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How to Establish an NGO in India

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By Grace Tate

The Indian government has long been wary of foreign political interference through the operation and funding of non-governmental organizations (NGOs). As a result, the current legislation affords regulatory discretion to the government by prohibiting foreign funding for political organizations and imposes onerous reporting requirements for all NGOs. Recent intelligence reports have sparked fears that these laws are undergoing government reform to further restrict NGO operation in India.

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Sourcing and Procurement from India: Establishing an Office on the Ground

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DELHI – For businesses wanting direct control over their sourcing operation in India, establishing a local presence is an integral step. Although creating an office on the ground inevitably necessitates a greater financial and legal burden for the company in question, it is an effective means of ensuring higher performance levels from a sourcing platform.

First of all, the company must decide on what sort of entity they want to establish, from which they will be able to manage their sourcing operation in India by varying degrees of control. In this excerpt from our latest India Briefing magazine, we compare the two most relevant options.

Liaison Office

By far the cheapest and simplest to establish of the two, liaison offices are typically used by foreign companies as a communication channel with their sourcing operation in India. Its functions are described in this graph:

The parent company of an LO must have:

• A three-year record of profitable operations;
• A net worth of at least US$50,000.

They must then:

• First be approved by the Reserve Bank of India (RBI), and register with the Registrar of Companies within 30 days of beginning their operations in India;
• Once approved, they can operate for a maximum of three years, and then request renewal.

Related Link Icon-IBAn Introduction to Sourcing from India, Part 1: India’s Sourcing Edge

Whilst an LO is a useful tool for monitoring a sourcing operation in India, and can be established with comparatively minimal expense and legal pressure, its functions and capabilities are notably finite. They cannot undertake any commercial or industrial activities and consequently are unable to manage exports or earn an income in India. The upshot of this condition, however, is that liaison offices are not liable for taxation in India.

For these reasons, a company with an LO would still be taking an ‘indirect’ route to source from India. The principal role of a liaison office is therefore to ensure that suppliers are performing adequately. If a greater level of control is desired, however, a branch office should be selected.

Branch Office

The powers of a branch office are far greater than those of an LO. Most importantly, a BO is able to manage its exports itself. As well as the functions of a liaison office, a BO can best be described as follows:

The parent company of a BO must have:

• A five-year record of profitable operations;
• A net worth of at least US$100,000.

Additionally, a company must:

• Provide details of its operating history, interests in India, and reasons for wanting to open a BO.

Related Link Icon-IBAn Introduction to Sourcing from India, Part 2: Exporting from India

Like an LO, a BO must have prior approval from the RBI before it is established. Once approved, it can then register with the tax authorities, obtain a permanent account number, and be issued visas for its staff.

The only significant restriction placed on a BO is its inability to directly engage in the manufacturing process. This, however, can be bypassed if the office is established in a Special Economic Zone (SEZ), and in a sector that allows 100 percent FDI. Because a BO has powers to export products from India, it is considered a ‘direct’ means of managing a sourcing operation. It is therefore the best option for a company wishing to exercise a high level of control over their sourcing platform.

 

IB Nov issue smallThis article is an excerpt from the November issue of India Briefing Magazine, titled “Establishing Your Sourcing Platform in India“. In this issue, we highlight the advantages India possesses as a sourcing option and explore the choices available to foreign companies seeking to create a sourcing presence here. In addition, we examine the relevant procurement, procedural and tax duty concerns involved in sourcing from India, and conclude by investigating the importance of supplier due diligence – a process that, if not conducted correctly, can often prove the undoing of a sourcing venture.”Establishing Your Sourcing Platform in India” is out now and available as a complimentary download in the Asia Briefing Bookstore.

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Passage to India: Selling to India’s Consumer Market
In this issue of India Briefing Magazine, we outline the fundamentals of India’s import policies and procedures, as well as provide an introduction to the essentials of engaging in direct and indirect export, acquiring an Indian company, selling to the government and establishing a local presence in the form of a liaison office, branch office, or wholly owned subsidiary. We conclude by taking a closer look at the strategic potential of joint ventures and the advantages they can provide companies at all stages of market entry and expansion.

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In this issue of India Briefing, we focus on the dynamics driving India as a global trading hub. Within the magazine, you will find tips for buying and selling in India from overseas, as well as how to set up a trading company in the country.

