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Global Capability Centres (“GCCs”) have stolen the spotlight and emerged at the centre stage as multinational corporations across the globe strive to restructure their operating models to achieve innovation and efficiency. GCCs are offshore productivity engines set up by multinational corporations across geographies, i.e., business units set up in different countries, particularly in emerging markets, to undertake specific functions including IT services, business process operations, research & development, analytics, finance and customer service.
In India, GCCs started off as back-end units engaged in providing basic customer support services and have gradually evolved to operational arms of multinational corporations, undertaking middle and front office operations including but not limited to data analytics, product development and innovation. This article aims to assist multinational corporations in navigating through India’s legal landscape and optimizing their investment in building efficient, scalable, and compliant GCCs.
Identifying a Strategic Location
While identifying the suitable location for setting up the GCC in India, multinational corporations must evaluate factors including the nature of the GCC’s operations, availability of resources for facilitating the operations, infrastructural requirements, costs of living and industry-specific incentives available at the location. The top Indian locations for setting up GCCs include Bengaluru, Delhi, Hyderabad, Chennai, Pune, and Mumbai, while the emerging locations include Ahmedabad, Vadodara, Jaipur, Visakhapatnam, and Coimbatore. The favourable state-specific incentives and evolved infrastructural ecosystem in the aforementioned cities make them the top picks for setting up GCCs.
It is pertinent to note that the location of the GCC shall also bear implications with respect to the stamp duties payable on various documents and agreements. Hence, while identifying the suitable location for setting up the GCC, multinational corporations must factor in all key aspects such as state-specific legislation, costs, infrastructure, existing industrial ecosystem and supply chain networks.
Key Legal Considerations
Entity Structuring
In order to set up a GCC in India, a multinational corporation shall be required to ensure adherence to the provisions of the Foreign Exchange Management Act, 1999 (“FEMA”), the rules, regulations made thereunder, and the notifications and directions issued thereunder, as amended from time to time. Additionally, while setting up in India, the multinational corporation shall ensure compliance with the provisions of the Foreign Direct Investment (FDI) Policy (“FDI Policy”) and the sectoral caps, entry routes and conditions specified therein. It is imperative to note that the FDI Policy prohibits foreign investment in certain sectors including atomic energy, gambling, betting and railway operations.
The GCC may be set up in the form of a Branch Office or a Limited Liability Partnership or a Joint Venture (“JV”) or a Wholly Owned Subsidiary (“WOS”). While JVs are a preferred choice for restricted sectors, the structure of a WOS stands out as the most preferred choice for multinational corporations intending to set up a GCC in India. GCCs may also require structure-specific approvals and shall be subject to certain additional compliances including compliance with the Companies Act, 2013. Furthermore, the GCCs may also be subjected to restrictions imposed by the RBI on investments from certain jurisdictions.
A multinational corporation may either independently set up and manage the GCC, retaining entire control and ownership over the GCC while outsourcing operations which demand specialised expertise or may outsource the process of setting up the GCC to a third-party and thereafter acquire control over the fully operational GCC. The choice of the ownership structure for the GCC and the mode of setting up shall depend on the availability of capital, control requirements of the foreign entity, its operations and commercial requirements.
Tax Implications
One of the most crucial aspects that multinational corporations must evaluate is the tax implications of each entity structure and the implications of the arrangement for setting up the GCC. In case the GCC is a part of the group of the multinational corporation, any transactions between the group entities shall be conducted at a price determined on an arms-length basis. Multinational corporations must define clear standard operating procedures to guide the interaction and collaboration between the employees of GCCs and those from the multinational corporation or other group entities to avoid the risk of classification as a permanent establishment under the Indian tax regime.
It is imperative to note that multinational corporations setting up GCCs in India may also be established in designated areas such as Special Economic Zones and Software Technology Parks. Alternatively, GCCs may also be established as GICs under the provisions of the IFSCA (Global In-House Centres) Regulations, 2020, in the International Financial Services Centre located in Gujarat to avail numerous fiscal and non-fiscal benefits including tax holidays, indirect tax exemptions and a relaxed regulatory environment.
