Despite the corona crisis, India's economic growth continues and it is still on course to become the world's third largest consumer market by 2030. Due to the growth of the Indian middle class, consumer spending will increase by around $4.5 trillion over the next decade. consumer spending will increase by about USD 4.5 trillion over the next ten years. So there are major export opportunities in India that you should prepare for now. In addition to choosing the right the right strategy for entering the marketIn addition to choosing the right market entry strategy, it is also smart to look into tax issues like IEC, TDS and PAN card.
IEC - Import Export Code
IEC is a ten digit code that every import/export company in India must have. International companies that want to start selling their products in India and do not want to set up an office immediately, do not need to apply for an IEC themselves, but can work with a recognised, local importer. This importer must, of course, have an IEC and be registered under the GST. Please note! Without an IEC number, goods cannot pass through Indian customs and the importer cannot make payments to foreign bank accounts.
TDS - Tax Deducted at Source
TDS is an input tax that Indian companies hiring foreign service providers have to withhold from the invoices of these foreign companies and subsequently remit to the Indian tax authorities. The Indian customer is required to withhold TDS if the foreign service provider does not have its own establishment in India. Apart from technical service providers (maintenance and installation), this also applies, for example, to design and consultancy work.
PAN Card - Permanent Account Number
As in the Netherlands, the Indian tax authorities would like to see which companies do business with each other. A PAN number is in fact the Indian equivalent of the Dutch sales tax number. A PAN registration is mandatory for Indian companies and optional for foreign exporters and service providers doing business with India.
Exporting and selling in India, how to start?
Although it is not mandatory, it is wise to get a PAN Registration if you want to start exporting to and selling in India. Without a PAN Card, the Indian customer has to withhold 20% TDS and pay it to the Indian tax authorities. This means that only 80% of the invoice amount will end up in your account. If you do have a PAN registration, the TDS rate is 10%. The remaining 10% can be reclaimed by Dutch BVs through the corporate income tax in the Netherlands. Please note that this only applies to service providers, not to the sale and export of physical products or goods.
Look for a good importer who knows your specific market segment and has the right registrations. The IEC is important for importing products, but it is only one of the registrations that must be fulfilled before products are allowed into India.
Once the first sales have been made, it is important to request a TDS certificate from your Indian customers after the Indian financial year ends (31 March). This states how much TDS the customer has paid for your company. This certificate can be used as a deduction item in the VPB declaration or income tax in the Netherlands. After all, no tax needs to be paid on the TDS already remitted in India. All this is laid down in the DTAA (Double Taxation Avoidance Agreement) that the Netherlands and India have agreed upon.
Workshop: Market entry in India
Starting to export to India can be challenging for European companies who are not so familiar with the country. IndiaConnected helps over 100 companies every year with their activities in India. We work with local experts in all sectors and can therefore offer you a helping hand in shaping a successful market strategy for your business in our tailor-made workshops:
We will give you more insight into what is involved in your market entry in India.
You will receive valuable feedback on your current India strategy from independent experts.
Expertise in every field: sales, manufacturing, legal, tax, finance, supply chain, recruitment, etc.
Our workshop usually lasts about 2 hours. Our experts will work with you to explore your issue and formulate possible answers and strategies. Afterwards, you will receive a report.