Understanding India’s Industry-Specific Tax Incentives

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DELHI – Last month, India signed a Memorandum of Understanding (MoU) with the U.S. that will pave the way for an influx of investment into various infrastructure projects. While the focus of that story is necessarily on overall U.S. – India bilateral trade and the effect that the MoU will have on India’s still-developing infrastructure, the deal also underscores how much more receptive the Indian government can be towards foreign investment in certain sectors.

India’s infrastructure sector is just one of several that offers attractive tax deductions to foreign investors. Incentives also exist in numerous other industries where the Indian government deems foreign investment to be in the interest of the country, which in turn allows for lower operational costs for companies working in those sectors. In this article, we highlight which industries offer tax incentives and outline how foreign businesses can qualify for tax deductions.

Infrastructure Sector

The deduction of 100 percent of business profits is permitted for a period of 10 years for:

  • The development, operation, or maintenance of ports, airports, roads, highways, bridges, rail systems, inland water ways, inland or outland ports or navigational channels, water supply projects, water treatment systems, irrigation projects, sanitation and sewage projects, and solid waste management systems;
  • The generation and distribution of power commencing before March 31, 2010;
  • Laying and operating a cross-country natural gas distribution network.

Related Link Icon-IBThe Future Outlook of India’s FDI Caps

Mineral Oil

The deduction of 100 percent of business profits is permitted for the refining of mineral oil for a period of 10 years for:

  • An undertaking wholly owned by a public sector company or any other company in which a public sector company holds 49 percent of voting rights;
  • An undertaking that commenced refining on or before March 31, 2012.

Hospitals

The deduction of 100 percent of profits from businesses operating and maintaining a hospital for a period of 5 years for:

  • Hospitals that were constructed or began functioning any time between April 1, 2008 and March 31, 2013;
  • Hospitals with at least one hundred beds for patients.

Hotels and Convention Centers

The deduction of 100 percent of profits from the business of hotels and convention centers for a period of 5 years for:

  • Hotels and convention centers located in the National Capital Territory of Delhi;
  • Hotels that were constructed or began functioning any time between April 1, 2007 and March 31, 2010. Likewise, for convention centers constructed between April 1, 2007 and March 31, 2010;
  • Hotels located in a World Heritage site district. Hotels that meet this qualification must have been constructed or began functioning between April 1, 2008 and March 31, 2013.

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Undertakings in India’s Northeastern States

The deduction of 100 percent of business profits for a period of 10 years for:

  • Manufacturing, producing goods, or undergoing substantial expansion between April 1, 2007 and March 31, 2017 and providing eligible services between April 1, 2007 and March 31, 2017;
  • Eligible services are hotels (2 stars and above), nursing homes (25 beds or more), old age homes, vocational training institutes for hotel management, catering and food crafts, entrepreneurship development, nursing and paramedical, civil aviation related training, fashion design and industrial training, IT related training centers, IT hardware manufacturing units, and bio-technology.

However, there are some special stipulations, including:

  • Deduction is not available in respect to the manufacture or production of tobacco, pan masala, plastic carry bags of less than 20 microns, or goods produced by petroleum and gas refineries;
  • The aforementioned activities must take place in a Northeastern State (i.e. Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, and Tripura).

Tax Exemptions

The following tax exemptions are available in different sectors, and allow for deductions of 100 percent profits for:

  • The development, operation, and maintenance of an industrial park or Special Economic Zone (SEZ). For full details of India’s SEZs, see our article here.
  • Undertakings in certain notified areas or in certain thrust sector industries in the Northeastern states and Sikkim.
  • Undertakings set up in certain notified areas or in certain thrust sector industries in Uttaranchal and Himachal Pradesh.
  • The export of articles or software by undertakings in FTZs, electronic and hardware technology parks, and software technology parks.
  • The export of articles or software by 100 percent export oriented units.
  • Undertakings engaged in the integrated business of handling, storing, and transporting food grains.
  • Undertakings engaged in the commercial production or refining of mineral oil.
  • Undertakings from the export of wood based handicrafts.


About Us

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email india@dezshira.com or visit www.dezshira.com.

Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.

 

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IB Nov issue smallEstablishing Your Sourcing Platform in India
In this issue of India Briefing, we highlight the advantages India possesses as a sourcing option and explore the choices available to foreign companies seeking to create a sourcing presence here. In addition, we examine the relevant procurement, procedural and tax duty concerns involved in sourcing from India, and conclude by investigating the importance of supplier due diligence – a process that, if not conducted correctly, can often prove the undoing of a sourcing venture.

