In respect of setting up a corporate presence in India, one may set up a new company in India or register its existing overseas company under the provisions of Indian Companies Act, 1956. Appearing below are the basic matters involved in setting up a corporate presence in India:
Indian Company:
· Directors Identification Number (DIN): Every person who intends to be a director shall have to obtain Director Identification Number (DIN). DIN is a unique identification number provided by the Ministry of Company Affairs for an existing director or a person intending to become the director of a company. Once approved, the DIN confirmation and activation letter will be sent to the applicant. An email in this regard will also be sent to the applicant on the email id provided in the DIN application.
· Digital Signature Certificate (DSC): Under the "MCA-21" Project, the Ministry has put all the Business Processes and services of the office of Registrar of Companies on the e-Governance Mode. Digital Certificates serve as one’s identity in the digital world, it is used to identify entities in digital transactions. Based on Public Key Cryptography, these Digital Certificates associate every entity with a unique pair of credentials - the public key and the private key. Only the owner of a Digital Certificate has access to the private key and can use it to digitally sign and encrypt any digital information such as emails, forms, files etc. Under the Project only Class-2 & Class-3 DSC are valid.
· Application for Name Availability - To incorporate a company in India, we need to apply for the availability of a name, with six proposed name with the Registrar of Companies along with prescribed statutory fee. Unless approval from the Registrar of Companies is received, all corporate names must end with the word "Private Limited". A name once approved is reserved for six months. After the name approval the applicant can apply for registration of the new company by filing the required forms within six months of name approval.
· Preparation of Constitutional Documents- A company incorporated in India is required to have a Memorandum of Association (MoA) and Articles of Association (AoA). The memorandum of association provides for the company's name, the registered office, that the liability of the members is limited, and the authorized share capital. The objects or purpose of the company may also be stated in the memorandum of association.
· The articles of association provide for the internal regulation of the company. The rights of the shareholders, the duties of the directors, and procedures for directors' and shareholders' meetings are outlined in the articles of association.
· It is a common practice to have the draft Memorandum and Articles of Association vetted by the Registrar of Companies before one formally registers the company.
· Stamping and Signing of Memorandum and Articles of Association: Once the MoA and AoA is prepared it has to be put for stamping with the appropriate stamp duty. An application with this regard to be made to the Superintendent of Stamps requesting for stamping of the Memorandum of Association and Articles of Association. The application should be accompanied necessarily by the following:
(i) Two Blank Copies of the Memorandum of Association and Articles of Association.
(ii) Payment receipt.
The copies submitted to the Superintendent of Stamps for stamping are unsigned and no promoter or subscriber has written anything on it by hand. The Superintendent returns the copies one of which is duly stamped, signed and embossed evidencing the payment of the requisite stamp duty. The rate of stamp duty varies from State to State.
· Submission of MoA and AoA: After MoA and AoA is duly signed and ready for submission the following forms need to be submitted along with prescribed fee:
· Declaration of compliance
· Notice of situation of registered office of the company - Form-18
· Particulars of the Director's, Manager or Secretary - Form-32
· Registration Fees:
For registration of a company whose nominal share capital does not exceed Rs.100,000: Rs. 4,000.
For registration of a company whose nominal share capital exceeds Rs.100,000, the above fee of Rs.4,000 with the following additional fees regulated according to the amount of nominal capital.
(a) Rs. 300 for every Rs.10,000 of nominal share capital or part of Rs.10,000 after the first Rs.1,00,000 up to Rs.5,00,000;
(b) Rs. 200 for every Rs.10,000 of nominal share capital or part of Rs.10,000 after the first Rs.5,00,000 up to Rs.50,00,000;
(c) Rs. 100 for every Rs.10,000 of nominal share capital or part of Rs.10,000 after the first Rs.50,00,000 up to Rs.1 crore;
(d) Rs. 50 for every Rs.10,000 of nominal share capital or part of Rs.10,000 after the first Rs.1 crore.
