Frequently Asked Questions (FAQ)

For CFOs with operations in India, we have written a comprehensive guide that gives you insight into the country's complex tax and financial system, including the best ways to repatriate profits to Europe. Download the guide for CFO's here.

A Pvt. Ltd. is a limited liability company. It is ideal for separating ownership, management and financing. The Pvt. Ltd. is by far the most frequently chosen legal form for foreign entrepreneurs and investors in India. Setting up an Indian Pvt. Ltd. is time-consuming as the procedure is complicated and involves a lot of documentation. Our experts can help you with every step of registering a Pvt. Ltd. in India.

There are slight differences between the three offices. A Liaison Office may only engage in promotional activities and establish business contacts. A Project Office is particularly intended to organise temporary cooperation, for example for infrastructure projects. When setting up a Project Office, the starting point is the dissolution after the end of the project. A Branch Office is allowed to do business and invoice Indian customers. The tax rate for a BO is very high at 43.26% compared to a local Pvt. Ltd. structure, though. These three forms are considered extensions of a foreign company in India and the parent company is therefore legally liable for the activities of all branch office structures.

It depends on the nature of your business activities in India. You would do well to visit India 3 to 4 times per year for the first three years that you are active in India. In India you will need to invest in your relationships by building trust, getting to know each other's methods and managing expectations. If you are working with a distributor or a partner, keep in mind that you will need to be in India at least several weeks per quarter to build a successful partnership.

Yes, this is common. If you receive this request, verify it by calling the doctor or your employee's family, for example. Make proper arrangements and only give realistic advances that are proportionate to your employee's salary.

A godsend! This is a positive development and an important step in building a relationship. Your business partner indicates that they want to get to know you better. This means you are expected to share things about your personal life and family situation too. Don't feel weirded out by it, it helps in building mutual trust. Always remember: Indians do business based on relationships, much less on transactions (contracts etc.).

Indians communicate indirectly. You will almost never be told that they are not interested, even if you ask. Keep in mind that India does not have an email culture. Indians find email communication distant. Face-to-face meetings, calling and texting are the most common and effective ways to communicate.

Officially, the caste system has been abolished. Nevertheless, the caste system still plays a major role in daily life. This is a very difficult subject to comprehend, but fortunately no one expects you to fully understand it. Moreover, it is a subject that it is better not to address because of its complexity and related (political) sensitivities. However, it is good to take it into consideration when hiring staff in India. 

Companies that have an HD video connection with the office in India, which streams throughout the workday, report that it greatly enhances collaboration. Such a razor-sharp video link is therefore a good alternative to your physical presence.

1. Travel with others: A first visit to India is overwhelming. The crowds, language and social manners make it difficult to find your way and achieve your business travel goals. Therefore, don't travel alone. Good company, preferably from people who have been to India before, will help you put all the impressions into context.
2. Grab your phone...and call and text. Scheduling appointments is often done at the last minute and almost always over the phone. Didn't get a reply to your mail? No problem. Call to confirm the appointment and call again a day in advance to announce that you are coming.
3. Get to know people: During a first meeting, don't talk about business right away. Indians like to get to know potential business partners first. The best thing that can happen is an invitation to come to someone's home for dinner and get to know the family. This is anything but a waste of your time. Indeed, it is essential to operating successfully in India in the long run.

 

A business gift indicates that the relationship is important to you. Don't overdo it, but a nice present from home is certainly appreciated. Bringing something for your relation's children or partner often works even better. Just be aware that in India many people are vegetarian and do not eat eggs either.

In India, exchanging business cards is very common, even in non-business situations. This is usually done after the initial greeting and handshake. India has a hierarchical culture, so it is smart to use important-sounding titles on the business card. If you are Sales Manager, consider changing it to Sales Director or Commercial Director.

1. Travel with others: A first visit to India is overwhelming. The crowds, language and social etiquette make it difficult to find your way and achieve your business travel goals. Therefore, do not travel alone. Good company, preferably from people who have been to India before, will help you put all the impressions into context.
2. Grab your phone, call and whatsapp. Scheduling appointments is often done at the last minute and almost always over the phone. Didn't get a response to your email? No problem. Call to confirm the appointment and call again a day in advance to announce that you are coming.
3. Get to know people. During a first meeting, don't talk about business right away. Indians like to get to know potential business partners first. The best thing that can happen is an invitation to come to someone's home for dinner and get to know the family. This is anything but a waste of your time. In fact, it is essential to operating successfully in India in the long run.
4. Be humble. In India, you will face enormous cultural differences. Consider, for example, the huge socioeconomic differences, arranged marriages, always saying "Yes" to closed questions and being flexible with time. Do not judge immediately, rather ask questions. By doing so, you will show respect.

India has very extensive intellectual property legislation: from copyright and trademarks to industrial design and trade and brand names. Moreover, this legislation is constantly evolving: various (semi) governmental bodies and think tanks are working on reforming and amending it. Hence, there are numerous opportunities for international companies to properly protect their intellectual property in India.

