Corporate Income Tax : Taxability of Specified Income earns by Foreign Company in India

Generally, foreign company is required to pay tax in its home country, that is, the country of residence. It may earn income from source in another country in which case, it may also be required to pay tax in the source country.

We wish to assist in corporate tax compliances related to taxability of specified income earns by foreign company in India.

Taxability of specified income in the hands of Foreign Company in source country:

• Royalty,
• Fees for Technical Services (FTS),

Key concerns of taxability of specified Incomes earns by Foreign Company in India

1.  Applicability

Specified income taxable in the hands of foreign company at applicable rates.

2. Withholding tax requirement

Rate as per income tax act or tax treaty rate, whichever is more beneficial, in case of foreign company

3. Compliances and documentations

• Form 10F
• Few declaration
• Tax residency certificate
• Filling of income tax return, etc.

4. Deductibility of expenses

Specified income taxable at Gross basis. No expenses allowable as deduction against specified income.

Challenges

• Satisfaction of tax treaty entitlement conditions, including tax residency, beneficial ownership and other anti abuse provisions.
• Tax compliances obligation (i.e. Tax registrations and return filing etc.) for foreign company.
• Cash flow challenge where the tax is deducted at a higher rate as compared to the tax treaty rate.

Opportunities

• Tax credit may be available in home country for foreign company.
• Lower cash flow challenge where the tax is deducted at a lower rate as compared to income tax rate.

MBG in India’s approach

1. Analysis of taxability of specified incomes
2. Examining availability of tax treaty benefit for lowering the tax rate on specified income
3. Look out the option of obtaining lower withholding tax certificate from revenue authorities
4. List out the compliance requirement – obtaining tax registration, return filling, etc
5. Checking the availability of tax credit in home country of foreign company

Area of assistance would be customised as per your specific requirement.  Tax vertical of MBG in India offering following

• Case based Opinion
• Documentation support
• Assisting in Indian tax compliances
• Support on legal aspect