Remitting Money from India – Choosing the Right Repatriation Strategy

By Dezan Shira & Associates Funds can be repatriated from one country to another in various ways. The obvious implications are that such transactions entail foreign exchange risks, and companies also need to account for regulatory and tax risks. Investors and companies should, therefore, note that choosing the right strategy to repatriate funds can reduce their tax burden and increase revenue. In turn, such cost savings make it possible for reinvesting in innovation and improving the productivity of the business. This risk-reward calculus becomes more complex in India, which has a unique business environment. To aid their assessment, the following sections will critically evaluate the repatriation strategies highlighted in the below graph. Dividends A foreign company that makes an equity contribution to its Indian subsidiary often demands dividend payouts. The payout may be annual or at a predetermined time interval and is usually a share of the profits that the Indian subsidiary has earned. The Indian entity that is distributing profits through dividends is liable to pay tax. The tax, namely the Dividend Distribution Tax (DDT), is currently charged at 15 percent plus applicable surcharges and education cess. In terms of tax deductibility, dividends and DDT are not deductible expenses, as prescribed by Section 115-O(5) of the IT Act.…
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India Regulatory Brief: GST Council Finalizes E-Way Bill, CBDT Issues Clarification on Non-Resident Tax Filing

GST Council finalizes e-way bill At its 20th meeting held on August 5, the Goods and Services Tax (GST) Council approved the electronic way (e-way) bill which mandates pre-registration of goods before transportation. The e-way bill, which is likely to come into force by October 1, 2017, would be applicable for consignments worth more than US$780 (Rs 50,000) only. The council has decided that the e-way bill will not apply to the inter-city movement of goods within 10 kilometers distance, as well as on items exempted from the GST. The introduction of the e-way bill is expected to significantly reduce wait times at checkpoints and streamline the transportation process.  The bill would be valid for a period between one day and 20 days depending on the distance to be traveled. RELATED: Business Strategy & Operation Advisory Revised GST rates on services The GST council, in its August 5 meeting, revised rates for 19 services and certain goods.  Some of the revised rates are given below: Job work for the entire value chain of textiles sector, including embroidery and weaving, would be subject to tax at 5 percent instead of 18 percent, to allow a seamless flow of credit. Tractor parts would be taxed at a reduced rate of 18 percent instead of 28 percent; and The rate for government works contract would be 12 percent with benefits of input tax credit.…
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Companies Act (Amendment) Bill, 2017 Approved by Lower House of Parliament

By Dezan Shira & Associates First introduced in the lower house of parliament as the Companies Act (Amendment) Bill, 2016 in March of last year, the Bill seeks to make important changes to the Companies Act of 2013 in relation to the structuring, disclosure, and compliance requirements for companies. After incorporating feedback from the Standing Committee on Finance, the respective government chambers of commerce and industry, as well as professional bodies, the draft bill was finally approved by the lower house as the Companies Act (Amendment) Bill, 2017 on July 27, 2017. It will now be examined by the upper house of parliament for approval before seeking the President’s assent. The 2017 Bill –  in its current form – continues to rein in the layering of both investment companies and subsidiaries. Presently, the 2013 Act states that investments in a company cannot be made through more than two layers of investment companies, which stands to stay unchanged. RELATED: Corporate Establishment Advisory Some of the major amendments proposed to the 2013 Act are outlined below: Definition of ‘related party’ expanded – The Bill expands the prevailing definition to include “an investing company or the venture of a company” in Section 2(76). Thus, a body corporate’s investment in a company will allow that company to become an associate company of the body corporate.…
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India Regulatory Brief: New Rules for Shifting a Registered Office, Companies Act (Amendment) Bill, 2017

