Treaty routes are tested now
International Structuring & India
Routing investment into India through a treaty jurisdiction no longer works the way it did a decade ago.
GCC business setup specialists
The old routes were closed deliberately
For years investment reached India through a small number of treaty jurisdictions chosen for favourable capital gains treatment. Those treaties were renegotiated, general anti-avoidance rules were introduced, and limitation of benefits provisions were added. A structure built on the historical position, or on advice from that era, is likely to fail. What works now is commercial substance in the holding jurisdiction and a defensible reason for it being there.
- Advice based on the current treaty position, not the historical one
- Substance requirements in the holding jurisdiction set out
- Co-ordination with advisers in that jurisdiction and yours
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Mainland, free zone and offshore jurisdictions we file in — so the recommendation is based on your activity, not on which authority we happen to be registered with.
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Companies successfully established.
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Settle these first
The questions that decide the structure
Substance and purpose dominate.
| Question | Why it decides the structure |
|---|---|
| Does the holding entity have substance? | Limitation of benefits provisions test it. |
| What is the commercial purpose? | Anti-avoidance rules turn on it. |
| Where is effective management? | It can make a foreign company Indian resident. |
| What payments will leave India? | Withholding applies to most of them. |
| Is the investor in a land-border country? | Approval is required regardless of sector. |
| What advice exists in the holding jurisdiction? | Both ends must work. |
Treaty provisions, limitation of benefits tests, general anti-avoidance rules, residence by place of effective management and withholding rates are set by law and treaty and change. Specialist tax advice in each jurisdiction is required, and we co-ordinate it. Every Indian company must have at least one director resident in India, and foreign share subscription must be reported to the Reserve Bank of India within a short period after allotment.
How it works
Working through it properly
Current law, not historical practice.
01
Map the facts
Ownership chain, where the holding entity is and what it actually does, planned flows into and out of India, and the exit contemplated.
02
Test against current rules
Treaty eligibility, anti-avoidance exposure and effective management risk assessed on the law as it stands rather than as it was.
03
Implement and document
The Indian entity established, substance arrangements in the holding jurisdiction co-ordinated, and the commercial basis documented from the outset.
To assess properly
What we need to see
Substance in the holding jurisdiction is central.
- Full ownership chain to beneficial owners
- Where the holding entity is resident
- What the holding entity actually does
- Whether it has staff, premises and decision-making
- Whether any owner is in a land-border country
- Planned investment into India
- Expected dividend, interest and royalty flows
- Whether an exit by share sale is contemplated
- Where the board of the holding entity meets
- Existing advice in the holding jurisdiction
- Whether transfer pricing arrangements exist
- Timeline
Scope
What is included, and what is not
Stated plainly, so nothing is added once the engagement starts.
Included in the service fee
- Fact-gathering and options paper
- Assessment against current treaty and anti-avoidance positions
- Substance requirements in the holding jurisdiction set out
- Effective management risk flagged
- Indian entity establishment and registrations
- Reserve Bank reporting
- Documented commercial basis
- Co-ordination with advisers in each jurisdiction
Not included, quoted separately
- Tax advice on non-Indian law
- Formal treaty eligibility opinions
- Advance rulings and litigation
- Transfer pricing studies
- Formation of entities outside India
- Substance costs in the holding jurisdiction
- Valuations
- Filings in other jurisdictions
Verify independently
Official Indian authorities
We file directly with these bodies on your behalf.
Reserve Bank of IndiaMinistry of Corporate AffairsRegistrar of CompaniesIncome Tax DepartmentAuthorised dealer banksController General of Patents, Designs and Trade Marks
Questions
International structuring and India — FAQs
Can I still route investment into India through a treaty jurisdiction?
Only with genuine substance in that jurisdiction and a defensible commercial reason. The treaties were renegotiated and anti-avoidance rules introduced precisely to stop the historical practice.
What is place of effective management?
A test that can make a foreign company Indian tax resident based on where its key decisions are actually taken. It is a real risk for holding companies run from India in practice.
What are limitation of benefits provisions?
Treaty provisions denying benefits to entities without sufficient substance or commercial purpose in the treaty state. They are applied, not theoretical.
Does withholding apply to payments out of India?
To most categories including dividends, interest, royalties and technical service fees, with treaty rates where available and substantiated.
Do you provide the tax advice?
No. We handle the Indian corporate and regulatory work and co-ordinate specialist tax advice in India and in the holding jurisdiction. Structures like these need both.
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