Hello, I've been working as a Freelancer for a few months, providing Online IT consulting services to global clients, with the most number of them being in the US. I have now decided to formally incorporate a software business, with the onshore/offshore model, where I want to incorporate an OPC in India, which gives my business credibility and allows me to hire Indian talent. I'm also incorporating a US based LLC to allow for sales and marketing functions to run, and generate dollar revenue. What I'm trying to understand, is how do I link these two companies of mine? Ideally, I want the US company to be a subsidiary of my Indian company, and the India company is likely to only function as a Cost Center for me. But since all revenues will come from the US company, will it be taxable in India also? I'm planning to elect C-Corp taxation structure for my LLC so paying tax in the US is not a problem for me, but I don't want to pay tax on the same revenue when I transfer money from the US company to my India company to manage the Operational Expenses. Please advise how I should go about structuring the two, I'm also in need of CA services that can manage all of this, so happy to speak to qualified CAs. Thanks,
Hi,
The kind of structure you are talking about is quite common in most of the IT consulting/software development companies in India. This structure is tax efficient as well.
Please note this structure will require transfer pricing expertise to set-up a model which will help you in managing India cash flow also.
We can definitely help you in setting up this structure, advising business model and implementation of the same.
Feel free to take a phone consultation to discuss this in detail
You can create US LLC as wholly owned subsidiary of Indian company. As the control and management of US LLC will be entirely from India then it would be treated as resident in India and liable to pay tax in India also subject o DTAA provisions. If the turnover of US LLC in the previous year is Rs.50 cr or less then it would be treated as non-resident. To meet the operational expenses in OPC there will be some transactions between holding & subsidiary either in the form of loan or revenue. To whom Indian employees will provide services? OPC will provide services to US LLC and US LLC to the US clients which will increase compliances.
Alternatively OPC will provide services directly to US clients and US LLC only provides sales and marketing functions. Make US LLC as cost center and meet the cost from OPC.
For detailed discussion you may opt for phone consultation.
Hi,
I understand your requirement as we have been structuring such options for our clients. However, what is really important is to have a tax-efficient structure rather than the one which avoids tax as that can withstand the scrutiny of tax officers. Here it is important to distinguish where the control and management would take place, we need to have robust agreements and documentation in place for the same which aligns well with the conduct of business. Also, the Transfer Pricing between Indian company and US Company would be really imperative to have the tax-efficient profits.
Generally, US Co which is managed from India is considered as Indian resident. There could be issues around the double taxation and non-availability of foreign tax credits as well.
We can surely help you with this structuring. Do reach out on prernapeshoriattheratepeshoriconsultantsdotcom.
Thanks for the responses, it makes sense, and I'll be reaching out to some of you, but I have two questions. Question 1 - Let's say I only establish a US LLC and there is no company in India, I work as a freelancer, registered with GST etc. US company is only there for Sales/Marketing/Revenue. Whatever revenue my company makes in the US, I pay tax there as a C Corp and transfer some amount of money to my personal bank account in India for operational expenses. When I need to hire people in India, I bring them on as Contractors for my US company. In this scenario, do I need to pay tax in India, for my US company's profits too or do I only pay for whatever hits my personal bank account in India? Question2- Let's say I have both, US LLC, and India Pvt Ltd, both are majority owned by myself, but they are not related to each other. US company still makes the revenue and outsources the software engineering work to the Indian company. In this case, US company pays its taxes in the US and Indian company pays taxes in India, based on net profit. Is there any other complication in this scenario? like Transfer Pricing etc? Thanks!
Hi,
In option 1 - you would have a permanent establishment risk in India in terms of having a service PE through employees. The service PE means the presence of US company through employees in India. In that case, the profits attributable to the PE (the profits of US company would have to be apportioned using transfer pricing principles) would be taxed in India.
In Option 2
Though both companies would not be related directly but since they have common ownership, they would be associated to each other and Transfer pricing would be applicable in that case.
I would request you to reach out for detailed consultation around this.
Question 1
Part A
As you are a freelancer registered with GST, income from online IT consulting services provided from India to US clients will be treated as income accrued or arised in India therefore entire income will be taxable in India. Under GST it would be export of services and treated as zero-rated services subject to fufillment of conditions.
Part B
US LLC will be a foreign and independent company. Any amount transferred from US LLC to your personal bank account will again be taxable in India as it is a transaction between two persons.TP provisions would be applicable
Question 2
TP provisions would be applicable.