Companies (Incorporation) Amendment Rules, 2017 Announced The government announced new rules that will amend the Companies (lncorporation) Rules, 2014. These will come into effect once they are published in the official gazette.  Two changes have been made, by way of substituting Rule 28 and Rule 30 in the existing framework of the Companies (lncorporation) Rules. These regulate the shifting of a company’s registered office within the same state (Rule 28) and shifting of a company’s registered office from one state or union territory to another (Rule 30). The new rules are notified on the Ministry of Corporate Affairs website, with an official circular dated July 27, 2017. RELATED: Business Strategy & Operation Advisory Lower House Passes Companies Act (Amendment) Bill, 2017 The lower house of India’s parliament passed the Companies Act (Amendment) Bill, 2017, last week. The Bill will amend the existing Companies Act, 2013, and is yet to be approved by the upper house. Among the major changes proposed are: expanding the definition of ‘related party’ to include an investing company; change in the definition of a ‘subsidiary company’ that removes the qualification of holding share capital; change in the definition of an ‘associate company’; change in private placement issuances; change in rules for loan and investment by a company; regulations governing related party transactions; and the provisions governing independent directors.  …
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New RBI Guidelines on Issuance of Masala Bonds

By Vasundhara Rastogi In June, the Reserve Bank of India (RBI) notified significant policy changes regarding the issuance of ‘masala bonds’, bringing them in alignment with the other elements of the External Commercial Borrowings (ECBs) framework. Masala bonds are a popular debt-financing instrument used by Indian entities to raise funds in the overseas market.  RELATED: Business Strategy & Operation Advisory Reasons for issuing and investing in masala bonds Unlike other ECBs, such as ‘medium term note’ or a ‘floating rate note’ that are mostly dollar denominated, masala bonds are rupee dominated borrowings. That means that although masala bonds are settled in dollars overseas, the returns from it is determined by the rupee-dollar exchange rate and is repaid to the issuer (domestic entities) in rupees. By issuing, or pricing bonds in rupees, the issuer is insulated from the volatile exchange rate and the associated currency risk; the risk is instead, passed on to the investor. Further, masala bond issuance allows domestic entities to access a large and diversified pool of global investors, apart from funding via banks and the corporate bond market in India. For global investors, masala bonds are a high yield investment opportunity that offers easy access to India’s asset market and its rapidly growing economy.…
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India Regulatory Brief: Tax Filing for NRIs, No Environmental Clearance for Solid Waste Management Projects

Invoice upload utility on GSTN portal from July 24 Businesses registered on the Goods and Services Network (GSTN) portal will be able to upload their invoices starting July 24. GSTN serves as the information technology platform that administers the GST regime. Once the portal launches the facility, businesses can upload their invoices on a weekly or daily basis – if they wish to avoid the month-end rush. The GST kicked in on July 1, in a major reform of the indirect taxation system in India. Under the new regime, businesses need to generate invoices for transactions above US$3.11 (Rs 200) and maintain these invoice records in serial number – if they want to claim input tax credit (ITC). Previously, the GSTN portal introduced an offline MS Excel format for businesses to record their invoices; now these can soon be uploaded.  RELATED: Business Strategy & Operation Advisory India’s tax department targets NRI bank accounts In the continuing attempt to prevent tax avoidance, income tax (IT) authorities have doubled down on non-resident Indians (NRIs) and their finances abroad. This is because of a widespread practice by those trying to escape the IT scanner, where individuals deposit money in offshore bank accounts, and legitimize their NRI status by staying 182 days outside the country.…
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New Relaxations Announced for Startups under Companies Act

By Dezan Shira & Associates Startups in India will now benefit from more relaxations under the Companies Act, 2013 – a move that will reduce compliance requirements and allow for operational flexibility. These are in addition to exemptions announced in June 2015.  RELATED: Business Strategy & Operation Advisory In its notification dated June 13, 2017, the Ministry of Corporate Affairs (MCA) outlined specific provisions in the Companies Act that will be amended as applicable for private companies, including startups. However, only those firms who have not defaulted in their filing of tax returns and have complied with financial reporting requirements, will benefit. The MCA also announced provisions that support the ‘Fast Track Corporate Insolvency Process’ set out in the Insolvency and Bankruptcy Code, 2016. New definition of ‘startups’ The exemptions and relaxations announced by the MCA are available to only those private firms who are recognized as ‘startups’ by the Department of Industrial Promotion and Policy in the Ministry of Commerce and Industry. As per their notification dated May 23, 2017: an entity is considered to be a startup if it is not more than seven years old from the date of its incorporation/registration. This eligibility period is extended to ten years only for the biotechnology sector.…
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India Regulatory Brief: Clarifications under the Bankruptcy Code, Business Class Travelers to Show GSTIN

