QUERY REGARDING TAXABILITY-COMPLIANCES OF A BO OF RUSSIAN COMPANY IN INDIA
This query is : Resolved
11 October 2025
A foreign company (Uralmash, Russia) that has a branch office in India (administrative only), exporting machinery to Coal India Limited (CIL), with employees visiting India temporarily (<182 days) for training, and payments going from CIL to the Indian Sberbank branch and then to Russia.
What compliances to be completed.
What compliances to be completed.
11 October 2025
FEMA Compliance (Foreign Exchange Management Act)
Export of Goods & Payments: Since Uralmash is exporting machinery to Coal India and receiving payments via Sberbank (India), they must comply with FEMA regulations regarding foreign exchange transactions. Specifically, the Reserve Bank of India (RBI) oversees cross-border payments, and the payments routed through Sberbank need to be reported according to the FEMA guidelines.
FIRC (Foreign Inward Remittance Certificate): Uralmash must ensure that Coal India obtains an FIRC from the bank, which is required as proof of foreign remittance.
Reporting under FEMA: Sberbank India must ensure that the payment received from CIL is reported to the RBI via Form A2, as part of the external commercial transaction reports.
Export of Goods & Payments: Since Uralmash is exporting machinery to Coal India and receiving payments via Sberbank (India), they must comply with FEMA regulations regarding foreign exchange transactions. Specifically, the Reserve Bank of India (RBI) oversees cross-border payments, and the payments routed through Sberbank need to be reported according to the FEMA guidelines.
FIRC (Foreign Inward Remittance Certificate): Uralmash must ensure that Coal India obtains an FIRC from the bank, which is required as proof of foreign remittance.
Reporting under FEMA: Sberbank India must ensure that the payment received from CIL is reported to the RBI via Form A2, as part of the external commercial transaction reports.
11 October 2025
Permanent Establishment (PE) and Tax Compliance
If the branch office of Uralmash is involved in activities beyond administrative tasks (e.g., coordination, support for the exports), there may be a risk of it being considered a Permanent Establishment (PE) in India, subject to Indian taxation.
If the branch is purely administrative and does not engage in revenue-generating activities in India, it might not trigger PE status. However, the nature of activities needs to be clearly documented and confirmed with an Indian tax advisor.
Withholding Tax: Payments made by CIL to Uralmash may be subject to withholding tax under Section 195 of the Income Tax Act. Typically, royalties or technical services fees are subject to withholding tax, but machinery export payments are generally not.
Must obtain approval from the Reserve Bank of India (RBI) to establish the branch, including registration with an Authorized Dealer (AD) Bank, and formal registration with the Ministry of Corporate Affairs (RoC) via Form FC-1 within 30 days.
PAN (Permanent Account Number) must be obtained for Indian tax purposes.
GST registration is mandatory if engaging in taxable supply of goods/services.
Branch office must file annual financial statements, annual activity certificates, and adhere to Indian Income Tax law as applicable to its Indian-source income.
Activities are limited to those approved by RBI; administrative/liaison offices cannot engage in commercial or revenue-generating activities in India.
If the branch office of Uralmash is involved in activities beyond administrative tasks (e.g., coordination, support for the exports), there may be a risk of it being considered a Permanent Establishment (PE) in India, subject to Indian taxation.
If the branch is purely administrative and does not engage in revenue-generating activities in India, it might not trigger PE status. However, the nature of activities needs to be clearly documented and confirmed with an Indian tax advisor.
Withholding Tax: Payments made by CIL to Uralmash may be subject to withholding tax under Section 195 of the Income Tax Act. Typically, royalties or technical services fees are subject to withholding tax, but machinery export payments are generally not.
Must obtain approval from the Reserve Bank of India (RBI) to establish the branch, including registration with an Authorized Dealer (AD) Bank, and formal registration with the Ministry of Corporate Affairs (RoC) via Form FC-1 within 30 days.
PAN (Permanent Account Number) must be obtained for Indian tax purposes.
GST registration is mandatory if engaging in taxable supply of goods/services.
Branch office must file annual financial statements, annual activity certificates, and adhere to Indian Income Tax law as applicable to its Indian-source income.
Activities are limited to those approved by RBI; administrative/liaison offices cannot engage in commercial or revenue-generating activities in India.
11 October 2025
Employees Visiting India (Tax Compliance)
If employees of Uralmash are visiting India temporarily for training (less than 182 days), they will generally not be subject to Indian income tax, provided they don't work for a total of more than 182 days within a 12-month period in India.
Uralmash should ensure compliance with tax residency rules and file necessary tax declarations for the employees if applicable, considering their income might be subject to tax in India under certain circumstances (e.g., if the employee receives salary paid in India or exceeds the tax threshold).
Employee Visas: Employees visiting for training need to obtain the correct visa (such as a business visa or training visa). Compliance with immigration laws is important to avoid legal issues.
If employees of Uralmash are visiting India temporarily for training (less than 182 days), they will generally not be subject to Indian income tax, provided they don't work for a total of more than 182 days within a 12-month period in India.
Uralmash should ensure compliance with tax residency rules and file necessary tax declarations for the employees if applicable, considering their income might be subject to tax in India under certain circumstances (e.g., if the employee receives salary paid in India or exceeds the tax threshold).
Employee Visas: Employees visiting for training need to obtain the correct visa (such as a business visa or training visa). Compliance with immigration laws is important to avoid legal issues.
11 October 2025
Income Tax Filings (if applicable)
If Uralmash is deemed to have a PE in India, they will be required to file Income Tax returns in India, declaring their income, and pay the necessary tax.
Tax Treaty Consideration: India and Russia have a Double Taxation Avoidance Agreement (DTAA), which may allow Uralmash to avoid double taxation of income. The company can claim tax relief under the DTAA by providing necessary documentation to the Indian tax authorities.
If Uralmash is deemed to have a PE in India, they will be required to file Income Tax returns in India, declaring their income, and pay the necessary tax.
Tax Treaty Consideration: India and Russia have a Double Taxation Avoidance Agreement (DTAA), which may allow Uralmash to avoid double taxation of income. The company can claim tax relief under the DTAA by providing necessary documentation to the Indian tax authorities.
13 October 2025
Thank you very much Sir.
13 October 2025
You are welcome.
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