SET-UP YOUR BUSINESS
Incorporating your Business Venture
Today, it is extremely easy to establish a business venture in Kerala. A business unit can be formed as Proprietary Concern, Partnership Firm, Private Limited Company or Public Limited Company. Most ventures with foreign participation are either Private Limited or Public Limited Companies. A Private Limited Company will have at least two and a maximum of 50 shareholders and a minimum of two directors. A Public Limited Company is required to have a minimum of seven shareholders and three directors -there is no limit on the maximum number of shareholders.
The documents and procedures for incorporating a Public or Private Limited Company - Memorandum of Association, Articles of Association, Prospectus etc - are taken care of by accounting firms. The Kerala State Industrial Development Corporation (KSIDC) will also provide comprehensive support for investors who are planning projects in Kerala. The process of incorporation will take less than four weeks
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Ownership of your Company
With the new liberalized policies, upto 100% direct foreign ownership is permitted, subject to certain conditions. Ownership of a company is through the holding of its equity. Management is controlled through directors, elected on simple majority.
If the company chooses to have a broad-based equity distribution, it can achieve this through a Public Issue. The management of the company can be controlled with low equity shares provided the rest is widely disbursed. The shares could be offered to the general public through the Stock Exchange.
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How to set up your Project
Procedures for setting up a project in India have been thoroughly streamlined. Once a project is formulated Kerala State Industrial Development Corporation (KSIDC) will act as your nodal agency in India to help obtain all clearances from the Government of India and the Government of Kerala within the shortest possible time. All clearances can be obtained within 45 - 60 days.
Industrial Licenses are now required only if the article to be manufactured is included in the list of industries which are subject to compulsory licensing (15 industries) or the project is located within 25 kms of the standard urban area limits of a city having population exceeding one million. Six industries are reserved for the public sector and a certain number of low technology, low value items are reserved for the small scale sector. Those requiring licences have to apply in Form IL to the Secretariat for Industrial Approvals (SIA), Ministry of Industry, Government of India, New Delhi. Approvals are normally available within 6 to 8 weeks.
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Foreign Investment
List of activities or items for which automatic route Of Reserve Bank for Investment from Persona Resident Outside India is not available.
-
Banking
- NBFC's Activities in Financial Services Sector
- Civil Aviation
- Petroleum Including Exploration/Refinery/Marketing
- Housing & Real Estate Development Sector for Investment from Persons other
than NRIs/OCBs.
- Venture Capital Fund and Venture Capital Company.
- Investing Companies in Infrastructure & Service Sector
- Atomic Energy & Related Projects
- Defence and Strategic Industries
- Agriculture (Including Plantation)
- Print Media
- Broadcasting
- Postal Services
Sectoral cap on Investments by Persons Resident outside India
| Sector |
Investment Cap |
Description of Activity/Items/Conditions |
- Telecommunications
|
49% |
In basic, Cellular mobile, paging and value Added Services, and Global Mobile Personal communications by Satellite subject to the licence from Department of Telecommunication of Government of India. |
| |
100% |
In manufacturing activities. |
- Housing and Real Estate
|
100% |
ONLY NRIs/OCBs are allowed to invest in the areas listed below:
- Development of serviced plots and construction of residential premises
- Investment in real estate covering construction of residential and commercial premises including business centres and offices
- Development of townships
- City and regional level urban infrastructure facilities, including both roads and bridges
- Investment in manufacture of building materials
- Investment in participatory ventures in (a) to (e) above
- Investment in housing finance institutions
|
- Coal and Lignite
|
49% |
In public sector Undertakings (PSU) and |
| |
50% |
In other than PSUs
- Where Private Indian companies are setting up or operating power projects as well as coal or lignite mines for captive consumption,
- For setting up coal processing plants provided the company shall not do coal mining and shall not washed coal or sized coal from its coal processing plants in the open market and shall supply the washed or sized coal to those parties who are supplying raw coal to coal processing plants for washing or sizing.