It is always preferable to speak to your business partner and discuss the payment problems. This way, you can indirectly find out why your partner or client is not paying, is paying with a delay or only partially. It also allows you to indirectly put pressure on your customer or partner. Of course, before doing business, it is preferable to have a good understanding of the position and reputation of your partner, associate or client. A discreet background check is highly recommended.

We are happy to help you with that. We have a network of excellent lawyers who can assist you with all kinds of legal matters. We also have excellent business mediators on our team.

There are a number of options. There are many executive search firms operating in India. The quality of these varies. Often, international companies are looking for an Indian executive who understands their way of working and communicating. There are a number of steps you can take:

1. Search through informal networks; i.e. ask other companies in your network for suitable candidates. If one of your contacts suggests a candidate, then the candidate will not want to lose face with the proposer and will therefore be serious.
2. Search the Indian community in your country. Many Indians working for an organisation abroad want to return to India sooner or later. This group has work experience in your home country, knows the culture and mentality.
3. Engage headhunting agencies: the quality is not always good and our experience is that these agencies do not always understand what you are looking for.

IndiaConnected can advise you on the best strategy in your specific situation. Contact us here.

You can find a suitable partner in India through your network or by getting advice from our local experts. To make sure your partner is trustworthy, you need to your due diligence on them. Check references, speak to relations of your partner, engage with customers. Also ask your potential partner to make a commitment, to make sure they are on the same page. For instance, ask if they are willing to co-invest or buy x number of products. You have a commitment when an initial transaction is completed and you have the money in your account. We also recommend that you spend enough time with your potential partner. This goes beyond business meetings. Go along to visit your partner's family, meet his/her parents, relatives and children. Building a personal relationship with business partners is essential in India.

India has its own management style, which can also be described as a highly hierarchical (business) culture. Indians also communicate very indirectly. When foreign companies try to implement an open management style in India, they are usually unsuccessful. International companies that are successful in India usually have a local management that manages the staff and with which the head office communicates. It is not common to communicate directly with employees (non-management) in the organisation from HQ. Don't be naive: fathoming unwritten, cultural rules is impossible. The tech sector is an exception; cultural differences have been reduced considerably in this sector. Read more about the differences in culture and how to tackle this as an international company in our free guide for employers in India.

 

The Goods and Services Tax (GST) is India's version of VAT. There are five rates, ranging from 0% to 28%, under which 1211 categories of goods and services are divided. Under the GST system, tax is levied at any time value is added to the product and a sale is made. This runs up to the final sale to the customer. You can read how the Goods and Services Tax is levied and whether you have to pay it here.

The import duties you have to pay depend on your product group (HS code). On average, import duties are 26 to 30%. For alcohol, chocolate, tobacco, dairy products and luxury products such as assembled cars, this is considerably higher. For many medical products, import duties are actually lower. Do you have the Indian government or a 5-star hotel as a customer? Then there are no import duties.

Because of the relatively high import duties in India, it is important to know the position of your Indian distributor/importer. Suppose your product costs 100 euros (Free On Board, FOB). For the importer, transport and shipping insurance and import duties add about 30% on average. Note that import duties are calculated on the basis of Cost, Insurance, and Freight (CIF) + 1%. In this example, your Indian importer will easily spend about 140 euros before he has the goods in storage. Keep that in mind during the negotiations.

Simply put, a Special Economic Zone (SEZ) is an industrial zone with a favorable tax environment. If you settle in an SEZ, you pay no income tax for the first five years and only 50% of your income thereafter. Also, companies in SEZs are exempt from paying sales tax (GST)and do not have to pay Basic Custom Duty (30% on average in India). It can be very beneficial for you to set up in an SEZ, but it depends entirely on your product, your goals and where your customer base is located. Before you decide to establish yourself in an SEZ, it is therefore important to do thorough market research. Our local experts can always support you with this. Read more about our market research and analysis here.

This is a common complaint from foreign companies doing business in India. It is true (usually) that when sending an invoice for services rendered to an Indian party, the Indian party is required to withhold and remit 10 or 20% withholding tax. However, there are specific situations where the TDS rate can be lower than the default domestic rate or where deduction might be reduced or even nil. Foreign companies can get lower TDS rates under an applicable DTAA between India and their country of residence.

To enjoy a lower treaty rate, the foreign company should typically provide:

1. Tax Residency Certificate (TRC) from the home country tax authority;

2. Form 10F (as required);

3. Any other declarations required under the India-DTAA;

4. In some cases, a declaration of no PE in India.

Without proper documentation, the payer may default to higher domestic TDS rates.

Transfer Pricing (TP) are internal transfer prices for delivery of goods, services or intellectual property rights within related companies. A transfer pricing policy clarifies where the international company earns its profits and in which countries those profits should be taxed. Indian TP legislation is largely influenced by OECD TP guidelines, but they are adapted to specifically meet the needs of the Indian tax system. In our guide for CFOs with operations in India, we explain the rules you need to comply with in India. Download the free guide here.

