What is Outbound Investment Structuring?
Under the automatic route, an Indian company is not required to take prior
approval from the RBI for setting up JV/WOS abroad. The criteria for direct
investment under the automatic route shall include
Investment up to 400% of the net worth
Valuation requirements to be complied with to valuation of investment
Indian company is not in RBI’s caution list
Submission of APR in respect of all overseas investment
Certain additional requirements are also to be complied with if the
Indian company is engaged in providing financial services
Also, the foreign companies engaged in real estate, trading in TDR’s
and banking business required prior approval of RBI
What is Benefits of SPV's?
Flexibility in borrowing and corporate restructuring
JV Private Equity Funding
Bilateral Agreements
Tax Efficiency
Ease of entry and exit
Overseas Listing
Significance
1) Participation Exemption
Benefit of exemption in the SPV's jurisdiction for dividend and capital gains
coming from downstream investments on the fulfillment of certain
conditions. Conditions basically include shareholding pattern, the
jurisdiction of the parent entity and share of the holding.
IPR Regime
Specific deduction, exemptions, and incentives are available in some
jurisdictions with regard to IPR holdings such as Patent Box Regime .i.e.
concessional rate for royalty income in case of certain IPR’s and also
deduction for certain cinematographic films given in the UK.
Withholding Tax provisions
Withholding tax exemptions on dividends, royalties, and interest
Favorable Holding Company Regime
Lower income tax rates for holding companies under specific holding
company regimes, existence of CFS provisions, Good Treaty Network
Thin Capitalization Rules
Companies are said to be capitalized thinly when its capital comprise a
greater proportion of debt equity. In such a case cash repatriation is
possible by claiming tax deduction for interest on debt
Key Services Provided by us
Advice and assist on entity structuring, capital structuring and
regulatory approval process in the selected jurisdiction
Advice on cross-border investment strategies including suggestions
for obtaining optimal ownership structures for investing into a particular
jurisdiction which includes setting up an international holding company,
global sales company etc.
Assist in finalizing and review of the shareholders, joint venture and
other business agreements or arrangements from tax perspective
Identify and enhance tax and fiscal benefits including obtaining tax
rulings in the selected jurisdiction
Advice on tax credit claim in India and also Tax treaty implication
Assist in obtaining approvals from Reserve Bank of India and also
from the regulatory authorities.
What is Inbound Investment Structuring?
Choice of Entity
Particulars Private Company LLP
1. Corporate Tax Rate:
1. Corporate Tax Rate: 33.99%
32.45%/33.99%
Income Tax 2. Tax efficient as no MAT,
2. MAT, DDT, and BBT are
DDT and BBT are applicable
applicable
1. No FIPB approvals
required for FDI at the 1. Prior approval from FIPB
Foreign Direct time of entry or exit authorities required even if
2. FDI can be made in the the activities are covered
Investment/Foreign
form of cash under automatic route
Exchange Management
consideration, swap, 2. FDI can be made only by
Regulation conversion of receivables way of cash contribution
etc
Governance Framework 1. Higher Statutory 1. Limited Reporting
Requirements
Requirements
2. Not required to comply
2. Adhere to CSR policy
with CSR Policy
Use of Holding Companies
Direct Investments in India
Foreign Investor > Indian Company Key Issues
Capital gains on sale of shares are taxable in India
Treaty Benefit in respect of capital gains is available only in selected
countries
Risk of double taxation due to conflicting source rules
For foreign companies investing in India, Mauritius has become like a Hub.
Especially for portfolio investors who earn from portfolio investments in
India in the form of capital gains, it is unavoidable to set up a holding
company in Mauritius. Most of the countries do not levy a capital gain tax
on non-residents investing in shares in their countries. However, if a foreign
company holds shares in Indian Company it will end up paying 21% tax on
long-term capital gain and 42% tax on the short-term capital gain. In most
of the countries, the supreme rate is below 35%. Therefore, in case of
short-term gains, the foreign company will not get the full credit for the
taxes paid in India. Further, in case of FIIs and venture capital funds, most
of the investors are pension plans, which are otherwise tax-exempt entities
in their home countries. Therefore, they do not have taxable income to
offset the tax paid in India. This is the reason many inbound investments
have flown into India via Mauritius. A substantial amount of foreign direct
investment has gone into IT and ITES industries.
Most of the companies set up for IT services and BPOs enjoy a tax holiday
under section 10A/10B. It is very common for the founders to start the
business with minimum paid-up capital, to take the companies to a
reasonable maturity stage and invite private equity investors to invest in
these companies. By virtue of provisions like S. 10A(9), often these
companies lose the tax holiday at the time new investors join in. This is
derogatory to the main objective of providing the tax incentive to these units
set up in STPs for development of software industry and encouraging their
expansions. Often, provisions like this compel foreign investors to induct
holding companies so that they are neutral to changes in foreign law or
internal restructuring.
The Regulatory environment in the relation to foreign investment has been
steadily eased to make it investor friendly. The liberalization programs set
up by the government aims at rapid and substantial growth of country’s
economy and harmonious integration with the global economy
Key Services provided by us for Inbound Investment
Structuring?
Advise on Indian entrance approach and suggestions for gaining
finest ownership/jurisdiction for investing in India
Advising on entity restructuring by selecting the finest entry vehicle
such as setting up a branch, subsidiary, LLP or a Joint Venture
Provide the services of capital restructuring in terms of foreign
exchange policies keeping repatriation in loop
Assisting in the filing, obtaining necessary approvals including
regulatory compliances from Reserve Bank of India, Foreign Investment
Promotion Board, Government of India or any other regulatory authority.
Assisting and finalizing from the perspective of the shareholder, joint
venture agreements, any other business arrangements or agreements from
the tax perspective
Target Due Diligence
