Written by: Vipool Shah and Sapan Parekh

The growing economic strength of India and its increasing presence in world trade calls for more efforts in furthering knowledge and awareness of the legal hurdles for UK and Indian companies conducting business in each other’s territory. This book covers in 14 detailed chapters the various tax, corporate and visa rules that govern business activity by UK and Indian companies. Although focusing on the practical business needs and concerns, this book makes a significant start in raising awareness of the key regulatory hurdles and policy issues facing UK companies investing in India, and those affecting Indian companies and entrepreneurs in the British context. The legal and accounting professions in India and the UK have not tended to produce a great amount of published information on each other’s idiosyncratic system, largely because of the withering but still prevalent colonialist assumption that India’s corporate and tax laws are merely a carbon, transplanted copy of UK laws. This study exemplifies that nothing could be proven more wrong. It not only highlights the more bureaucratised nature of Indian regulations for foreign investment, but also make some salient observations about the particular issues facing Indian companies seeking to break into the world stage. The authors note, for example, that ‘the Indian government needs to improve its taxation system to make it more competitive for Indian companies to invest abroad’ (p v), a point suggested by the lack of tax reliefs for such outward investment.

The chapters focus on key regulatory issues that cover all relevant legislation affecting companies seeking to invest in either the UK or India, and are duly divided into Part I, dealing with India, and Part II, focusing on the UK. The first eight chapters concentrate on the Indian context, providing guidance relevant to UK businesses seeking to conduct business in India or with Indian companies. Chapter 1 examines the different rules governing the establishment of a liaison, branch and project office in India and the tax implications of doing so. Chapter 2 focuses on tax and related laws governing inward investments into India by foreign entities. This chapter provides an overview of India’s regulatory structure since the 1991 Industrial Policy, which marked the first step in dismantling the infamous ‘licence-permit raj’. The differences between ‘automatic’ and non-automatic routes for investment underlie the fact that India has not completely liberalised its economy, and in many areas approval from the various ministries of the Central Government is a prerequisite for foreign investors. The chapter considers the multitude of investment types, from portfolio to share and venture capital investments. The tax implications of such investments are considered in relation to an Indian subsidiary, income and dividends, as are the various ways in which they can be structured to take advantage of Indian tax reliefs and special agreements such as the India-Mauritius treaty. The authors weigh up the pros and cons of establishing a branch office vis-à-vis a wholly owned Indian subsidiary in respect of such tax issues, while also providing useful general advice as to their relative merits in terms of simplicity of management and liability risk.

Chapter 3 surveys the regulatory and tax framework for technology transfers and franchising. This is a critical area of investment given India’s attractiveness as a destination for outsourcing research and development activities as well as services in the fields of telecommunications, information technology and biotechnology. The chapter, however, focuses on the taxes on technical fees and other royalties, rather than the regulatory hurdles facing a particular technology sector. Providing a comprehensive coverage of these areas would of course be impractical, but some guidance as to the range and type of complex intellectual property rights and other laws that have a bearing on investment risk decision-making would help to illuminate other important regulatory impediments for foreign businesses in India.

The import/export duties, taxes and tariffs of India, as well as local stamp duty, property and municipal taxes, are covered in Chapter 4, which also surveys the different types of laws that govern labour relations. Chapters 5, 6, 7 and 8 succinctly deal with the basics of Indian corporate laws, corporate taxation, expatriate taxation and the tax benefits of setting up a development centre. The only glaring gaps in this excellent, relatively up-to-date coverage are environmental and consumer protection laws which, as suggested by recent Indian case law, may significantly impact on the risk assessment of investing in areas such as clinical medicine or chemicals.

The chapters of Part II of the book consider the tax consequences of establishing a branch or subsidiary in the UK (Chapter 9), their relative merits (Chapter 10), corporate tax law (Chapter 11), company laws governing the internal functionings of UK registered companies (Chapter 12), and value-added tax (Chapter 14). The immigration implications for Indian entrepreneurs are examined only briefly in Chapter 13, which outlines and compares the merits of obtaining a business visa, work permit or sole representative visa, as well as the UK and Indian tax implications for Indian employees temporarily resident in the UK. The distinctions between work permits and business visas are succinctly explained, as are the exceptional categories of employees who can work solely on a business visa. However, the authors do not explore the difficulties that can be faced by Indian companies from the UK immigration authorities. Common pitfalls and delays that may occur require critical elaboration here, given the complexity of UK laws and the central importance to Indian businesses of smoothly ‘importing’ highly skilled personnel for long-term assignments.

In sum, this book offers a range of practical information, though the extent of coverage suggests that it serves more as a cursory reference guide. The authors’ intention was to provide a start-up guide so that prospective investors ask ‘the appropriate questions’ when ‘investigating the prospect of setting up a business in India or the UK’ (p v). In that respect the book fulfils its chief aim, although its usefulness would be enhanced by providing more information on anti-avoidance and transfer pricing legislation, and further detailed analysis of the rules governing investment by non-resident Indians (‘NRIs’). As it stands, however, this book provides a useful, well-referenced and practically organised collection of information that would be indispensably useful for tax consultants, lawyers and investment analysts advising on the regulatory hurdles of investing in India or the UK.

Martin Menski, King’s College London, Immigration, Asylum and Nationality Law, Vol 19, No 4, 2005

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