonds. All other areas are open
to the private sector and private sector participation on a
selective basis even in the still restricted areas is being
considered. In practice railways, post and telegraph,
shipbuilding, oil exploration and mineral industries are mostly
government owned. A process of disinvestment of government
holdings in selected public enterprises has been initiated. The
government plans to form a new corporation, Indian Railways
Catering Tourism Corporation (IRCTC). IRCTC will take over
catering work and enter into tourism projects and trains in
collaboration with private sector.
Recently India enacted the Arbitration
and Conciliation Act, 1996 ("New Law"). The New Law is based on
the United Nations Commission on International Trade Law (UNCITRAL)
Model Law on International Commercial Arbitration ("Model Law").
Among others, the objectives of the New Law are to harmonize the
Indian arbitration law with the Model Law and establish an
internationally recognized legal framework for arbitration,
consolidate the laws on domestic and international arbitration
and conciliation, and enforcement of foreign awards. Another
important purpose of the New Law is to encourage arbitration as
an alternate dispute resolution process and avoid prolonged
judicial process.
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