Tag Archives: Startup India

Draft E-commerce Policy: The dawn of a new beginning

Data is the basic building block of everything we are trying to do in this age of Industry 4.0. Data is a valuable resource for any individual, corporation or the Government. Data can be used for analytical, statistical, business, security purposes among various other things. Keeping ‘data’ central to the idea of governing the e-Commerce industry in India the Department for Promotion of Industry and Internal Trade on February 23, 2019, published the ‘Draft e-Commerce Policy’ (“Draft Policy”).

The overall objective of the Draft Policy is to prepare and enable stakeholders to fully benefit from the opportunities that would arise from progressive digitalization of the domestic digital economy. The Draft Policy focuses on data protection, the State’s paternalistic attitude towards the use of the citizen’s data and cross border transactions. The Draft Policy intends to regulate some things beyond e-commerce i.e. it proposes to regulate technologies like AI, IoT, Cloud computing and Cloud-as-a-Service etc. On a holistic level, it is understood that these technologies empower e-commerce industry currently and are integral to its growth and therefore the Government intends to bring these technologies under the purview of the Draft Policy. The Draft Policy is a mix of visionary thought process, advanced technological solutions, putting in place digital infrastructure to support India’s digital economy etc.

DATA

The Draft Policy resonates the idea and intent of the legislature that is formulated under the Data Protection Bill, 2018 as far as the rights over data of an individual is concerned. The collective idea of the Draft Policy is to streamline the protection of personal data and empowerment of the users/consumers with respect to the data they generate and own. Though the question to be assessed here is whether this is the real intent of the Draft Policy?

The Draft Policy recognises the rights of an individual over its data by stating that “An Individual owns the right to his data” and therefore the use of an individual’s personal data shall be made only upon seeking his/her express consent. It further states that the data of a group is a collective data and therefore a collective property of that particular group; it extends this rationale to state that “Thus, the data that is generated in India belongs to Indians, as do the derivatives there from”. But the Draft Policy ends up categorising data of Indians as a collective resource and therefore a “national resource”.

The abovementioned intent of the Draft Policy is fair and strives to achieve the greater good of the country, but at what stake? If personal data belongs to an individual then this objective appears that the State wants to interfere with the personal rights of a person. The Draft Policy clearly states that “All such data stored abroad shall not be made available to other business entities outside India, for any purpose, even with the customer’s consent”, what follows this point in the Draft Policy, restricts sharing of data with any third party in a foreign country even if the individual has consented to such sharing of the data.

The intent behind such restriction is that currently, India lacks stringent laws regarding cross-border flow of data. If there are no strict restrictions on cross-border flow of data Indian stakeholders will merely be engaged in back end processing of data for the EU / US based e-commerce entities without having the ability to create any high-value digital products. While the Government considers data as a national resource and compares it with coal, telecom spectrums etc. it ignores the fact that the inherent nature of personal data is that it belongs to an individual and not to the State, unlike coal.

The obvious reason as to why the State is taking such a stance is to eliminate issues related to consent asymmetry. But is this paternalistic attitude warranted?

If the Government is worried about foreign countries using our national resource i.e. data to their advantage it should put in place stringent data privacy and protection laws in India taking inferences from other countries.

DATA INFRASTRUCTURE

The Draft Policy takes forward the digital India initiative and intends put in place secure and digital infrastructure and encourage the development of data –storage facilities/ infrastructure including data centres, server farms, towers, tower stations, equipment, optical wires, signal transceivers, antenna etc.

The Government will add the above-mentioned infrastructure facilities in the  ‘Harmonized Master List’. This will enable regulation of the listed infrastructure in a more streamlined manner. Whereas the infrastructure will be put in place by various implementing agencies, while financing agencies may identify these as infrastructure that they may intend to support. This will facilitate achieving last mile connectivity across urban and rural India.

The Government by developing such data/digital infrastructure wishes to support India’s fast-growing digital economy and create employment.

