India, a BRICS nation, a is rising economic giant with wonderful opportunities for U.S. Companies. But they must be educated as to the risks. Much has changed since I visited Karnataka State and gave a presentation to the Belguam Bar Association in 1986. The attorneys there rode motorscooters and a visiting attorney from the USA was a novelty. Recently Janaki Rege Catanzarite of Pepper Hamilton, a member of the Bar of India and a former partner at a Mumbai firm, and Nilesh Janedir, who appeared by conference call live from India, led a discussion on Doing Business in India at the International Business Initiative. His business, Solutions Ltd., works in the areas of corporate and taxation to help US companies do business in India. India’s capital gains tax is 40%. Payment of taxes is required before profits earned in India can be taken out of the country. Taxes on dividends are withheld by the company. There was a recent change in the law on Intellectual Property. Product and process patents are protected. Corruption has decreased because many approvals are done electronically and require no face-to-face contact. Anti-bribery laws are enforced. Major opportunities exist in infrastructure—which is improving all over India– energy, retail and other industries. Single brand retail establishments are now permitted.
As of January 2012 individuals are permitted to invest in Indian stock but must obtain a tax Identification Number and file a tax return or statement no taxes are due. India does not permit preferred shares of stock. A company need not form an Indian subsidiary to sell to Indian companies. There may be a transfer pricing audit. Corporate profits are taxed at the rate of 42% for foreign companies and 32.2% for Indian companies.
As of this year Indian law permits holding companies to lend to wholly-owned subsidiaries.
India has a form of our Subchapter S corporation called an Association of Persons to avoid double taxation.
In drafting contracts, use a choice of law clause. Clients should expressly exclude jurisdiction under the Indian Arbitration Act of 1996. If not, an arbitration will be held in India with all interim orders to be decided by the courts. This has led to much delay. It is of utmost importance to avoid making this mistake. Avoid litigation in Indian courts. Choose New York Law. If property is in India the Indian courts will ignore the choice of law clause and decide under Indian law. To enforce a U.S. order, service under the terms of the Hague Convention is required but enforcement is not guaranteed. Ex parte orders will not be enforced in India. There is a risk the entire case may be reheard. Indians courts will enforce an international arbitration order. In executing on judgments, property may be bought with taxes and untaxed monies (80/20), but it is difficult to get the right value for property.
India uses the British common law and case law precedent. Yet case briefs cite only facts not case law. Labor laws tend to protect employees. Health care coverage is not a required benefit.
J. Michael Considine, Jr. is the Chairman of the International Business Initiative.
India is more formal than the U.S. Use titles such as “Mr.” and “Mrs” when addressing someone. Respect is very important. Use not just courteous words but a courteous tone of voice. Lack of good communication can “sour” a deal. It should be direct. Do not leave things unsaid or unwritten. Many business relationships are built on trust. Allow trust to develop. Chemistry and warmth are important. Transparency is a positive. Do not ask embarrassing questions like how much someone makes. Do not ridicule anyone. Indian lawyers function differently. While Indian legal arrogance is common—as it is in the US—we should leave our arrogance at the door. Build a relationship with the Indian. Use a bit of humility. Defer to the Indian. Do not directly contradict. Never embarrass people in front of others. Do not use the word “No.” When you must disagree, start with the positives. Elaborate on the other person’s strengths and increase their appreciation of you. Slip in a suggestion, gently. Indian people are emotional. Positivity will bring positivity. Negativity will yield negativity. Learn to be respectful and patient.
J. Michael Considine, Jr. and Janaki Rege Catanzarite.