Workforce Management
Labour and employment law compliances for the GCC shall encompass various facets at both central and state levels, including but not limited to mandatory policy formulation including the prevention of sexual harassment policy and equal opportunity policy, adherence to the prescribed working hours, provisions for leaves, procedures for termination of employees, provision of benefits to the workforce, etc. as stipulated under the applicable laws. In order to ensure compliance with the Indian labour and employment laws, GCCs must adopt meticulously drafted employment or consultancy agreements for engaging the workforce.
The Government of India has consolidated 29 central-level labour laws into 4 labour codes , namely the Industrial Relations Code, 2020, the Code on Social Security, 2020, the Occupational Safety, Health and Working Conditions Code, 2020 and the Code on Wages, 2019. The labour codes may be notified soon and shall thereafter replace the existing labour laws.
Intellectual Property Rights
While setting up GCCs in India, multinational corporations must ensure that their intellectual property is adequately safeguarded. The key legislation governing IP rights in India includes, without limitation, the Patents Act, 1970, the Trademarks Act, 1999, the Copyright Act, 1957 and the Designs Act, 2000. While onboarding the workforce and engaging service providers, GCCs must ensure that the agreements comprehensively capture and address the ownership and assignment of intellectual property. The agreements must conspicuously allocate ownership rights to any intellectual property created, used, or modified during the course of the engagement of the employees, contractors, service providers and/or any other third parties. Any licenses granted for the use of such intellectual property must be backed with meticulously drafted licensing agreements, which should clearly incorporate comprehensive provisions to set forth the scope and nature of such rights, including provisions pertaining to exclusivity, transferability, sub-licensing, term, and the respective rights, obligations, remedies and disputes resolution mechanisms of the parties.
Government Incentives for GCCs
The Indian government incentivises multinational corporations by conferring numerous relaxations and rebates for setting up GCCs in India. Furthermore, the government has implemented schemes for setting up in information and technology hubs, set up software parks and provided numerous benefits to entities setting up in such designated areas.
In order to attract multinational corporations and position the Indian states as global leaders in hosting GCCs, the state governments of Karnataka , Uttar Pradesh , Madhya Pradesh , Gujarat and Andhra Pradesh have notified GCC policies (“Policies”) for the respective states. The Policies encompass targeted incentivization and streamlined governance for GCCs setting up in the states and include tax exemptions, interest assistance, electricity duties rebates, subsidies, labour law incentives, incentives for the advancement of research and development in emerging sectors and innovation, regulatory support, relaxations from compliances under several legislation and various other fiscal and non-fiscal incentives. Additionally, the Policies include initiatives to foster local talent through internships, offering reimbursement for internship stipends. The incentives and relaxations under the Policies have been made eligible for both new GCCs and existing GCCs, subject to the thresholds, requirements and conditions specified under the Policies.
Conclusion
Setting up a GCC in India represents a strategically sound move for multinational corporations seeking to enhance operational efficiency and capitalize on favorable jurisdictional advantages. The legislative and policy frameworks adopted by several Indian states demonstrate a concerted effort to attract GCC investments, streamline regulatory processes, and foster a conducive environment for international business operations.
However, multinational corporations must note that the establishment of a GCC in India necessitates a nuanced understanding of the country’s multifaceted legal and regulatory regime. The legal framework encompasses a wide array of central and state laws, procedural compliances, sector-specific guidelines, and tax considerations that multinational corporations must navigate with diligence. From the initial stages of determining the appropriate legal entity to structuring operational models and selecting jurisdictionally beneficial locations, each phase of the GCC lifecycle demands strategic legal and regulatory planning. Given India’s evolving economic landscape, progressive digital infrastructure, and policy-driven emphasis on foreign investment and innovation, the present moment offers a unique opportunity for international businesses to establish or expand their offshore centres in India. A legally sound and well-advised entry strategy will be critical to unlocking the long-term value and resilience that a GCC in India can offer.
Author: Aashima Gusain (Associate)