- For exploration or mining of coal or lignite for captive consumption.
|
- Drugs & Pharmaceuticals
|
74% |
For bulk drugs, their intermediaries and Formulations (except those produced by the use of recombinant DNA technology) |
- Hotel & Tourism
|
74% |
- Hotel include restaurants, beach resorts, and other tourist complexes providing accommodation and/ or catering and food facilities to tourists
- Tourism related industry includes travel agencies, tour operating agencies and tourist transport operating agencies, units providing facilities for cultural, adventure and wild life experience to tourists, surface, air and water transport facilities to tourists, leisure, entertainment amusement. Sports, and health units for tourists and convention/seminar units and organisation
|
- Mining
|
74% |
Exploration and mining of diamonds and precious stones |
| |
100% |
Exploration and mining of gold and silver and minerals other than diamonds and precious stones, metallurgy and processing |
- Advertising
|
74% |
Advertising sector |
- Films
|
100% |
Film industry (i.e. film financing, production, distribution, exhibition, marketing and associated activities relating to film industry) subject to the following:
- Companies with an established track record in films, TV, music, finance and insurance
- The company should have a minimum paid up capital of US$ 10 million if it is the single largest equity shareholder and at least US$ 5 million in other cases
- Minimum level of foreign equity investment would be US$ 2.5 million for the single largest equity shareholder and US$ 1 million in other cases
- Debt equity ratio of not more than 1:1 i.e., domestic borrowings shall not exceed equity.
provisions of dividend balancing would apply.
|
- Any other Sector/activity (other than those included in annexure 4)
|
|
|
NON-AUTOMATIC ROUTE - Proposals not conforming to the above conditions are to be submitted in Form FC (SIA) to the Foreign Investment Promotion Board, Prime Minister's Office, New Delhi or to the Secretariat for Industrial Approvals (SIA), Ministry of Industry, Udyog Bhavan, New Delhi. Approvals are normally available within 4 to 6 weeks.
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Foreign Technology Agreement
AUTOMATIC APPROVAL is accorded by the Reserve Bank of India to projects within the High Priority Industries and meeting the following conditions:-
- Lump sum payment upto Rs.10 million
- Royalty upto 5% for domestic sales and 8% for exports, net of taxes.
- Subject to total payment of 8% on sales over a 10 year period from date of agreement or 7 years from commencement of production.
Application for Automatic Approval is to be submitted in Form FC (RBI) to the Reserve Bank of India, Bombay. Approvals are available within two weeks
NON-AUTOAMTIC ROUTE - Other proposals should be submitted in Form FC (SIA) to the Secretariat for Industrial Approvals, Ministry of Industry , Udyog Bhavan, New Delhi.
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Investment By Non Resident Indians
To be deleted.+
Investment In 100% Export Oriented Units (EOUs) , Export Processing Zones (EPZ)
AUTOMATIC APPROVAL to EOUs and Units in EPZs are given by the Secretariat for Industrial Approvals and the Development Commissioner of the concerned EPZ subject to the proposal meeting the following key conditions:-
- Not being in an industry under compulsory licensing.
- Undertakes to achieve a minimum value addition of 35% or a prescribed norm depending on the industry.
- CIF value of imported capital goods is financed through foreign equity or foreign equity required for the value of plant and equipment is within Rs.100 million.
- Foreign technology agreement, if any, envisages a lumpsum payment not exceeding Rs.10 million or 8% royalty (net of taxes) for a period of 5 years from the commencement of production.
- Exports are to General Currency / Hard Currency areas.
NON-AUTOMATIC ROUTE - Other proposals should be submitted to the Secretariat for Industrial Approvals or Development Commissioner of the concerned EPZ. Proposals involving foreign investments in 100% EOUs which do not qualify for automatic approval are considered by the Foreign Investment Promotion Board.
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Tax Benefits For Your Company
The current rates of Corporate tax on profits and other incomes generated by a company are as follows :
| Domestic Company |
35.7% |
| Foreign Company |
|
| On Dividends |
10% |
| On Royalties |
20% |
| On fees and technical fees |
20% |
| On interest on loans |
20% |
| On incomes other than above |
48% |
| Capital gains |
20 |
| @including surcharge of 2% |
|
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How To Finance Your Project
India has a highly advanced and widespread network of financial institutions to meet the short-term and long-term requirements of funds. A dynamic and vibrant equity culture has evolved. A chain of Stock Exchanges, Mutual Funds, Merchant Bankers. Bankers and Brokers provide the institutional mechanism to tap into the enormous Indian money market.
