Doing business globally presents challenges and opportunities for Indian firm
India and Indian investors from both public and private sectors have become important players in the Latin American (Latam) region.
This highly-populated area which has fascinated and captivated historians, writers and philosophers is also attracting aggressive investing in the Latam region.
Ranging from energy, mining, manufacturing, pharma, and agriculture to IT and technology, Indian companies have started to create a footprint in the Latam region. This investment trend is expected to grow over the coming years as Indian firms take advantage of the opportunities that Latam offers.
Latam governments, in general, have designed policies and strategies to attract Indian investment in their respective countries.
Argentina, Brazil, Colombia, Mexico, Venezuela, and Peru, among others, are countries with bilateral treaties currently in effect with India. These agreements are designed to promote and protect Indian investments in various areas of the economy or to the set the rules for simplified tax treatment, protocols for avoiding double taxation and in some cases reducing export duties to promote trade and commerce with India.
Specific challenges for Indian investors
Indian investors encounter several challenges when doing business in the Latam region. Most Latam countries are highly regulated jurisdictions with the Government assuming an important role in the economy. Along with a variety of anti-corruption and money laundering regulations, there is plenty to consider when investing in Latam.
The intensity of Government oversight and regulation varies from country to country. However, generally speaking, investors should expect to deal with complex regulations that require careful planning before making any investment decision.
In extreme cases such as Venezuela, there may be Exchange Control regulations that affect the ability to repatriate profits earned in the country. With this in mind, Indian firms and investors should conduct due-diligence before investing to minimize the impact on the investor’s venture.
Labor protection is another crucial area where the investors must plan ahead. Labor laws in Latam are very protective and apply the principle of “substance over form” to characterize any individual relationship as labor contracts.
Due to the frequency of Government intervention in economic matters Indian firms and investors should be prepared for a fluid compliance landscape. The possibility of compliance violations is real and should be at the forefront in making investment decisions in Latam.
Government contracting is another significant area of concern because most of the regulations provide for complex procedures to participate in bidding processes with the state, and imply adherence to contractual provisions fixed by the respective government without any room for negotiation by the contracting party.
Investors from India must also be aware that several laws in the Latam jurisdictions contain provisions holding directors and officers personally liable for actions performed by the investment vehicle. You can find personal liability provisions in environmental, labor and consumer protection laws.
The importance of selecting an appropriate corporate structure is critical in managing tax liabilities. Understanding the tax implications in regards to the various organizational structures in each jurisdiction can significantly minimize associated risks.