Direct distribution

Ownership structures

May a foreign supplier establish its own entity to import and distribute its products in your jurisdiction?

A foreign supplier can establish its own entity in India to import and distribute its products by incorporating a private limited company, a public limited company or a limited liability partnership as may be appropriate.

Where a foreign company wants to have complete control over all aspects of the business in India and intends to be in India for the long term, a wholly owned subsidiary is recommended. However, the extent of foreign equity participation and control depends on the exact nature of business in India and is governed by the Foreign Direct Investment Policy (the FDI Policy).

May a foreign supplier be a partial owner with a local company of the importer of its products?

A foreign supplier can be a partial owner or an equity shareholder in an Indian company with a local partner. Accordingly, a foreign company may form a joint venture in India with any local company, subject to compliance with the FDI Policy. Typically, a foreign supplier chooses to enter into the Indian market by way of forming a joint venture with a local company to use the local market expertise and network of the Indian partner.

What types of business entities are best suited for an importer owned by a foreign supplier? How are they formed? What laws govern them?

Generally, a private limited company is formed in accordance with the procedure laid down under the (Indian) Companies Act 2013 and the rules made thereunder. The corporate affairs of the company are governed and managed in accordance with the provisions of the Companies Act 2013. Further, a company is subject to tax laws in India, and product specific laws are also applicable for importing and distributing products in India.

Restrictions

Does your jurisdiction restrict foreign businesses from operating in the jurisdiction, or limit foreign investment in or ownership of domestic business entities?

Foreign investment in India is regulated and governed by the FDI Policy, which is updated from time to time. Generally, up to 100 per cent foreign investment in most business sectors is allowed under the automatic route; that is, without any prior permission from the government of India or the Reserve Bank of India. However, for certain businesses, the FDI Policy prescribes limits for foreign investment and certain business-related conditions that have to be met by the Indian company that has such foreign investment. For example, a 100 per cent foreign investment or ownership in an Indian company carrying out wholesale trading business in India is allowed under the automatic route. However, for a company engaged in retail activities, different conditions are prescribed for different levels of foreign investment.

Equity interests

May the foreign supplier own an equity interest in the local entity that distributes its products?

A foreign supplier can own an equity interest in the local entity in India that distributes its products. The limit of investment depends upon the actual activities that are to be carried out by the Indian entity.

Tax considerations

What are the tax considerations for foreign suppliers and for the formation of an importer owned by a foreign supplier? What taxes are applicable to foreign businesses and individuals that operate in your jurisdiction or own interests in local businesses?

The major tax considerations for foreign suppliers in India are corporate income tax and the treatment of tax incidence under the Double Taxation Avoidance Agreement (if applicable in relation to the supply) entered into between India and the country of the supplier. Several other taxes must also be considered, such as goods and services tax (applicable on the sale of goods and services) and customs duty (for import of the supplied products). In relation to owning interests or shareholding in the local business in India, dividend distribution tax (payable at the time of payment of dividend by the Indian company) and capital gains tax (payable by the foreign investor at the time of selling its shares held in the Indian company) are applicable.

Law stated date

Correct as of

Give the date on which the information above is accurate.

13 December 2019