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Q 391: We are a regular exporter of textile products. We understand that we can expand our international activities if we open a company overseas. Could you guide us on this matter?
A: 1) Yes, for expansion of international business, your presence in the overseas market can contribute a lot.
2) The process of opening a company overseas requires complex procedures to be followed.
3) It also requires some amount of money to be sent initially and subsequently.
4) You will be required to comply with the provisions of Indian regulatory laws such as FEMA and Companies Act.
5) You will have to analyse the provisions of Income Tax too.
6) You will be required to study the taxation of various streams of income from the overseas entity.
7) Your transactions will be subject to Transfer Pricing.
8) You will require to comply with the tax and regulatory compliances of the host country/foreign country.
9) The first decision you will require to take is to identify the country in which you wish to open your legal entity.
10) As per FEMA, you can appoint (1) an agent; (2) a representative; (3) a branch office; (4) a legal entity i.e. Wholly Owned Subsidiary (WOS).
11) The requirements and documents are different for different types of organisations.
12) The requirements of different countries are also different.
13) You can take the assistance of a Chartered Accountant who has expertise in setting up companies abroad for Indian entities.
14) Most of the Chartered Accountants engaged in these kind of activities have their associates in foreign jurisdictions.
15) These foreign associates take care of the local requirements in the host country where you want to establish your company.
16) It is better to get a concept note from your Chartered Accountant covering all aspects of this assignment.
17) You can compare the cost, time, ease and other relevant aspects and thereafter decide the country.
18) India has Double Taxation Avoidance Agreement (DTAA) with many countries. This is also a valid point to be consider for selecting the country.
19) The following are the highlights:
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A |
Incorporation |
You will require to incorporate the legal entity in the host country. The procedure, the time, cost and documents required differ from country to country.
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B |
Finance |
Initial expenses/one-time cost is to be worked out. Every year there will be recurring expenses which should be estimated.
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C |
Share capital |
You have to structure the share capital of this overseas company. In some countries, there is requirement of minimum capital. You also need to check the requirement of a local partner.
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D |
Registered office |
Selecting the registered office (city) is also an important factor. |
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E |
Commercial activities |
You need to have accounting, secretariat and other services to support your activities. |
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F |
Employees |
The rules and regulations regarding employees, salaries and work permit are to be taken care of |
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G |
Taxation |
Taxation liabilities, maintenance of books of accounts and filling of annual returns are also required. |
20) The decision is to be taken on the basis of long-term benefits and also based on volume/turnover to gain full advantage from the overseas establishment.
Q 392: What are the FEMA provisions for opening/hiring warehouses abroad?
A: In the international market, quick delivery is very important. Many buyers are ready to place orders with Indian exporters but they have a problem with the long delivery period quoted by Indian exporters. After the export order is received, we export the goods to overseas buyer by sea in containers. Exporters calculate the manufacturing time and voyage time by which the importer will receive the goods.
One of the solutions in this case is to have your goods in a warehouse in the destination country. Aggressive exporters having standardised goods and sufficient volume, and can go for hiring a warehouse overseas, thereby try to capture the market by quick delivery of the goods from that warehouse.
The following are the FEMA provisions for opening/hiring warehouses abroad: Banks may consider the applications received from exporters and grant permission for opening/hiring warehouses abroad subject to the following conditions:
(i) Applicant’s export outstanding does not exceed 5 per cent of exports made during the previous financial year.
(ii) Applicant has a minimum export turnover of USD 100,000 during the last financial year.
(iii) Period of realisation should be as applicable (15 months).
(iv) All transactions should be routed through the designated branch of the banks.
(v) Permission may be granted to exporters initially for a period of one year and renewal may be considered subject to the applicant satisfying the requirements.