If you are a foreign owner of an LLC in India and you are residing out of India, your business is mostly delegated to a business manager.
In India, an LLC is also known as a Limited Liability Partnership (LLP). Opening an LLP in India is very attractive for a foreign investor, especially an NRI.
An LLP company in India must be registered for Income Tax, although there is a distinction between the company and its owner. The LLP owes 30% income tax to the government. There are also additional surcharges and alternate taxes to be paid. The company is also required to go through certain audits.
Corporate Tax (CIT) is a tax to be paid to the Government by companies, be it domestic or foreign. Irrespective of the nature of the business, if income is being generated within India, Corporate Tax must be paid. It doesn’t matter if the company is registered, controlled, or managed outside India.
The key point to note here is that the corporate tax is applicable only for the income accrued within India.
As an LLC owner, if you are not residing in your home country, there are two scenarios to consider. If the LLC is in the US, you have to pay US taxes. So, the key issue here is double taxation.
In the case of an LLC present in the US but the owners are NRIs, the income is taxed in India, but the company is treated as a foreign company. If the company has setup base within India, then you are eligible to avail certain deductions. But US taxes still apply.
The bottom line is that every LLP or LLC operating within the country has to file income tax returns every year. Active partners of the LLP or LLC must sign for IT returns.
The bottom line is that every LLP or LLC operating within the country has to file income tax returns every year.
GST and the Non-Resident Taxable Person
Under the GST Act, an LLP incorporated in a foreign country with turnover exceeding 20-40 lakhs in a financial year must be registered for GST.
A ‘non-resident taxable person’ is defined under GST as someone who exchanges goods and services within a place in India, where GST is applicable even though his business is not established in India and he doesn’t reside within the country. Every non resident taxable person must apply for GST registration.
Such a person occasionally does transactions within India but doesn’t have a base setup here. He must be compliant with GST.
If you are such a start-up owner, you must delegate a person within India who will represent your company for GST compliance.
During registration, you will need to furnish appropriate documents about the business including physical presence of the business, identity proof documents, and bank account proofs. The person representing you within the country must possess authorisation documents.
You also have to make a deposit for GST and must keep checking the validity period of your GST registration. There are a lot of guidelines to be followed and your registration must be completed.
The non-resident taxable person comes under Section 24 of the GST law. He/She must make an advanced deposit of the GST tax amounting to the equivalent of the estimated tax liability for the registration duration.
The agent representing your LLC within India must furnish their own PAN number to pay the advance tax for your LLC.
What’s in it for me?
As we are well aware, Indian businessmen evade tax within India by living outside India. The gulf countries are especially popular destinations to do this. Gulf countries like the UAE have no tax laws.
An interesting development which recently occurred is ‘liable to tax’ which just came with the recent union budget and the finance bill. Liable to tax is a term within the Indian tax laws. With the recent finance bill, Nirmala Seetharaman redefined the meaning of the term. As per the redefinition, if an NRI owns a company in India from the UAE, whatever he is earning is taxable in India. India has an agreement with the UAE regarding double tax avoidance. With the redefinition of this term, NRIs living in the UAE will no longer be able to avoid taxation on their earnings back in India.
If you are a foreign owner of an LLC, your tax duties are mainly GST registration, compliance, and Corporate Taxes. Ensure that you complete your tax duties and that you stay within the purview of ‘liable to tax’ to enjoy smooth business operations within India.