Taxation in India
Taxation on Foreign Entities
Liaison Office
- A Liaison Office (LO) is generally not subject to Income Tax in India, as it cannot conduct business activities and earn profits on account of Indian exchange control regulations.
- It is required to obtain an Indian tax registration number (PAN) and a withholding tax registration number (TAN).
- It is required to file an annual statement of its financial affairs and an annual activity certificate (AAC).
- As an LO cannot generally earn any profits, no repatriation taxes are applicable. Even if there are any unutilized funds available at the time of its closure, they can be repatriated without any exit taxes.
Project Office / Branch Office
- A Project Office (PO)/ Branch Office (BO) is treated as an Indian Permanent Establishment (PE) of its Foreign headquarter. Therefore, it is taxable in respect of its Indian profits @ 40%*.
- It is required to obtain a PAN and TAN, file an annual return of income and an AAC.
- Repatriation of surplus or at the time of closure, PO/ BO is not subject to any additional taxes.
* Plus applicable surcharge and cess
LLP
- An LLP incorporated in India is treated as a tax resident of India and is taxed @ 30%* of its global income.
- It is required to obtain a PAN and TAN, and file an annual return of income.
- When LLP distributes its profits to partners, they are not taxed in the hands of the LLP or its partners. Repatriation of capital contribution (say, upon dissolution) is permissible without any thresholds and is not subject to any additional taxes.
* Plus applicable surcharge and cess
Company formed in India (Wholly owned subsidiary/Joint Venture)
- A company incorporated in India is treated as a tax resident of India and is taxed @ 30%* on its global income. However, if its turnover is up to INR 4,000 Mn in FY 2017-18, then the applicable rate of tax is 25%*.
- It is required to obtain a PAN and TAN, and file an annual return of income.
- W.e.f., Assessment Year 2021-22, the domestic company isn’t required to pay dividend distribution tax on any amount declared, distributed or paid by such company by way of dividend.
- Dividend received from domestic company is taxable in hands of shareholders.
* Plus applicable surcharge and cess