PAN is short for Permanent Account Number. A PAN card was a necessity until recently and was obtained after obtaining aPAN registration with the Indian Revenue Service. The need to apply for PAN expired as of July 2016. Until the first half of 2016, foreign companies that sent invoices to Indian customers for services had to apply for PAN registration in India. Although it is no longer mandatory to have a PAN card, in some cases it may still be smart to apply for one. For example, if you want to establish yourself in India long term, you need to register with the Indian tax authorities after which you will automatically get a PAN and PAN card.

Indian companies must adopt the fiscal year (April–March). However, with regulatory approval, a different reporting period may be allowed for reporting under local companies Act, provided it is disclosed in the financial statements.

Individuals and businesses that receive income from foreign nations must file Form 10F in order to be eligible for the advantages of a Double Taxation Avoidance Agreement (DTAA) between their home country and India.

A tax audit is a review of a taxpayer’s financial records by a chartered accountant to check whether the taxpayer has followed the provisions of the Income-tax Act and other applicable legal requirements, as required under Section 44AB.

If you run a business in India with annual turnover, gross profit, or gross income exceeding ₹10 million (€100,000), you must have your accounts audited. When cash receipts and payments during the year do not exceed 5% of total receipts or payments, the threshold for the person running the business is increased from ₹10 million to ₹100 million (€1,000,000). If a person's annual gross income exceeds ₹5 million (€50,000), the accounts must be audited.

Capital contribution can be made in the form of equity, preference shares, or debentures under Foreign Direct Investment (FDI) guidelines. Contributions must comply with the Companies Act and FEMA regulations regarding remittances, reporting, and sectoral limits. The quantum of capital is typically guided by the company’s business plan and should be sufficient to meet the initial operating and establishment expenses.

• Authorized capital is the maximum amount of share capital that a company may issue to shareholders, as laid down in the articles of association.
• Issued capital is the portion of the authorized capital that has actually been allocated to shareholders.
• Paid-up capital is the amount that shareholders have actually paid for the shares issued to them.

Yes, in several ways. We can research and analyze the market for your product so you can approach customers in a more targeted way. We can also approach potential customers for you. Would you like to appoint a sales representative in India? Together with our partners, we are constantly recruiting business developers and sales staff for companies looking to enter the Indian market. Read more here.

Employment contracts in India are no different from contracts in other countries. The conditions of employment must of course comply with Indian labour laws and are described in the contract. These are things like pay, work location, appointment, working hours, etc. In India, employees earn one extra day of paid holiday for every 24 days he/she works in his/her position. The employee may take this leave for urgent matters during the notice period. Our guide for employers with Indian staff provides more information on Indian labour laws and hiring Indian personnel.

In India, people talk about the Take Home salary and the CTC salary (Cost-to-Company). The CTC salary is the total cost of employment from the employer's point of view. The Take Home salary is the amount that employees actually get deposited into their bank accounts at the end of the month. The exact CTC depends on the employee's state (some taxes vary by state) and the employee's personal situation and preferences regarding various allowances. Usually, the salary structure is reviewed in detail for each individual in order to find the most optimal fit for the employee in terms of the CTC and Take Home salary. Download our guide for employers with Indian staff and get more information on the key elements of salary negotiations in India.

To employ staff in India, you need your own entity in India. The only question is whether that is the best solution, because starting your own entity in India is time-consuming and the costs are significant. Setting up your own entity makes sense when you: 

1. expects to hire many often
2. your operations in India are an important part of your long-term strategy,
3. when you want long-term employee loyalty. 

IndiaConnected can help you set up your own entity. We also offer comprehensive payroll and HR support.

If it is possible to carry out the work remotely, we usually recommend doing that over bringing staff to your home country . Optionally, you can invite your Indian employees to the HQ for an occasional work visit, to train them or integrate them into your team.  Do you want to assign Indian staff to your HQ? Then download our employer guide, which explains in detail the steps you need to take to move your Indian staff to your home country.

Yes, it is possible. For example, as an employee, as a freelancer, employed by a foreign company with a branch in India or employed by an Indian company. In our guide for employers, you will find a lot of information about applying for an Indian visa and what other steps you need to take to be ale to work in India. 

Certainly. IndiaConnected has an in-house recruitment team that recruits and selects employees. If you do not have your own entity in India, we can support you with payroll administration, social security contributions and office space. In addition, we support in determining market-conform salaries (benchmark) and drawing up employment contracts in accordance with Indian laws and regulations.

A gratuity is a payment made by an employer to a long-serving employee as a thank you for their service, usually upon retirement or resignation after a predetermined amount of time (commonly five years).

In India, it is required by law and is regulated by particular statutes, such as the Payment of Gratuity Act, 1972. In essence, it's a retirement benefit or a monetary compensation for a worker's commitment to the company.

In India, employers and employees contribute a portion of their salaries to a fund run by the Employees' Provident Fund Organization (EPFO) as part of the Employees' Provident Fund (EPF), a retirement savings plan.

This fund can be taken upon retirement or in certain situations, and it grows with interest. This government-sponsored initiative aims to give workers financial stability in their post-retirement years.