India offers many advantages for US companies, including English language proficiency, a vibrant technology industry, an educated workforce and lower costs, as well as a number of pitfalls to avoid. Here are some quick tips for doing business in India.
Get advice: Whether you are looking to sell your products or services in India, or take advantage of skilled labour at lower costs, you should obtain specific advice from local business and legal consultants who are familiar with the legal, operational and cultural complexities of India. This is especially true if you are looking to establish operations or invest in India.
Although the Indian government is known for its bureaucracy, some government agencies and websites provide excellent advice, including www.makeinindia.com, www.investindia.gov.in and www.dipp.nic.in.
Know the nod: You must learn and be respectful of the culture to succeed in India. India is a huge and diverse country, so it is also important not to overgeneralize. For example, the Indian head wobble can sometimes mean yes, but often means that you are understood and should not be interpreted as an indication of agreement. The faster the wobble, the more likely that there is a strong understanding or agreement.
Also bear in mind that in India, as in other Asian countries, it is considered disrespectful to tell someone “no”, so a “yes” may not signify agreement. It could mean “Yes I hear you” or “Yes I will look into that” or “Yes I will do my best.” Silence also may be misinterpreted as agreement.
Look for the middle market solution: India is usually a good choice for companies that are looking for moderately customized goods and services, as well as smaller manufacturing batch sizes. Other countries may be better suited for more standardized goods and services, and high-volume operations. If you are looking to sell products and services in India, bear in mind that the Indian market is better suited for lower-priced items (although that is beginning to change).
Obtain a trusted local director: In most cases, finding a trusted professional or other person of trust to serve as a local resident director is a boon and well worth the associated fee. All legal documentation in India must be through physical copies, and any paperwork signed in the US would need to be apostilled and then attested by the Indian consulate (often multiple times). Use of a local signatory can save a lot of time and legal fees.
For example, when a new company is formed in India, all charter documents such as the memorandum and articles of association need to be attested at the Indian consulate if the documents are executed in the US. One tip is to have Indian directors and shareholders incorporate the new company, and then transfer the company to the US shareholders/directors, leaving one resident director for ongoing filings such as registrations, tax returns, bank account and document submissions.
Protect your IP: It is important to consider how your intellectual property will be protected when doing business in India. Since IP rights usually must be obtained on a country-by-country basis, you should obtain legal advice on requirements for protecting patents, trademarks, trade secrets and copyrights. In particular, some patented inventions may not meet the sometimes more stringent requirements of the Indian Patent Office.
Get a tax number: If you are going to generate any form of income from India, whether through corporate or personal channels, you should obtain a tax number. As you might expect, generally the tax authorities wish to tax any sort of income that is generated in India and withholding may apply. You need to obtain a tax number so that a lower withholding tax is applicable. In addition, to obtain a tax credit in the US for the tax withheld in India, the tax number is typically needed.
Don’t shy away from India’s legal system: Although like every system the Indian legal system could be improved, overall you should be comfortable relying on it. The system is based on a common law tradition that is similar in many respects to the US and British system. India applies the law equitably in almost all cases, but can be slow at times.
Despite improvements in the Indian legal system, US companies entering into service or distributor agreements with Indian companies should consider an arbitration clause in the contract. Agreeing that disputes can be resolved by arbitration in a neutral site such as London can be a reasonable compromise in these contracts, especially where the US company is not establishing a presence in India.
Gautam Khurana is the managing partner at India Law Offices in New Delhi. Randy Whitmeyer is a partner at Morningstar Law Group in Raleigh, North Carolina.