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Industry Perspective, Kerala

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Setting up an industry in Kerala, (InfoPark)

Setting up IT Software and Services operations in India has certain rules and regulations

Indian company / individual
An Indian citizen can set up IT software and services operations in India through the following:

As an Individual / Proprietor
As a Partnership / Firm / Trust
As a Company registered under the Companies Act, 1956
No prior permission of the Government of India is required to set up IT / Software units in India.

Overseas company / individual

A Foreign Company is one that has been incorporated outside India and conducts business in India. These companies are required to comply with the provisions of Companies Act, 1956.A foreign company or individual planning to set up business operations in India can do so as:

A foreign company through a Liaison Office / Representative Office, Project Office or a Branch Office
an Indian company through a Joint Venture or a Wholly Owned Subsidiary
Register the Company
Liaison Office / Representative Office

A liaison office is not allowed to undertake any business activity in India and earn any income here. The role of such offices is limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers. The Foreign Exchange Regulation Act (FERA) regulates the opening and operation of such offices. Also, approval of Reserve Bank of India (RBI) is required for opening of such offices. These offices have to ensure the following:

Expenses of such offices are met entirely through inward remittances of foreign exchange from Head Office abroad.
These offices do not undertake any trading or commercial activities. Commercial activities should be limited to collecting and transmitting information between its overseas Head Office and potential Indian customers.
Such offices should not charge any commission or receive other income from Indian customers for provision of liaison services.
Project Office

Foreign companies planning to execute specific projects in India can set up temporary project/ site offices in India with the approval of RBI. Such approval is generally accorded in respect of projects approved by designated authorities or projects financed by an Indian bank/ financial institution or a multilateral/ bilateral international financial institution. The tenure of the office is dependent upon the duration of the project and normally approval is not accorded for more than 3 years. Further, a separate approval is required for each project proposed to be undertaken.

Branch Office

Foreign companies engaged in manufacturing and trading activities abroad may set up Branch offices in India, with the permission of RBI, for the following purposes:

To represent the parent company / other foreign companies in various matters in India e.g. acting as a buying / selling agents in India.
To conduct research work in the area in which the parent company is engaged provided the results of the research work are made available to Indian companies.
To undertake export and import trading activities.
To promote possible technical and financial collaborations between Indian companies and overseas companies. A branch office is not permitted to carry out manufacturing activities on its own but is permitted to sub-contract these to Indian manufacturers.
As an Indian Company

A foreign company can commence operations in India through incorporation of a company under the provisions of Indian Companies Act 1956. Foreign equity in such Indian companies can be up to 100 percent depending upon the business plan of the foreign investor, prevailing investment policies of the Government and on receipt of requisite approvals.

Joint Venture with an Indian Partner

Foreign companies can set up their operations in India by forming strategic alliances with Indian partners. Setting up of operations through a Joint Venture may provide the following advantages to a foreign investor:

Already established distribution / marketing set up of the Indian partner.
Available financial resources of the Indian partner.
Already established contacts of the Indian partner that help ease the process of setting up operations. Foreign investments are approved through two routes as under:
Automatic Route: Approvals for foreign equity up to 50 percent, 51 percent and 74 percent are given on an automatic basis subject to fulfilment of prescribed parameters in certain industries as specified by the Government. RBI accords automatic approval to all such cases.

Government Approval: Approval in all other cases where the proposed foreign equity exceeds 26 percent, 50 percent, 51 percent or 74 percent in the specified industries or if the industry is not in the specified list, it requires prior specific approval from Foreign Investment Promotion Board (FIPB).

Wholly Owned Subsidiary

The foreign investor has the option of setting up a wholly owned subsidiary (WoS), wherein the foreign company owns 100 percent share of the Indian company. As above, foreign investments may be approved through the Automatic Route or Government Approval. Automatic route is available for establishing WoS in the Information Technology sector.

Investment Promotion And Management Cell

The IT units that are setting up operations in Kerala are invited to register with the Investment Promotion and Management Cell (IPMC) of Kerala State IT Mission.


Benefits of registering with IPMC

· Facilitates the initial entry phase of business into the state

· Directs enquiries to registered IT units

· Promotes IT units at tradeshows.

· Registration is compulsory as a first step towards availing of the eligible incentives announced in the IT Policy.The Units can register with the IPMC through the simple web-based Form provided by IPMC. The registration no. assigned by IPMC will have the status of provisional registration given by Industries Dept. of the Government of Kerala.

Registered IT units will be informed of the latest developments in IT in Kerala, including information on upcoming events, trade shows, seminars & conferences as well as latest Government Orders, guidelines & notifications related to IT sector within the state

Incentives in IT Sector

All IT units registered with IPMC in the Kerala State IT Mission can apply for eligible incentives.


Process of applying

· On line applications are available as side link on this web page. The relevant application is to be filled and submitted to the Coordinating Officer under whose jurisdiction the unit falls. GM-DIC, MD-KSIDC and CEO's of IT Parks are the Coordinating Officers.

· CO's shall forward the application to the consultant (empanelled CA firm)

· CO / CA firm shall verify the application based on site visit and perusal of relevant documents

· The application is then forwarded to KSITM with the recommendation

· The unit will offer a Bond of Indemnity along with personal guarantees given by the directors in the prescribed format to the extent of incentives received. The guarantee shall be invoked along with 14% interest if (a) the unit ceases to be in operation within 3 years of receiving this incentive (b) misrepresent facts

· Disbursements will be effected from KSITM

· Service charge for the CA firm is to be paid by the applicant unit (incentive will be deducted to that extent)

Other Conditions

· Amount sanctioned as incentives can be adjusted against Govt dues.

· Units financed by KVIC / KVIB will not be eligible for SIS

· If a proprietor / partner has 60% or more profit share in any other IT firm that has already claimed for SIS, he is not eligible. A self declaration will be required.

If a co has minimum of 51% share holding in any other co or controlling interest in proprietary / partnership firm, such co’s are not eligible. A board resolution is required.

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