EASE OF REGULATION

Given the interdisciplinary nature of e-commerce, it is important for the Government to tackle various regulatory challenges. The Draft Policy suggests formulating a Standing Group of Secretaries on e-Commerce (SGoS), which shall be an important body for tackling various legal issues emerging from various statutes such and Information Technology Act, 2000 and rules thereunder, the Competition Act, 2002 and the Consumer Protection Act, 1986.

Additionally, the Draft Policy states that “All e-Commerce websites and application available for downloading in India must have a registered business entity in India as the importer on record or the entity through which all sales in India are transacted”.

SIGNIFICANT HIGHLIGHTS OF THE DRAFT POLICY

  • The Government intends to continue charging custom tariffs on any digital goods being traded electronically (imposing custom duties on electronic transmissions). Whereas the Government is strict on its stance of not accepting the permanent moratorium on custom tariffs for goods (including digital goods) traded electronically as proposed by the WTO.
  • The Draft Policy states that there should technological standards put in place for emerging technologies like IoT, AI etc.
  • The Draft Policy introduces a term, namely ‘Infant Industry’ under which small scale entities facing entry barriers to enter the market will be integrated with market keeping data as a central to this integration. This will also help strengthen platforms like ‘e-lala’ and ‘Tribes India’.
  • The Government intends to establish technology wings in each Government department.
  • The Government intends to streamline the process of importing goods in India and harmonise the functions of various administrative bodies involved in the process of import of goods in India.
  • A body of industry stakeholders will be created that shall identify ‘rogue websites’. These rogue websites will be added to ‘Infringing Website List’ (IWL). IWL will enable the ISPs to remove or disable these websites. It will also enable payment gateways to curtail the flow of payments to or from such rogue websites. Search engines will be able to efficiently remove such rogue websites identified in the IWL.
  • There shall be no trade mark infringement and customers at large shall not be deceived by using deceptively similar trademarks. In case an e-Commerce entity receives a complaint about a counterfeit/fake product which is manufactured with intent to deceive the customers. The e-Commerce entity shall convey such misuse of the trademark within 12 hours from receiving the complaint to the trade mark owner. Whereas in case any prohibited goods/products have been sold on any e-commerce platform the entity operating such e-Commerce platform shall delist such products within 24 hours from receiving such complaint.
  • Any non-compliant e-Commerce entity will be not be given access to operate in India.
  • All e-Commerce sites/apps available to Indian consumers shall display prices in INR and must have MRPs on all packaged products, physical products and invoices generated.
  • In the view of misuse of ‘gifting’ route, as an interim measure, all such parcels shall be banned, with exception of life-saving drugs.
  • Details of sellers shall be available for all the products sold online.
  • Sellers shall provide undertaking regarding genuineness of any product sold online.
  • In case of a counterfeit product is sold to a consumer, the primary onus to resolve such an issue will be of the seller but the intermediaries shall return the money paid to them by the customer and the marketplace shall seize to host such products on their platforms.
  • The intermediaries shall curtail piracy on their platforms.
  • An integrated system that connects Customs, RBI and India Post to be developed to better track imports.
  • The Draft Policy also intends to simplify the processes involved in export of goods by doing away with redundant requirements such as the need to procure Bank Realisation Certification

Once the final e-Commerce policy is enacted what will be interesting to see is whether Government opts for ease of governance or ease of doing business.

Overall this Draft Policy is a positive step towards making India one of the most prominent digital economies in the world, especially considering the strict stance the Government has taken during the WTO negotiations by not accepting the permanent moratorium on waiving custom duties on digital goods sold through electronic transmission. The Government intends to boost the local and home grown e-Commerce business entities and to provide a level playing field for MSMEs by retaining the rights to impose tariffs on electronic transmission through e-Commerce. Certain issues regarding data/personal data of an individual still needs a deep intellectual thinking, integrated with a practical approach from the Government before implementing a sector-wide policy, especially keeping in mind that at the end of the day personal data belongs to an individual and the use of such personal data shall be the decision of the respective individuals and not of the State.

Author: Manas Ingle, Associate, NovoJuris Legal

Early Stage Valuations: Legislative Context and Continuing Saga of Angel Tax

The last couple of months have been quite interesting in the startup ecosystem in India, given the legislative changes in the context of Section 56(2)(viib) of the Income Tax Act, 1961, or what we know as the ‘Angel Tax’ provision. This post is an attempt to analyse the legislative context and critically evaluate the current situation.

