India is emerging as the ‘preferred destination’ for global firms, including large, mid-size and small global firms taking the plunge to set up their Global Capability Centres (commonly known as a ‘GCC’) in India. India is already a well-recognized hub for GCCs with numerous Fortune 500 companies having already set up their GCC in India or contemplating a similar set-up (in the pipeline). Leveraging the unique factors that India offers – skilled workforce, cost-advantage, business ecosystem, and ease of doing business policies, GCCspresent a significant opportunity for businesses to benefit from a vibrant and competent workforce available in India.
In this podcast, our Principal Associate, Anindita Basu discusses the challenges that firms/entities setting up their GCC in India need to navigate and be mindful of.
Transcript:
India is one of the most populous countries in the world, with approximately 50% of the population below 25 years and around 65% below 35 years. With a trained and skilled workforce, India offers a lucrative market for global companies looking to leverage a dynamic and capable labour pool. It presents a significant opportunity for businesses to benefit from a vibrant and competent workforce.
Offering a unique blend of talent, business ecosystem, and ease of doing business policies, India is emerging as the most-preferred destination to set up a Global Capability Centres, commonly known as a “GCC.”
Global Capability Centres, or Global In-house Centres or Global Innovation Centres, can be defined as overseas capability centres established by companies to manage and accomplish business functions, processes, research & development for their parent entities. They render an array of services such as back office, finance support, accounting audit, IT, legal, compliance, and innovation support. Gradually, some of these GCCs have evolved into Centres of Excellence for their parent entities.
Any foreign entity looking to establish a GCC in India is required to consider setting up a place of business in India in the form of a legal entity as per Indian laws. The options to set up a legal entity include:
- Wholly owned subsidiary
- Joint venture entity with an Indian partner
- Branch office
- Limited liability partnership
The choice of entity depends on the scope of operations and long-term business goals. While a foreign entity may choose any of the above options, each form of entity is subject to specific legal obligations and compliances in India. In our experience, a private limited company or a PLC is the preferred entity option for incoming foreign investors looking to set up their GCC in India. A wholly owned subsidiary offers flexibility in business operations and tax management, whereas a joint venture involves obligations and responsibilities that must align with the business objectives. A branch office is limited to actions performed by the parent company.
In addition to corporate laws, information technology (data protection) laws, labor laws, and real estate regulations, GCCs will also be governed by sector-specific laws.
Certain sectors, such as banking and finance, insurance, healthcare, and fintech, have specific requirements for data storage and processing within India. GCCs must be mindful of these specific requirements.
GCCs must ensure the registration and protection of intellectual property to safeguard the interests of the parent entity. Furthermore, the transfer of IP between the GCC and the parent company must comply with Indian IP laws and transfer pricing regulations.
When foreign companies establish a wholly owned subsidiary, they may consider sending some members of the leadership to the Indian company. In doing so, they must carefully consider the implications of Indian income tax laws and indirect tax laws.
Further, tax implications along with the permanent establishment risk must be carefully evaluated. GCCs are subject to corporate tax, transfer pricing, and Goods and Services Tax (GST).
Setting up a GCC in India involves careful consideration of various factors, including the choice of business structure, compliance with local laws, and understanding the implications of sector-specific regulations.
