India: Choosing a Business Format

Branch offices can hire local and foreign staff. Normally a foreigner employed by a branch office will require an Employment Visa, although if only short visits are being made a Business Visa may be sufficient.

If a branch office receives no income, then nominally it will not have to pay tax. If, however, income is attributed to the office, tax will be due at 40% plus surcharges and education 'cess' (totalling 42.23%).

See here for a fuller description of the nature of branches and their formation.

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India: Summary for a Company Limited by Shares

Companies limited by shares are formed under the Companies Act 1956 and may be public or private. This section is concerned only with private companies. Such a company has a minimum share capital of INR100,000, must restrict the right to transfer its shares, may not have more than 50 members and may not invite or accept subscriptions to its shares from members of the public.

Formation of a limited company in India can be a lengthy and bureaucratic procedure. Once incorporation has been completed, the company can then register with the tax and customs authorities, obtaining a PAN (permanent account number) and a TAN (tax collection number). Visas for foreign staff can now be issued and bank accounts opened.

All companies incorporated under the Companies Act must file audited accounts annually with the Registrar of Companies. If turnover exceeds INR6m, a separate tax audit must be carried out

Limited companies can hire local and foreign staff. Normally a foreigner employed by a limited company will require an Employment Visa, although if only short visits are being made a Business Visa may be sufficient.

Indian companies are taxed on the previous year's income. Thus, for resident companies, income in the 2010/2011 financial year is assessed to tax in the 2011/2012 assessment year (beginning in April 2011) at 30% plus a 7.5% surcharge plus 3% education 'cess' for a total of 33.22%.

Companies with taxable income below INR10m are exempt from the surcharge.

Non-resident companies are taxed at 40% plus surcharge and 'cess' giving a total of 42.23%.

See here for a fuller description of the nature of private limited companies and their formation.

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India: Summary for a Limited Liability Partnership

The Limited Liability Partnership (LLP) was introduced in India in 2010; the previous General Partnership form was not much used since its members were too easily able to escape their liabilities by dissolving the partnership. The LLP however has legal personality while still preserving a limitation on liability for individual members.

There must be an LLP agreement which specifies the contributions of all members. There must be at least one 'designated member' who has responsibility for managerial and procedural aspects of the partnership.

The LLP Agreement needs to be filed with the Registrar of Companies, who must also verify availability of the name of the LLP, and will issue a Certificate of Incorporation.

An LLP must maintain annual accounts reflecting a true and fair view of its affairs. A statement of accounts and solvency must be filed with the Registrar of Companies every year.

Limited Liability Partnerships can hire local and foreign staff. Normally a foreigner employed by an LLP will require an Employment Visa, although if only short visits are being made a Business Visa may be sufficient.

LLPs, like Indian companies, are taxed on the previous year's income. Thus, income in the 2010/2011 financial year is assessed to tax in the 2011/2012 assessment year (beginning in April 2011) at 30% plus a 7.5% surcharge plus 3% education 'cess' for a total of 33.22%.

LLPs with taxable income below INR10m are exempt from the surcharge.

Profit remaining after tax is distributed to members in proportion to their contributions or according to the LLP Agreement and is not taxed further.

See here for a fuller description of the nature of LLPs and their formation.

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