Angel tax

Credit: MoneyControl

Introduction of Angel Tax

The legislative context of Angel Tax, introduced through the Finance Act 2012, is rather fascinating. The then Minister of Finance Mr. Pranab Mukherjee introduced his Budget Speech of 2012 – 2013, on a reformative note mentioning the various challenges of a global recession that the Indian economy was striving not to get affected by at the concerned point of time in reference. The tone was very clear on how the Indian economy was then at a juncture to take hard decisions. One of the five objectives that the Union Ministry sought to address was “… the problem of black money and corruption in public life”. A series of measures were therefore proposed “to deter the generation and use of unaccounted money”, including “increasing the onus of proof on closely held companies for funds received from shareholders as well as taxing share premium in excess of fair market value”, taxable at the  highest rate, irrespective of the slab of income.[1]

There are some views that this proposal was also made in the aftermath of certain money laundering investigations launched about the same time, where bribe money was allegedly laundered by routing it through various individuals and companies and getting investments at a high premium.[2]

Interestingly, investments in a private limited company at that point of time was being governed primarily under the Companies Act, 1956, which lacked the severity and rigour brought in by the private placement mechanism and preferential allotment modes, under the Companies Act, 2013, in a bid to provide better protection to stakeholders by enforcing accountability and transparency.

Industry Woes and Consequences

  • The language of Section 56(2)(viib), as introduced by the Finance Act 2012, provides for taxation of consideration received by private limited companies for issue of shares, in excess of fair market value (FMV) of the shares. Exemption under the same is available if such consideration is received from ‘venture capital undertaking’ or ‘venture capital company’ or ‘venture capital fund’ and any other ‘class of persons’ as may be notified by the Central Government in this behalf.
  • FMV would be as determined in accordance with Rules 11U and 11UA of the Income Tax Rules, 1962 or as may be substantiated by the company to the satisfaction of the Assessing Officer based on value of assets (including intangible assets, goodwill, intellectual property, business or commercial rights, etc.), whichever is higher.
  • Rule 11UA provided for the computation of valuation of unquoted equity shares under Section 56(2)(viib), either as per a mathematical formula, or as determined by a merchant banker or an accountant as per the Discounted Free Cash Flow (DCF) method, at the option of the assessee.

As a consequence, early stage companies started moving ahead with chartered accountant determined valuations for investments raised from resident angel investors, following the DCF method. This was also in parity with the requirement for the private placement process under Rule 13 of the Companies (Share Capital and Debenture) Rules, 2014. However, the risk still remained to the extent the same could not be substantiated to the satisfaction of the Assessing Officers, upon receipt of a notice in this regard.

Assessment to the satisfaction of the Assessing Officer, on a literal interpretation, may be considered as taking a step towards understanding the business perspective while putting in place right checks and balances for curbing money laundering and corruption. However, any element of satisfaction, has its own nuances and brings in a certain amount of discretion that is required to be exercised with caution, especially in the context of varied business ideas and models that could be novel in the Indian context and therefore would require a greater understanding and knowledge of the intellectual property or goodwill or business or commercial rights thereof. The understanding would also have to be basis different commercial contexts, such as the implementation of anti-dilution rights. Such rights are typically available to financial investors and often entail issuance of additional shares at minimum price, to give effect to commercially agreed upon rights.

Much has been written on the multiple incidents of startups receiving notices under Section 56(2)(viib), having to justify commercially driven business decisions. This has led to various representations to the Government by industry bodies, to take a re-look and if possible bring down Section 56(2)(viib).

The Plethora of Subsequent Legislative Changes

The first sign of relief came with the introduction of the Startup India Action Plan launched by Prime Minister Narendra Modi on 16 January 2016 (the “Action Plan”), as part of a flagship initiative of the Government of India for boosting the startup ecosystem in India.

