International Expansion Blog

Doing Business in India: Q&A

Since India is a hot country for those considering international expansion, it was no surprise that many of you had a host of additional questions after our webinar last week Doing Business in India. We didn’t have time to cover them all in the allotted hour, so we thought it would benefit everyone to see the additional questions that came up, as well as the answers from our India expert.

What is the single biggest and most common mistake companies make when entering the Indian market?
Initially, international companies perceive India as a straightforward country and one they can relate to, because it operates under an English rule of law and business is entirely conducted in the English language. However, this is sometimes misleading as the country does have its own specific way of doing business, and communication does get lost in translation. The other key mistake is expecting to have considerable returns on activities in the country and to expect them to run smoothly without someone directly looking after your interests locally.

Would there be any industries which are exempt from any of the labor compliances?
In the private employment sector, there is no industry which is completely exempt from labor compliances. Based on the nature of business, the application of labor law may vary, however absolute exemption is not seen. (i.e. Banks are exempted from the State Insurance Act, IT and ITES get special exemption for working hours as 24/7 operations are allowed)

What is the minimum number of employees in India where having your own operation makes more sense than outsourcing?
This absolutely depends on the business plan and budget of the company. It also depends on what jobs will be outsourced by the company. Consider that when operations are outsourced and employees are hired on a third party payroll through a contractor, when the number of employees crosses 20, a labor license has to be procured by the contractor. The same also include involvement of the company who has outsourced the job. The company is the principle employer.

Any advice on the build-operate-transfer model of engagement?
Identify someone as part of this strategy from day one that will form part of your team in the long term. Continuity is important and adopting a business unit that one of your own representatives has not been involved in, or where there is not a specific long term responsibility from any of the BOT team can lead to certain components being misrepresented or not continuing in the manner you had planned.

If you are in India for one project, is it possible to just open a project office and pay taxes only on the expense on the project office?
For one or more projects, project offices may be opened. A project office would be considered as a permanent establishment of the foreign company in India and various compliances would be required to be undertaken (including payment of tax on various expense payments).

Is it tax effective to have a holding company in India with other India operating companies under the holding company, especially if you will be reinvesting the India cash flow within India in various independent projects requiring separate legal entity?
It is not tax effective to have a separate holding company as any dividend distribution from operating company suffer 16.995 percent corporate dividend tax. It would be tax effective to keep one operating company having separate operating cost centers unless a separate legal entity is an inherent requirement of the operations.

What are typical paid benefits in India?
The typical paid benefits in India other than salary include:

  • Provident Fund Contribution inclusive of Pension benefit (similar to the social security payment in the U.S.),
  • State insurance benefit
  • Gratuity
  • Maternity benefit
  • Paternity leave (most of the organizations have started giving this)
  • Leave travel allowance
  • Meal vouchers
  • Telephone reimbursement
  • Fuel and car maintenance allowance
  • Bonus
  • Long service awards
  • Life and health insurance
  • Stock options
  • Paid leaves (average 30 days annually)
  • Public and national holidays