Major international banking groups like Citibank, Bank of America, Grindlays Bank, Standard Chartered, Bank of Tokyo, Banque Nationale De Paris, Swiss Bank, Deutche Bank etc... have rapidly expanding operations in India. A large range of domestic banks also offer a wide portfolio of products and services to the corporate sector. Part of the equity capital and the total loan capital requirements of a project are subscribed to by State-level institutions like Kerala State Industrial Development Corporation (KSIDC) and National financing institutions like IDBI, IFCI and ICICI.
Projects are financed by a combination of long-term loans and equity with a debt : equity ratio averaging 1.5 : 1. The loan will be repayable in a period of 8 to 10 years depending on the debt servicing capacity with an initial moratorium of 2 years. Minimum promoters' contribution required for a project is 25 % of the project cost. Part of the promoters' contributions can be obtained from State-level institutions like KSIDC.
Maximum term loan eligibility is limited to 75% of the costs of fixed assets. Promoters also can raise equity from the primary market. For a public issue a minimum of 25% of the issued share capital should be offered to the public. Promoters should hold a minimum 25% of the issued share capital.
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Incentive And Facilities For 100% Export Oriented Projects (EOU)
Duty-free import of capital goods, components/spares, offices equipment, raw materials, consumables etc...
Supplies made to a 100% EOU from Domestic Tariff Area (DTA) are treated as deemed and exempted from taxes and duties.
Sales are allowed to DTA subject to sectorial caps .
Liberal conditions for foreign equity participation.
Exemption for corporate income tax upto the year 2010 .
Extremely streamlined procedures for all clearances.
Even more liberalised packages for export-oriented Electronics Hardware Technology Parks.
INCOME TAX HOLIDAY - a unique facility to industrial units in Idukki & Wayanad districts : Industrial Units that will be set up in Idukki & Wayanad districts in Kerala on or before 31st March 1999 will be eligible for 5 year income tax holiday. Further, units will also benefit from income tax exemption for 30% of the profits for another 5 years that follow the tax holiday. The scheme has retrospective effect from 1st of October 1994. For further details contact Business Development Group, KSIDC, Trivandrum.
OTHER EXPORT PROMOTION SCHEMES - Under zero duty scheme, capital goods can be imported without duty against the commitments of exports of 6 times CIF value of imported capital goods to be met over 8 years. Under Export Promotion Capital Goods Scheme, Capital goods can be imported at a concessional rate of customs duty of 15% CIF value against the export commitment of 4 times CIF value over 5 years.
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Facilities For NRIs And Overseas Corporate Bodies (OCBs)
- Direct invesment in industry, trade, infrastructure etc.
- Upto 100% equity with full repatriation facility for capital and dividends in the following sectors:
- 34 High Priority Industry Groups
- Export Trading Companies
- Hotels and Tourism-related Projects
- Hospitals, Diagnostic Centres
- Shipping
- Deep Sea Fishing
- Oil Exploration
- Power
- Housing and Real Estate Development
- Highways, Bridges and Ports
- Sick Industrial Units
- Industries Requiring Compulsory Licensing
- Industries Reserved for Small Scale Sector
- Upto 40% Equity with full repatriation: New Issues of Existing Companies raising Capital through Public Issue upto 40% of the new Capital Issue.
- On non-repatriation basis: Upto 100% Equity in any Proprietary or Partnership engaged in Industrial, Commercial or Trading Activity.
- Portfolio Investment on repatriation basis: Upto 1% of the Paid up Value of the equity Capital or Convertible Debentures of the Company by each NRI. Investment in Government Securities, Units of UTI, National Plan/Saving Certificates.
- On Non-Repatriation Basis: Acquisition of shares of an Indian Company, through a General Body Resolution, upto 24% of the Paid Up Value of the Company.
- Other Facilities: Income Tax is at a Flat Rate of 20% on Income arising from Shares or Debentures of an Indian Company.
HOW TO REPATRIATE YOUR PROFITS The process of repatriation of capital invested and income earned on it is simple. Companies with direct foreign investment, established on the basis of repatriation, are allowed to repatriate dividends, net of taxes. The equity invested can also be repatriated, should the investor decide to do so.
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