Tax, Accounting, and Audit in India 2014-2015
Tax, Accounting, and Audit in India 2014-2015 offers a comprehensive overview of the major taxes foreign investors are likely to encounter when establishing or operating a business in India as well as other tax-relevant obligations. This concise, detailed, yet pragmatic guide is ideal for CFOs, compliance officers and heads of accounting who need to be able to navigate the complex tax and accounting landscape in India in order to effectively manage and strategically plan their India-based operations.

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In this issue of India Briefing, we focus on the dynamics driving India as a global trading hub. Within the magazine, you will find tips for buying and selling in India from overseas, as well as how to set up a trading company in the country.

MoU with U.S. Set to Boost Investment in India’s Infrastructure

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By Nishant Maddineni 

India and the U.S. have signed a Memorandum of Understanding (MoU) to set up an Infrastructure Collaboration Platform (ICP), under which both governments intend to facilitate U.S. industry participation in Indian infrastructure projects.

The MoU follows a Joint Statement made by Indian Prime Minister Modi and American President Obama in September 2014. It was signed between the Department of Economic Affairs (DEA) and Ministry of Finance for India, and the Department of Commerce for the U.S.

In a public statement, the U.S. said: “India Infrastructure Platform (ICP) is a collaborative effort between the United States and India that is anchored by the two governments and operated in concert with our private sectors to promote U.S. private sector engagement in India’s infrastructure growth and modernization.  It will provide a platform to assist US investors in infrastructure in navigating Indian regulatory and procedural hurdles.”

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An Introduction to Sourcing from India, Part 2: Exporting from India

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By Tarun Manik and Samuel Wrest

In this second excerpt from an article in our latest India Briefing magazine, we take a close look at India’s export industry and discuss why the country is becoming an increasingly popular and efficient destination for companies to source from.

An Increasingly Prosperous Export Industry 

Since 2006, the volume of India’s exports has more than tripled. This is largely due to the liberalization of numerous Indian trade laws and policies – a process that is still on-going under the new Modi administration – and a greater number of foreign firms have set up their sourcing or manufacturing operations in India. Here we break down India’s key export sectors:

ASEAN minimum wages

These products are accordingly far easier to source from India. The above graph can therefore be used to inform whether the Indian market is the correct one for a company’s particular sourcing operation.

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How to Navigate India’s Employment Visa Procedures

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By Adam Pitman

In September, Prime Minister Narendra Modi announced plans to relax visa restrictions for Non-Resident Indians. Expatriates have long been seeking a simplified application process for employment visas in India, and the reform initiative has buoyed the hopes of foreign nationals with an interest in the country.

While the Indian government may introduce tourist visas on arrival to boost the tourism industry, employment visa reform will prove a tough sell for a government that needs to create more jobs for its growing workforce. Expatriates employed in India will therefore need to learn and master the current visa regime.

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Heating Up: A Guide to India’s Coffee Industry

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By Samuel Wrest

India’s coffee industry is predicted to experience a period of growth. The country’s coffee exports are estimated to rise to approximately 5.02 million bags for the current marketing year; a comparative increase of 400,000 bags over the previous year.  Moreover, the price of Robusta – one of its most important varieties of coffee – is expected to rise by 94 percent over last year and sell for US 196 cents per Ib.

While many would not associate it with India, coffee has been one of the country’s leading export sectors for a number of years. With further growth forecast and with a domestic consumer market that is thought to hold huge untapped potential, in this article we take a look at the current and future outlook of India’s coffee industry.

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Microsoft Taps into India’s Booming Cloud Market

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By Benedict Lynn

Last week, Microsoft announced that it will be investing over US$200 million in cloud computing infrastructure in three Indian cities. New data centers will be set up in Mumbai, Pune and Chennai, as the technology giant seeks to boost its competitiveness by tapping into one of the world’s fastest growing cloud markets.

It is easy to see why Microsoft has made this move. According to IT research firm IDC, the Indian cloud market is expected to be worth US$3.5 billion by 2016; up from US$688 million in 2012. In the past year alone, the number of small businesses in India using cloud hosting service Google Apps has jumped by 70 percent.

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