  • The Action Plan brought forth a definition of ‘Startup’ and conditionalities based on which a Startup could be considered for recognition under the Action Plan. The Action Plan also recognised that it is difficult to determine FMV of shares in the context of Startups, which might very well be just at conceptualization or development stage and in most cases capital investments in Startups would be made at much higher valuations than what could be traditionally considered as FMV, which is the exact scenario that falls under the ambit of Section 56(2)(viib).
  • With this background, the Action Plan extended the exemption under Section 56(2)(viib) to investments made by incubators in Startups as well.
  • What followed a few months later is a notification dated 14 June 2016, issued by the Central Board of Direct Taxes (CBDT) that further extended the exemption, in the context of recognised Startups to ‘person’ as defined under Section 2(31) of the Income Tax Act, 1961. This includes individual, hindu undivided family, company, firm, association of persons, local authority, and any other artificial juridical person.

This led many early stage companies to strive for recognition under the Action Plan. Unrecognised startups/early stage companies, however, continued to struggle with the woes of the Angel Tax regime.

Amidst all of this, the Department of Industrial Policy and Promotion (DIPP) has now issued a  notification dated 11 April 2018 that introduces the following additional nuances for recognised ‘Startups’ also:-

  • Any ‘Startup’ falling under the ambit of the definition provided as such in the notification and being a private limited company, can now be considered for an ‘approval’ for the purposes of Section 56(2)(viib), if certain conditionalities are fulfilled.
  • The conditionalities include – (a) the aggregate amount of paid up share capital and share premium after the proposed issue, not exceeding Rs. 10 Crores;

‘Proposed’ could be read as ‘prior approval’, meaning a recognised ‘Startup’ would now have to wait for an approval before they can raise seed level funds from resident angel investors, which are many a times, crucial for jet-setting the business. Speedy execution and implementation being the foremost criteria for raising such seed level funds by early stage companies, introducing an element of ‘prior approval’ could be massively counter-productive.

Further, the process appears to be each investment based and not a one time approval.

(b) The investor/proposed investor has to have an average returned income of at least Rs. 25 Lakhs for the 3 preceding financial years or the net worth of at least Rs. 2 Crores on the last date of the preceding financial year;

Although this might be akin to the general theme of deterring the generation and use of unaccounted money, the question that one might have is whether the intent is to then tax and therefore, restrict angels, friends and family driven or similar early stage investments,  below the given threshold.

Quite interestingly, the form in which a Startup has to apply for the approval not only includes disclosure of such details of the investor, as mentioned above, but it also requires the name, PAN and address of the existing shareholders (without any qualification as to resident or non-resident) along with the price point at which they had invested.

(c) the Startup also has to obtain a report from a merchant banker specifying the FMV in accordance with Rule 11UA.

Early stage investments raised from resident angels, most often, are not very significant amounts and mainly utilised for helping businesses get a footing till such time that they reach validation stages and therefore seek larger amounts as venture capital funding or other forms of institutional funding. Introducing a ‘merchant banker valuation’ justification for such investments, would not only mean increase in cost to companies but also be a deterrent to raising small funds.

Within a couple of months from the above-mentioned DIPP notification, the CBDT issued 2 notifications dated 24 May 2018, one omitting the word ‘or an accountant’ from Rule 11UA, and the other extending the exemption under Section 56(2)(viib) to consideration received in accordance with the approval granted by the Board[3] under the DPP notification.

Current Position

With all of the above changes, the current position with respect to valuations and Section 56(2(viib) stand as follows:-

  • Receiving Investments from Resident Investors by Recognised Startups – Approval mechanism, requiring merchant banker valuation, unless investment is being received from exempted categories.
  • Receiving Investments from Resident Investors by Unrecognised startups/private limited companies – No approval mechanism However, merchant banker valuation would still be required, unless investment is being received from exempted categories.
  • Receiving Investments from Non-Resident Investors by Unrecognised startups/private limited companies – Section 56(2)(viib) is not applicable and therefore companies could still make do with a chartered accountant valuation report that works well both under the Foreign Exchange Management related regulations and under the Companies Act, 2013.

