• Can we send money as expenses/fees to parent company to save taxes?

Hi, 
I am an NRI since the last 12 years, residing in Bahrain. I wish to start a holding company in Bahrain ( let's say ABC Limited). Further, I want to open an LLP in India (XYZ LLP) with ABC Limited as the parent company. 
Now my questions are:

1. Is it possible to start a LLP in India with parent company based in Bahrain?

2. If #1 is a yes, can I transfer funds from XYZ LLP to ABC Limited as some sort of fees and show it as an expense in the books of XYZ LLP?

3. If #2 is a yes, is it legal, grey area or totally illegal to do that? Or would I face any problem to do that?

Thank you in advance!
Asked 23 days ago in Corporate Tax

1. Is it possible to start an LLP in India with a parent company based in Bahrain?

Yes, a foreign company can be a partner in an Indian LLP. You must comply with the Foreign Exchange Management Act (FEMA) and obtain necessary approvals from the Reserve Bank of India (RBI).

 

2. Can I transfer funds from XYZ LLP to ABC Limited as fees and show it as an expense in XYZ LLP's books?

Yes, you can transfer funds as fees for services or management charges, provided these transactions are genuine, at arm's length, and properly documented.

 

3. Is this legal, a grey area, or illegal? Will I face any problems?

It's legal if:

- The transactions have a legitimate business purpose and are not for tax avoidance.

- Fees are at fair market value (comply with transfer pricing regulations).

- Detailed records are maintained.

- Compliance with FEMA and RBI guidelines is ensured.

 

For detailed, personalized advice, consider a phone consultancy.

Hope you find the information helpful. You are free to contact me for further discussion.If you could spare two minutes of your time to write a review, It would be really grateful and very happy to read it.

Thank you.

Shubham Goyal

Shubham Goyal
CA, Delhi
251 Answers
4 Consultations

5.0 on 5.0

Business structuring depends on the business objective and model as it involves statutory and regulatory compliances. Need more information on below aspects to advise you precisely:

1) Whether income from business operations would be by providing services or trading?

2) Whether nature of clients would be domestic or overseas or combination of both?

3) Nature of expenses

4) Place of business etc.

 

For detailed discussion you may opt for phone consultation

Vivek Kumar Arora
CA, Delhi
4871 Answers
1058 Consultations

5.0 on 5.0

Structuring depends on your requirement. Whether you wish to have a holding subsidiary structure or if you wish to have a independent structure. Generally holding subsidiary structure is useful when you wish to get some funding etc.

 

Also, it is advisable to have atleast 1 or 2 Indian resident as partner in LLP for ease of compliance as having non-resident as partner would involve FEMA compliance.

 

Why would a subsidiary send money to holding company? Is there any service which we shall show that it will receive?

 

Hope you find the information helpful, if yes do rate if 5 and provide your valuable feedback for my improvement.

Thank you.

Naman Maloo
CA, Jaipur
4285 Answers
98 Consultations

5.0 on 5.0

Comparison: Bahrain Parent Company vs. Direct LLP in India

Bahrain Parent Company:


  • Tax Benefits: No corporate or personal income tax in Bahrain.

  • Funding and Investment: Easier to attract international investors.

  • Compliance: More complex, requires adherence to both Bahraini and Indian regulations.

  • Operational Flexibility: Better for managing international subsidiaries.

  • Legal Protection: Additional layer of liability protection.

  • Reputation: Enhanced international credibility.

Direct LLP in India:


  • Tax Benefits: Subject to Indian corporate taxes.

  • Funding and Investment: Simpler for local investors.

  • Compliance: Limited to Indian regulations, simpler.

  • Operational Flexibility: Easier local management.

  • Legal Protection: Limited to LLP structure.

  • Reputation: Better local market perception.

Summary


  • Choose Bahrain Parent Company: If focusing on international expansion, tax efficiency, and attracting global investors.

  • Choose Direct LLP in India: If operations are mainly domestic, with simpler compliance and local market integration.

For detailed, personalized advice, consider a phone consultancy.

Hope you find the information helpful. You are free to contact me for further discussion.If you could spare two minutes of your time to write a review, It would be really grateful and very happy to read it.

Thank you.

Shubham Goyal

Shubham Goyal
CA, Delhi
251 Answers
4 Consultations

5.0 on 5.0

It depends on your objective and business to be carried on. It is possible to have LLP in India with foreign partner. But it is important to understand exact business model and objectives to advise in detail 

Prerna Peshori
CA, Pune
197 Answers
11 Consultations

5.0 on 5.0

Ask a Chartered Accountant

Get tax answers from top-rated CAs in 1 hour. It's quick, easy, and anonymous!
  Ask a CA