Setting up a Call centre in India – tax issues

Investment structuring & planning stage
Set up a company in Mauritius which will hold the shares of the Indian company in order to take advantage of the beneficial tax treaty between the two countries to minimize taxation of gains, dividends and interest income from India.

* Structure of the entity in India: company, Joint Venture or Branch: consider advantages and disadvantages of each.
* Check whether there is automatic approval from RBI for 100% FDI in a call centre which comes under ITES services.
* Tax holidays for setting up in FTZ, EHTP, STP or SEZs. Concessions for customs duty for import of call centre equipment into India.
* Care should be taken not to form a PE of the UK company in India. Also due regard should be paid to Indian and UK transfer pricing rules. A transfer pricing study should be carried out.

Implementation in India

* Incorporate an Indian company.
* Application to Department of Telecommunications in India for authorisation to operate a call centre.
* Register with Software Technology Parks of India (STPI) for tax holiday concessions.
* Structure BPO agreement between UK company and Indian company. Agreement can be with captive, Third Party or BOT (Build Operate Transfer).
* Consider UK, EU and Indian Data Protection issues. Certain categories of operations require FSA approval in the UK.
* Employment issues: recruitment of staff in India, employment contracts and local labour and salary tax laws.
* Training staff, pilot and parallel running test phases. Going live.

Setting up a call centre in India involves complex legal and tax considerations both in the UK and in India. We have are currently assisting a number of UK clients in setting up call centres and BPO operations in India.