In our view, the situation detailed above needs a closer evaluation by the Government, so that while curbing corruption and money laundering, business is also facilitated. The general theme in the country currently being ensuring ease of doing business, a more balanced approach is required with respect to taxation also. More importantly, direct taxation being a concept linked with direct gains, the question that really needs to be evaluated here is whether at all early stage “investments” can be construed as direct gains.

Author: Sohini Mandal, Associate Partner

[1] Budget 2012-2013, Speech of Pranab Mukherjee, Minister of Finance, March 16, 2012, as available at https://www.finmin.nic.in/sites/default/files/bs1.pdf?download=1 (visited on June 12, 2018)

[2] Nakul Saxena and Siddharth Pai, Policy Expert Council Members, iSpirt Foundation, The History and Future of Angel Tax, February 12, 2018, as available at http://pn.ispirt.in/the-history-and-future-of-angel-tax/ (visited on June 11, 2018)

[3] The DIPP notification dated 11 April 2018 also provides for approvals to be provided by an Inter Ministerial Board of Certification (the “Board”), to be formed with 8 members from the DIPP, Ministry of Corporate Affairs, Reserve Bank of India, Securities and Exchange Board of India, CBDT, etc.

 

Update: Regulatory Department of Industrial Policy and Promotion (DIPP) Notification on Definition of Start-ups

The Department of Industrial Policy and Promotion (DIPP) vide its notification dated 11 April 2018 has amended its previous notification dated 23 May 2017 on the eligibility guidelines for ‘start-ups’. This notification is in suppression of the earlier notification dated 23 May 2017.

Definition of Start-Up:

An entity shall be considered as a start-up:

  • up to a period of 7 years from the date of incorporation/registration, if it is incorporated as a private limited company or registered as a registered partnership firm or a limited liability partnership in India. In the case of start-ups in the biotechnology sector, the period shall be up to 10 years from the date of its incorporation/ registration.
  • The turnover of the entity shall not exceed Rs.25 Crore.
  • The entity should be working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation. However, an entity formed by splitting up or reconstruction of an existing business shall not be considered a ‘start-up’.

Income Tax benefits:

Relaxation under section 80-IAC

Prior to this notification, in case of claiming tax benefits under section 80-IAC of Income Tax Act, 1961, the start-ups had to be incorporated on or after 1 April 2016, but before 1 April 2019 but as per the new notification, the period has been extended to 1 April 2021 and can claim 100% tax exemption on profits for 3 out of 7 years. With this new change, the start-ups shall enjoy income tax benefit for 3 out of 7 consecutive assessment years. Further, the Certification from the Inter-Ministerial Board is necessary to avail such exemption.

Tax benefit under section 56 (2) (viib) of Income Tax Act 1961

As per section 56(2) (viib) of Income Tax Act 1961, in case of Company receiving consideration issuance of shares above Fair Market Value (FMV), then the excess of consideration above the FMV would be taxed in the hands of Company as other Income. Prior to this notification, the start-ups were exempted from the aforementioned provisions. The valuation of the Company in such case should be as per 11UA of the Income Tax Act 1961, which states that it should be as per Discounted Free Cash Flow method determined by either Merchant Banker or by Chartered Accountant.

Pursuant to this notification, the start-ups could avail such tax benefits on issue of shares for a consideration above the fair market value, only upon fulfilment of following conditions:

  1. The aggregate amount of paid-up share capital and share premium of the start-up after the proposed issue of shares should not exceed Rs.10 Crore.
  2. The investor/ proposed investor, who proposed to subscribe to the issue of shares, should either have (i) an average returned income of Rs.25 Lakh or more for the preceding three financial years or (ii) Net worth of Rs. 2 Crore or more as on the last date of the preceding financial year.
  3. The start-up has obtained a report from a merchant banker specifying the fair market value of shares in accordance with Rule 11 UA of the Income Tax Rules 1962.

Further, start-ups shall have to make an application to Inter-Ministerial Board and obtain the approval for such exemption.

Pursuant to this notification, it shall be expensive for start-ups to obtain merchant banker certificate for such issuance. This may require clarity as rule 11UA allows both Merchant Banker or by a Chartered Accountant to issue valuation certificate. However, this notification mandates such valuation could be done by only merchant banker.

