JV or Wholly Owned Subsidiaries
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Q.1. What forms of JV can be explored by foreign investors?

Ans. Foreign investors / companies intending to do business by collaborating with Indian companies have the following options:

• Collaborate and form an “Incorporated JV” with the Indian company

• Collaborate and form an “unincorporated JV” with the Indian company

The form of JV would depend on the nature of business activity.

What is an incorporated JV? When is it ideal to form an incorporated JV?

Incorporated JV refers to a company formed by two or more companies with a common objective and purpose. An incorporated JV is ideal for companies looking at opportunities for joint manufacture or provision of service by capitalizing on the technical know-how, knowledge of the local market, skill sets and cost advantage of each other.  This form of JV is ideal for foreign investors who wish to diversify / expand their market to India, but lack the local market knowledge, expertise, etc., to venture on their own.

How are profits of incorporated JV taxed in India?

An incorporated JV being a company is subject to tax at the same rate as applicable to normal domestic companies in India. Accordingly, the applicable tax rate is 30% (plus applicable surcharge and education cess).

Q.4. What is an “unincorporated JV”?  When is it ideal to form an unincorporated JV?

An unincorporated JV is a formed by entities who come together for a common purpose. It can be formed by individuals, limited companies and others. An unincorporated JV may be formed for executing specific projects in India, which could be dissolved on project completion.  Generally such JVs are formed for executing large construction projects, infrastructure projects, etc., wherein each JV partner will be assigned a specific task / role; the responsibility for the tasks is shared by the JV partners following a common agreement between them.

How are profits of unincorporated JVs taxed in India?

Unincorporated JVs for tax purpose may be taxed as Association of Persons (AOPs). An association of persons (AOP) under the Income Tax Act is an entity or unit of assessment. It means two or more persons who associate themselves in an income-producing activity. The term Person includes any company or association or body of individuals, whether incorporated or not. The association need not be on the basis of a contract. Therefore, if two or more persons join hands to carry on a business but do not constitute a partnership they may be assessed as an AOP. Taxability of an AOP depends upon whether the profit sharing ratio between the JV members is determinate or indeterminate and upon the members of the JV.

Wholly Owned Subsidiary (WOS)

Foreign companies can also set up wholly-owned subsidiary in sectors where 100% foreign direct investment is permitted under the FDI policy. A WOS can be formed either as a private or public company, limited by shares or guarantee, or an unlimited liability company. Limited Liability Company is the most preferred form for a WOS due to its unique advantages. This structure gives the most flexibility and protection to a foreign investor.