FAQs
There are mainly two types of legal entities that can be established by foreign nationals or
foreign companies intending to do businesses in India.
1. Registration of a Company
2. Establishing a Branch /Liaison office.
Incorporation of a Private Limited Company is the easiest and fastest method of setting up a
business enterprise in India by foreign nationals and foreign companies. Since FDI in Medical
devices in India is via the automatic route no central government permission is required for
establishing a company in India. Hence, incorporation of a private limited company as a
wholly owned subsidiary of a foreign company or joint venture is the cheapest, easiest and
fastest method for foreign companies and foreign nationals to do business in India.
Registration of branch office, liaison office or project office requires RBI and / or Government
approval. Therefore, the cost and time taken for registration of branch, liaison office or
project office for a foreign company is higher than the cost and time associated with
incorporation of a private limited company. Further, foreign nationals cannot open branch
office, liaison office or project office. Hence, this option is limited only to foreign companies.
The esablishment of Andhra Pradesh Medtech Zone Ltd in Visakhapatnam by the
Government of Andhra Pradesh comes at the right time to provide impetus to the
indegenous Medical Devices industry in India. The Medical Device Industry is a critical
industry that has so far been largely import dependent thereby impacting the end prices
of medical diagnostics and treatment in India.
To start a company in India, a minimum of two persons and an address in India are required.
A Private limited company in India must have a minimum of two directors (persons) and a
minimum of two shareholders (can be persons or corporate entities). Further, the
incorporation rules in India states that one of the Director of the Company must be both an
Indian citizen and Indian resident (any person who has lived in India for over 186 days is
considered an Indian resident).
The preferred legal entity structure for foreign companies is to establish a company with
three directors, two being foreign nationals from the parent company and one director being a local Indian citizen. Since, there are no requirements for minimum shareholding with the
Indian director, 100% of the shares of the Indian company can be held by foreign nationals
or entities.
An address in India is required to serve as the registered office of the company
To register the company, foreign nationals who will serve as Directors of the company will
have to submit a copy of their passport along with an address proof (Drivers license, bank
statement, etc). The copy of the original documents must be notarized by a Notary in the
home country or by the Indian embassy in the country of the foreign director.
In case of a corporate entity becoming a shareholder in the Indian company, then board
resolution from the foreign company authorizing the investment in the Indian company
would also be required. The board resolution must be attached with notarized copy of the
certificate of incorporation of the foreign entity.
The presence of any of the foreign directors is not required in India at any time during the
incorporation process. Thus foreign citizens can easily establish and operate a business in
India without hassles of travelling to India.
The cost for registering a company in India is relatively inexpensive. For example, a company
with a paid up capital of Rupees One Million can be started with an amount of Rs.40,000/-
(Rupees Forty thousand only) which includes mandatory requirements of obtaining Director
Identification Number and Digital Signatures for promoters. It takes about one month to
incorporate a company in India including all documentation, filings and registration.
Post registration of the company in India, the Indian director can help open a bank account
for the company in India. Once the bank account is opened, the company must make
FOREIGN DIRECT INVESTMENT reporting to the reserve bank of India. The procedure for
reporting FDI inflow into the company is simple and can be completed easily by the legal and
accounting professional by submitting required documents like FC-GPR (Foreign
Collaboration – General Purpose Route) within 30 days of receipt of inward foreign
remittance in India. To issue shares to foreign investors within a period of 180 days from
inward remittance and from their within 30 days to be filed in Form FC-GPR to RBI declaring
shares allotted for FDI.
ABC Private Limited, a company incorporated in Vizag having two shareholders, one is Mr.
A, an individual holding 200 equity shares of Rs.10 each and other is ABC Inc. (a body
corporate) situated in Germany, holding 9800 equity shares of Rs.10 each. Hence total paid
up capital of ABC Private Limited is Rs. 100,000/- (Rupees One Hundred Thousand). After
incorporatation, ABC Inc. has remitted Rs. 98000 to ABC Private Limited towards issue of
Equity shares to ABC Inc.
1) Information to be provided by ABC Inc to Authorized dealer of ABC Pvt Ltd :
a) Name of the beneficiary : ABC Private Limited
b) Name and place of the remitter : ABC Inc. Germany
c) Name and place of the remitter bank : ABC Inc’s Bank
d) Foreign currency amount: e.g. INR 98000
e) Purpose of remittance : e.g. Foreign Direct Investment in Equity
An authorized dealer after receipt of remittance and above information, will initiate
the process of issuing FIRC( Foreign Inward Remittance Certificate) to ABC Pvt . Ltd.
***Authorized Dealer—authorized dealer means a Institute/Bank authorized as an
authorized dealer.
