Incorporation - Pay persons in India

V

venkat_san

Registered Users (C)
Hello,


Planning to set-up software development company in USA. I may
need to recruit some persons in India.
Persons in India will work from India.

How would I pay them ?
Are there any rules and regulations ?
Do I need to take permission from any
Indian govt. authority ( RBI etc) ?

Any pointers/links on this is highly appreciated



Thank you,
Venkat
 
Originally posted by venkat_san
Hello,


Planning to set-up software development company in USA. I may
need to recruit some persons in India.
Persons in India will work from India.

How would I pay them ?
Are there any rules and regulations ?
Do I need to take permission from any
Indian govt. authority ( RBI etc) ?

Any pointers/links on this is highly appreciated



Thank you,
Venkat
Click to expand...


I guess, legally segregating the two would be a good idea. So, for example, instead of directly hiring people in India and making them work there in India, you could tie up with one of the several software firms there, or you could start your own branch in India, with someone whom you trust as the in-charge there. Then your company can give out sub-contracts to this business entity in India, that way it is much cleaner for everyone. Do you have any compulsions that force you not to do it that way?
 
Re: Re: Incorporation - Pay persons in India

Hello,

Thank you for your replies.

What would be my tax liability though ?
For example company income is 250K
Paid to company in India 150 K
(work given to another company)

Do I have to pay tax on 100K to US ?
Are there any other taxes, I need to
pay ?

Would like to know, costs associated
with getting the work done in India.


Thank you,
Venkat
 
Re: Re: Re: Incorporation - Pay persons in India

Originally posted by venkat_san
Hello,

Thank you for your replies.

What would be my tax liability though ?
For example company income is 250K
Paid to company in India 150 K
(work given to another company)

Do I have to pay tax on 100K to US ?
Are there any other taxes, I need to
pay ?

Would like to know, costs associated
with getting the work done in India.


Thank you,
Venkat
Click to expand...

I would guess so, provided you have no expenses at all in US, the 100K becomes your net and you pay tax on that. But things get murkier and murkier here and might lead to lots of scope for interpretation. Ideally yes this is all fine. But make sure that you have proper replies to convince that you are not siphoning off money to a foreign land to avoid being taxed in US, and that there are proper records of the contracts between the Indian company and your company here, also the invoices are genuine and commensurate to the work being done (they do have approximate/rough figures of hourly rates, etc. in different countries) and not some overinflated figures.
 
Some answers!

Hi Venkat,

I am also into Software Consulting business and am currently researching on this issue. Here is the technical analysis of your situation based on what i found so far.

If you subcontract a Software development work to a foreign entity , for which you are not an owner (may be a Foreign Corp or a Foreign individual on contract) then as per my understanding the amount that you pay to this Forign entity is considered as income effectively connected with trade or buisness in the US. The definition of "income effectively connected with trade or buisness in the US" is not clear to me. But my feeling is that even through the software development work is performed physically outside the US since it is performed for a US corporation it is considered as "income effectively connected with trade or buisness in the US".

If the income is effectively connected with trade or buisness in the US then the foreign entity needs to send you form W8-ECI duly filled and signed by the Foreign entity. Once you receive this Form you need not withold any taxes from your end. You can make payment against invoice and deduct this as your expense. The foreign enity if a corporation might need to file a 1120-F and hence might be taxed by US Govt on the net profit it makes on this transaction (some more research needs to be done on this. I haven't reaserched on this area) and if the foreign enity is an individual he/she needs to file 1040NR, in which case he/she gets $3000.00 per year as exemption ie first 3K is not taxed by US Govt and subsequent amounts taxed. The foreign individuals indian tax might be reduced by the amount of tax paid to the US govt. based on treaty to avoid double taxation.

If the income is not considered effectively connected with US trade you will need to withhold 30% and pay this to the US govt and report usiing 1042-S and 1042-T. The foreign enity would still need to file 1120-F or 1040 NR just as in the above senario and claim partial refund of the 30% witheld.

Read Publication 515 fron the IRS website for more info.

If the foreign individual is treated as an employee the situation is complicated and hence best avoided. So you can either set up a forign corp owned by somebody else other than you or you take the foreign individual on contract directly. If you are opting for foreign Corp the foreign individual can still be on contract with the foreign corp as this would avoid complications like PF account etc.. for the foreign Corp. The decision should be based on the expected future buisness. If you expect to keep only 2 persons you might as well avoid a foreign corp and contract with the Foreign person directly.

The above info is based on a preliminary research that i had done and if you find any errors or omissions do let me know.

Thanks

Ravi
 
Incorporation

Hello,


Can some body suggest some CPA's/
accounts, who can handle these cases.
I have contacted few. They are very good at federal taxes, not much experience
in cross-border issues.

Your help is highly appreciated.
It is bit urgent too.


Thank you,
Venkat
 
Hi venkat,

Planning to incorporate a company to do some work mostly in-house here in US. Maybe sub-contract some stuff to India after
the initial analysis and coding for maintenance.

Any idea how difficult it is.

Also, Can I setup the company and just file taxes without doing any business?
 
priyagc,

Yes you can definitely start your own business and try it out. If doesnot work, you can wind it up in the same year.

Lot of people in Quixstar (AKA AMWAY), start their own business take losses. Lot of them got GC.

Thanks
 
venkat_san and priyagc,

Lot of people in immigration portal have started their Incorporation business with taxchampion Inc. You can contact info@taxchampion.com or Lalitha@taxchampion.com

They will give phone consultation as well. ( I believe it is free )

I am not advertising any one, this is just a refrence.

Thanks
 
Incorporation

Hello,


Thank you all for your help.
Each reply has enhanced my knowledge
and understanding of this subject.

I did some research on this.
Ravi_Comp, please send me your e-mail.
You may use message service of this web site. I would like to discuss with you. I am assuming you are also in the same boat.


Thank you,
Venkat
 
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