NCLAT issues clarifications under Insolvency and Bankruptcy Code, 2016 The National Company Law Appellate Tribunal (NCLAT) recently clarified what constitutes the ‘’existence of a dispute” under the Insolvency & Bankruptcy Code, 2016. As per the Apellate Tribunal, the term ‘dispute’ includes proceedings initiated or pending before consumer courts, tribunals, labor courts, or subject to mediation or conciliation. Further, the ambit of ‘dispute’ will also include any action undertaken by a person identified as a corporate debtor, such as replying to a legal notice or to a clarification sought regarding the quality of goods and services provided by the operational creditor. Other clarifications concern the grounds for rejection or satisfaction of an insolvency application by an operational creditor, that is, to whom the debt is owed.  RELATED: Audit and Financial Review Advsiory Business class travelers to submit GSTIN to avail tax benefits It is mandatory for those traveling on business class air tickets for business purposes to submit their company’s Goods and Services Tax Identification Number (GSTIN) – if they wish to avail tax benefits under the GST regime, which came into force on July 1. The new indirect tax regime provides for input tax credit only in the case of business class tickets – the provision is not applicable to economy class fares.…
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FIPB is Abolished – What Does it Mean for Foreign Investors?

By Bradley Dunseith On May 24, India’s Union Cabinet effectively eliminated the foreign investment promotion board (FIPB) – established 25 years ago as a single-window clearance for all foreign direct investment (FDI).  India’s regulatory landscape has undergone some major overhauls since the FIPB was first created: between 91 and 95 percent of FDI now comes through the ‘automatic route’ while only 11 sectors still require government approval.    In this article, we explain the new regulatory landscape for foreign investment that the FIPB previously governed.   RELATED: Business Strategy & Operation Advisory Implications of the FIPB’s dissolution With the FIPB having wound up, the Department of Industrial Policy and Promotion (DIPP) will now direct FDI proposals that require government approval to the concerned federal ministry or department. The DIPP will release a set of standard operating procedures (SOP) for ministries now tasked with approving FDI requests. Though not yet finalized, the DIPP’s SOP will include: The creation of an optimized FIPB online portal called the Foreign Investment Facilitation Portal; A deadline of four weeks for ministries involved to digitally upload their comments on FDI proposals that do not require security clearance, and six weeks for FDI proposals that do require security clearance; An overall ten week deadline for ministries to approve FDI requests requiring security clearance, and; An overall eight week deadline for ministries to approve FDI requests that do not require a security clearance.…
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India Regulatory Brief: Filing GST Returns, Aadhaar Mandatory for Banking and Financial Transactions

Relaxation in filing GST returns till September 2017 The GST Council meeting on June 18, 2017 delivered key resolutions ahead of the GST launch at midnight of June 30. The Council opted for a relaxation in return filing until September, meaning no late fees or penalties will be levied in the interim period.  RELATED: Tax Compliance Advisory GSTR-1 with invoice level details for the month of July have to be filed by September 5, and for the month of August by September 20. Correspondingly, the GSTR-2 and GSTR-3 forms for these two months must be filed thereafter. The summary return form in GSTR-3B must be filed on a self-declaration basis for the first two months – July and August – by the 20th day of the following month, after paying taxes. Resolution on the e-way bill system (electronic way bill for movement of goods) could not be reached and has been deferred to the GST Council meeting on June 30. GST Council amends rates, approves anti-profiteering rules            The GST Council released amended rates of taxation for the hospitality sector on June 18. Hotels charging between US$39 and US$116 (Rs 2,500 to Rs 7,500) will be subject to 18 percent GST, while hotels charging upwards of US$116 (Rs 7,500) will attract 28 percent GST.…
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