2) Reporting of advance remittance by ABC Pvt Ltd to RBI
After receipt of FIRC, ABC Pvt.Ltd shall be required to report inward remittance to
RBI through Authorized Dealer by submitting concerned KYC documents. RBI will
allot UNIQUE IDENTIFICATION NUMBER to the company which can be used for
future transactions with the bank.
The esablishment of Andhra Pradesh Medtech Zone Ltd in Visakhapatnam by the
Government of Andhra Pradesh comes at the right time to provide impetus to the
indegenous Medical Devices industry in India. The Medical Device Industry is a critical
industry that has so far been largely import dependent thereby impacting the end prices
of medical diagnostics and treatment in India.
In identifying the Medical Devices manufacturing as a sunrise industry under the Make In
India program, the Government of Andhra Pradesh has once again demonstrated its
visionary leadership. The location of the zone in Visakhapatnam has been carefully
chosen to not only allow manufacturers access to all modes of world class transportation
facilities but also provide significant tax benefits for their investments.
Under the Andhra Pradesh Re-Organisation Act, 2014 the Government of India is
extending special assistance to four districts of Rayalseema and three districts of North
Coastal Region of Andhra Pradesh. The seven districts of Andhra Pradesh notified as
backward areas vide Notification in S.O.3075 (E) dated 28.09.2016 are:
1. Anantapur
2. Chittoor
3. Cuddapah
4. Kurnool
5. Srikakulam
6. Vishakhapatnam
7. Vizianagaram
The CBDT has notified these seven districts for availing additional tax incentives under
section 32(1)(iia) and section 32AD of the Income-tax Act. The benefit is available to the
extent of 50% of the cost of new plant and machinery acquired and installed in new units
established in the notified areas. This is over and above the Investment Allowace
available under section 32AC and normal depreciation under section 32. The total
benefits that can be availed under the various sections of the Income Tax Act are as
follows:
1. Additional Depreciation available u/s 32(1)(iia) – 35%
2. Additional Depreciation u/s 32 AD - 15%
3. Investment Allowance u/s 32 AC - 15%
4. Normal Depreciation u/s 32 - 15%
As such a minimum of 80% of the cost of new plant and machinery installed in AMTZ
and other notified areas would be eligible for tax benefit. In certain cases of life saving
medical devices the normal depreciation under section 32 is upto 50% of the cost of the
machinery. This means that a company can virtually claim deduction from its taxable
income to the extent of its entire investment in plant and machinery in the year in
which sush investment is made.
The conditions that must be fulfilled to claim or avail the benefits of additional
depreciation @15% available under section 32AD is as below:
1. The investment has to be made in setting up an undertaking or enterprise for the
production or manufacturing of any article on or after April 1, 2015 in the notified
areas only.
2. The investment must be made in acquiring and installing new plant and
machinery only for the said undertaking or enterprise.
3. The investment has to be made in the period on or after April 1, 2015 and before
March 31, 2020.
4. New plant and machinery for this purpose does not include:
a. any ship or aircraft
b. any second hand machinery which has been used wither within or outside
India
c. any plant or machinery installed inside any office premises or residential
accomodation or guest house
d. any office appliance including computers or computer software
e. any vehicle
f. any plant or machinery the whole cost of which has already been allowed
as deduction in computing taxable income.
5. This new plant and machinery on which additional depreciation u/s 32(1)(iia) and
32AD has been availed cannot be sold, transferred or otherwise disposed off
before the expiry of 5 years from the date of its installation.
The conditions that must be fulfilled to claim or avail the benefits of additional
depreciation @35% available under section 32(1)(iia) is given below:
1. The investment has to be made in setting up an undertaking or enterprise for the
production or manufacturing of any article on or after April 1, 2015 in the notified
areas only.
2. The investment must be made in acquiring and installing new plant and
machinery only for the said undertaking or enterprise.
3. The investment has to be made in the period on or after April 1, 2015 and before
March 31, 2020.
4. New Plant and machinery includes all machinery other than Ships and Aircrafts
5. Such additional depreciation to be restricted to one-half i.e. 17.5% of the cost of
new plant and machinery acquired in case if it is put to use for the purpose of
business for a period of less than 180 days in the year of its acquisition and
installation.
6. The balance 50% of additional depreciation i.e. 17.5% would be allowable in the
immediately succeeding year.
The Investment Allowance under section 32AC @15% of the cost of new plant and
machinery is available to encourage large investments in Plant and Machinery
exceeding Rs 25 crore investments. This deduction is available to corporate assessee’s
only.
As such investment in setting up large, medium and small scale industrial enterprises in
AMTZ would accrue significant and attractive tax benefits to the investors. This should
encourage investors to utilize the golden opportunity being provided by the
Governement of Andhra Pradesh to utilize the infrastructural, financial and tax incentives
and become part of the sunrise medical devices industry in India. This initiative shall go
a long way in making the dream of our Prime Minister of providing affordable health care
to all the citizens of our great nation India.
Jai Hind!