Source: https://www.startupindia.gov.in/notification.php

Regulatory update: Department of Industrial Policy and Promotion (DIPP) Notification on Definition of Startups

The Department of Industrial Policy and Promotion (DIPP) vide its notification dated 11 April 2018 has amended its previous notification dated 23 May 2017 on the eligibility guidelines for ‘start-ups’. This notification is in supersession of the earlier notification dated 23 May 2017.

Definition of Start-Up:

An entity shall be considered as a start-up:

  • up to a period of 7 years from the date of incorporation/registration, if it is incorporated as a private limited company or registered as a registered partnership firm or a limited liability partnership in India. In the case of start-ups in the biotechnology sector, the period shall be up to 10 years from the date of its incorporation/ registration.
  • The turnover of the entity shall not exceed Rs.25 Crore.
  • The entity should be working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation. However, an entity formed by splitting up or reconstruction of an existing business shall not be considered a ‘start-up’.

Income Tax benefits:

Relaxation under section 80-IAC

Prior to this notification, in case of claiming tax benefits under section 80-IAC of Income Tax Act, 1961, the start-ups had to be incorporated on or after 1 April 2016, but before 1 April 2019 but as per the new notification, the period has been extended to 1 April 2021 and can claim 100% tax exemption on profits for 3 out of 7 years. With this new change, the start-ups shall enjoy income tax benefit for 3 out of 7 consecutive assessment years. Further, the Certification from the Inter-Ministerial Board is necessary to avail such exemption.

Tax benefit under section 56 (2) (viib) of Income Tax Act 1961

As per section 56(2) (viib) of Income Tax Act 1961, in case of Company receiving consideration issuance of shares above Fair Market Value (FMV), then the excess of consideration above the FMV would be taxed in the hands of Company as other Income. Prior to this notification, the start-ups were exempted from the aforementioned provisions. The valuation of the Company in such case should be as per 11UA of the Income Tax Act 1961, which states that it should be as per Discounted Free Cash Flow method determined by either Merchant Banker or by Chartered Accountant.

Pursuant to this notification, the start-ups could avail such tax benefits on issue of shares for a consideration above the fair market value, only upon fulfilment of following conditions:

  1. The aggregate amount of paid-up share capital and share premium of the start-up after the proposed issue of shares should not exceed Rs.10 Crore.
  2. The investor/ proposed investor, who proposed to subscribe to the issue of shares, should either have (i) an average returned income of Rs.25 Lakh or more for the preceding three financial years or (ii) Net worth of Rs. 2 Crore or more as on the last date of the preceding financial year.
  3. The start-up has obtained a report from a merchant banker specifying the fair market value of shares in accordance with Rule 11 UA of the Income Tax Rules 1962.

Further, start-ups shall have to make an application to Inter-Ministerial Board and obtain the approval for such exemption.

Pursuant to this notification, it shall be expensive for start-ups to obtain merchant banker certificate for such issuance. This may require clarity as rule 11UA allows both Merchant Banker or by a Chartered Accountant to issue valuation certificate. However, this notification mandates such valuation could be done by only merchant banker.

Source: https://www.startupindia.gov.in/notification.php

Estonia: The ‘Smart’ Country

Estonia: The ‘Smart’ Country

We had an opportunity to visitTallin, the capital city of Estonia and what a rich experience it was, as we went from exploring the Enterprise Estonia showroom and the e-Residency opportunities to having interesting discussions with legal partners and witnessing the high energy, high technology ambience of Tallinn Science Park, Tehnopol.We have been connected to the Estonian innovation eco-system earlier but witnessing that in person and at close quarters was indeed a great experience

Enterprise Estonia

Enterprise Estonia showroom, where Media Team Member FredericoPlantera took us through the pulse of Enterprise Estonia – a short presentation (enter e-Estonia) on how with just a population of about 1.3 million the country is managing to be in the top tiers of theWorld Bank, OECD and other similar ratings. With 99% of services being online (excluding a few like divorce, marriage and buying and selling real estate), the country boasts of having recognised Internet as a social right, providing smart ID cards to all its residents (not citizens) and having 7% of its GDP coming from the Information, Communication and Technology (ICT) sector. Innovation is digital-by-default and incorporation of a company is a matter of 18 minutes in this country; add to that the facilities of e-taxation and e-residency (see our post on e-residency here); and there is a high potential of having a magical combination.