RoC Filing Fees: RoC filing fees for the Articles and for the other forms 1, 18 and 32:
(i) Rs. 200 in respect of a company having a nominal share capital of Rs. 100,000 or more but less than Rs. 500,000;
(ii) Rs. 300 in respect of a company having a nominal share capital of Rs. 500,000 or more but less than Rs. 2,500,000;
(iii) Rs. 500 in respect of a company having a nominal share capital of Rs. 2,500,000 or more.
· Authorized Share Capital Requirement- The minimum capital requirement for an India company is Rs.1,00,000.
· Ongoing Corporate Requirements - Ongoing corporate compliance requirements include, at a minimum, the filing of annual returns and the holding of annual general meetings to approve, among other things, audited financial statements which are mandatory. Other than this, the company is also required to notify government authorities, including the Registrar of Companies, Inland Revenue Department and Business Registration Office, regarding various corporate changes such as change of name and registered office address. In addition, the company is also required to submit an employer’s return regarding its employees to the Inland Revenue Department every year irrespective of whether or not it has employees. Finally, if the company has commenced business, it needs to submit a profits tax return to the Inland Revenue Department annually.
Foreign Company:
· A foreign company can commence operations in India by incorporating a company under the Companies Act,1956 through
§ Joint Ventures; or
§ Wholly Owned Subsidiaries
· Foreign equity in such Indian companies can be up to 100% depending on the requirements of the investor, subject to equity caps in respect of the area of activities under the Foreign Direct Investment (FDI) policy. Details of the FDI policy, sectoral equity caps & procedures can be obtained from Department of Industrial Policy & Promotion, Government of India
Taxation:
· Income Tax – India is moving towards reforming its tax policies and systems so as to facilitate globalization of economic activities. The corporate tax rate for Indian and foreign companies are 35 and 40% respectively. The net tax rate is far lower than this on account of various deductions and exemptions available under the tax laws. Tax holidays are available in Special Economic Zones set up to make industry globally competitive. Infrastructure Sector Projects enjoy special tax treatment/holidays.
Taxation Non-resident Companies- A company is considered nonresident for tax purposes if it is not an Indian company and if the control and management of its affairs are situated wholly outside India during the year. Control and management, i.e., "the head and seat and directing power," are generally considered to be situated where the directors' meetings are held. Nonresident companies are subject to tax on income that is received in India, arises in India or is deemed to arise in India.
All comprehensive Indian treaties provide that the business profits of a company resident in another country can be taxed in India only if it has a permanent establishment in India and to the extent the profits are attributable to the permanent establishment. Some treaties extend the taxability to sale of goods or other activities in India of the same or a similar kind as those sold or effected through the permanent establishment. The concept of permanent establishment in the relevant treaty must be carefully checked because it might limit exposure. Most treaties have specific provisions for dividends, interest, royalties, and fees for technical services.
· Permanent Account Number (PAN)- Under the Income-tax Act, 1961, each person is mandatorily required to quote his Permanent Account Number (PAN) for tax payment and Tax deduction Account Number (TAN) for depositing tax deducted at source. The Central Board of Direct Taxes (CBDT) has instructed banks not to accept any form for tax payments (challan) without the PAN or TAN, as the case may be.
The Permanent Account Number (PAN) is a 10-digit alphanumeric number, issued in the form of a laminated card, by an Assessing Officer of the Income Tax Department.
· Tax Account Number(TAN): TAN is required to be obtained by all deductors under Section 203 A of the I-T Act. It is a 10-digit alpha-numeric number and is compulsory to quote TAN in TDS returns (including e-TDS). All those persons who are required to deduct tax at source are required to apply and obtain TAN.
Other Considerations:
· When hiring employees locally, the company will have to contribute to the Mandatory Provident Fund which requires the employer to contribute 12% of an employee’s monthly salary.
By
Satyajit Patra,
satyajit@legalconsultus.com |
