Starting an Export Business in India

India is the nineteenth largest exporters in this world with an estimated total exports of $313,200,000,000 during the year 2013. India exports a myriad of products and services from its strong and vibrant manufacturing and service sector powered by abundant skilled labors. With the global economy showing signs of revival, there exists immense potential for starting up and developing export business in India. In this article, we look at FINANCIAL and regulatory issues surrounding the starting of an export business in India.

Types of Export Business

Export businesses can be mainly classified into three categories, Manufacturing – Export Units, Export TRADERSand Service Export Units. Manufacturing export units are into the manufacturing of good and products for foreign sales. Export traders are merchants involved in the export of domestically manufactured goods to foreign countries. Service export units are businesses involved in providing services for foreign clients. Manufacturing – Export Units typically enjoy significant thrust from the Government and Banking sector through various schemes and subsides as it generates a lot of employment. Manufacturing units involved in export enjoy a number of schemes from the Government such as Export Promotion Capital Goods (EPCG) Scheme, Export Packing Credit Facilities, Credit Guarantee Scheme for Micro, Small and Medium Enterprises, etc., Similarly, there are also other schemes and subsidies available for exporters. Therefore, prior to starting an export business, it is important for the Entrepreneur to understand the nuances of each type of export business and choose the one right for him/her based on the experience, circumstances and requirements.

Type of Business Entity

Export businesses typically generate substantial sales volumes and are exposed to various risks like CURRENCYfluctuation, foreign credit, foreign suits/legal proceedings and other foreign liabilities. Therefore, it is best for Export Businesses to have a Limited Liability Structure with an independent existence that is recognized world-wide. Private Limited Company and Limited Liability Partnership’s are best suited for export business. In addition to providing Limited Liability protection for the stakeholders, Private Limited Company or Limited Liability Partnerships also project a strong brand image to the foreign customers. Major foreign buyers also sometimes insist that its vendor be Private Limited Company or Limited Liability Partnerships; therefore, it is best for export businesses to be started off as a Private Limited Company or Limited Liability Partnership or One Person Company.

Tax Registrations

Export of goods from India is zero-rated. Therefore, there is no requirement to pay Value Added Tax (VAT) or Sales tax on goods sold from India to foreign customers. However, state laws mandate that any person who has purchases or sales over a threshold amount register for VAT. In addition, exporters enjoy tax exemptions for the export of Goods from India. Therefore, businesses involved in export of goods must obtain VAT Registration, though the payment of VAT might not be necessary.

Export of service is also exempted from Service Tax. Therefore, service exporters are not required to pay service tax; however, it is still advisable for service exporters to obtain Service Tax Registration in order to claim refund on input credit, if applicable.

Import Export Code (IE Code)

Import Export Code or IE Code is a registration with Directorate General of Foreign TRADE (DGFT) required for all importers and exporters in India. An IE Code allotted to an applicant is valid for all its entire business and is valid forever. Therefore, anyone proposing to do an export business must obtain an IE Code from DGFT. IE Code can be obtained through IndiaFilings or by applying with the DGFT.

Export Promotion Council

In addition to the above, exporters can register with the respective Export Promotion Council that is applicable for their industry. Export Promotion Council is an official body for exporters in India that provides invaluable assistance to Indian exporters as well as importers/international buyers who choose to buy from India.