We also got a glimpse into how X-Road, the ‘highway of e-Estonia’, works. X-Road is basically the infrastructure and backbone of e-Estonia that connects various databases, ERPs, tax boards, state portals, banks, telecom companies, population registers, et al. across the country, thereby facilitating over millions of transactions per year. We are told that the technology of X-Road is largely similar to and a predecessor of today’s block-chain technology (having been in existence since 2001). It is also being exported and there are talks of exporting this technology to other EU countries like Finland, Netherlands, with the creation of a digitised EU market being the ultimate goal.

Amongst other things, Enterprise Estonia also provides ‘Start-up grant’ of up to €15,000, subject to certain terms and conditions. It is also the focal point for receiving various other grants and funding, made available through the Ministry of Economic Affairs under the Organisation of Research and Development Act, which is an enabling legislation for baseline funding, research grants.

Legal framework and taxation: We had the opportunity of meeting some of the top law firms in Tallin with detailed discussions on legal structure and taxation. You’ll be glad that there isno corporate income tax in Estonia on retained and reinvested profits; 20% corporate income tax on distributed profits (actual and deemed); dividends paid to non-residents being not subject to any withholding tax; DTAA between India and Estonia; 20% value added tax rate; no mandatory auditing for private limited companies below certain thresholds; easy foreign direct investment in Estonia; minimum share capital requirement (for private limited) of €2500, but the company can be established so that the share capital is paid later on; etc.

Incubation space: We also had the opportunity of visiting the incubation space of Tallinn Science Park, Tehnopol, which has supported companies such as Skype, GuardTime (the block-chain service provider to the Estonian government).Tehnopol is one of the biggest tech hubs in the Baltic region and works extensively with companies in the green technology, ICT and health technology sector, often times providing supports to companies, even at prototyping phases. The average incubation period is up to 2 years and till a company raises capital/generates the first sale. It invests up to € 10 000worth of expertise to start-up companies to find the first seed investment or reach export markets, providing access to 30+ business coaches working hands-on with start-ups, 70+ trainings, investor panels, sales, pitching and networking events annually, co-working center, and last but not the least, access to € 300,000prototyping fund PROTOTRON (prototron.ee). (For more details, see here).

So there, if you as an Indian enterprise wish to expand to EU, perhaps Estonia can be your landing place.

Free Handbook on “Startup India Action Plan”

This freely downloadable e-book is a ready reckoner on the Startup India Action Plan and a compilation of our previous posts on the subject. We iterate herein the various benefits available to startups under the Startup India Action Plan, and other ancillary benefits available through statutory amendments, notifications, guidelines, and state initiatives.

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Download here: NovoJuris-StartupIndiaActionPlanHandbook

Link

(Note: This post appeared first on NextBigWhat)

startupindia

Image Credit: makeinindia.com

The Startup India Action Plan (the “Plan”) though not exactly a game changer, has been one of the flagship initiatives of the government of India, towards due recognition of the start up ecosystem and accelerating its growth momentum, by providing several benefits, as discussed in our previous article on “Startup India Policy – Update One”. For the first-time a need was felt to specifically enact plans and initiatives to encourage the technology, design and innovation driven ecosystem and to nurture innovation and startups (defined for the first time in the Plan). With the Plan getting an year old, we evaluate in this article the way the Plan has unfolded and the progress that has been made thus far.

To recapitulate briefly, a Startup has been defined as a private limited company or a partnership firm or an LLP, incorporated or registered in India not earlier than five years, with annual turnover not exceeding INR 25 crores in any preceding financial year, working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property. Entities formed by splitting up, or reconstruction, of a business already in existence have been specifically stated to be not eligible for recognition under the Plan.

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