Market Entry into India

India has inched recently from 142 to 130 in the World Bank’s Ease of Doing Business Index but one still needs to realise the complexity and difficulty of doing business. One therefore needs to take a holistic and pragmatic approach to this.

The Indian statutory and regulatory environment is constantly being transformed. The new Indian Companies Act of 2013 was a major milestone. In recent years Transfer Pricing related disputes has let to many court cases (e.g. Vodafone, Shell etc). Since the economic reforms commenced in 1992, the various governments have all followed pretty much the same economic path and from that perspective the economic climate is quite stable. The current government has taken a pragmatic approach to reduce taxes and red tape. It is keen on the introduction of a GST, on the anvil now for 2016 i.e. whenever the political parties can finally agree to let it pass in the house of Parliament.

Each state has a Registrar of Companies and invariably one goes for the formation of a private limited company. Equity received needs to be registered with the Reserve Bank of India. There is a requirement for a resident director, i.e. a director who is more or less full time in India. The second director may be resident overseas, and is usually the Managing Director of the holding, though he/she needs to have an alternate director. This is someone who will attend board meetings on his behalf as these meetings must take place in person and a foreigner would need to prove that he/she attended such a meeting e.g. copy of visa arrival stamp. Note that the new Companies Act has raised non compliance penalties to be in lakhs (~Euro 1,000) so prudence pays off.

Maintaining a business with all its statutory compliances and the complex regulatory framework is a great challenge and requires higher staffing levels than in the West. Currently, there is – don’t hold your breath – a Service Tax on services; VAT, State and Central Excise and sometimes Octroi on goods; staff Welfare Tax, Employee State Insurance, Provident Fund related costs, and Professional Tax on labour. If you have a factory you are likely to be hit with boiler tax and your company name plate will fetch the municipality signage tax. Income Tax is being deducted at source (TDS) with the company being responsible to keep track of for all employees’ perks and tax free investments. Digitalisation has improved matters quite a bit albeit not nearly where it should be.

• India