International Law Firms in India - what has changed?

June 2023

Louise Cupples, Tax Partner

Law firms setting up in India

History of operating in India

It is well documented that to date India has followed a restrictive policy regime in its legal services sector with prohibitions on the entry of foreign law firms (FLF).

As recently as 2018, the Apex Court of India held that FLF would be restricted from practising law in India (both litigation as well as non-litigation matters). It has however been possible for foreign lawyers to obtain visas to visit clients or referral partners in India. In addition, it has been possible for foreign lawyers to obtain temporary permission to provide advice on home-country and international law on a fly in fly out basis.

What has changed?

The Bar Council of India (BCI), under new rules published in March 2023, announced it was permitting foreign lawyers and law firms to practice in India on a reciprocity basis (subject to certain restrictions).

However, confusion shortly followed. In its original statement, the BCI said it was allowing foreign law firms to open offices in India to advise clients on the international elements of mergers and acquisitions, or appear as arbitrators. However, foreign lawyers would still not be able to advise on Indian law or appear in India’s courts.

Then, days later, a clarification issued by the BCI appeared to restrict international law firms to advising non-Indian clients only in respect of foreign laws.

Further clarification may be expected in the future and hence there are still some uncertainties for firms regarding the permitted services.

Entry Rules & Regulations for Foreign Law Firms in India

Under the BCI regulations, FLF are permitted to register with the BCI, open offices and provide a range of permitted services. The key features of the BCI regulation are as follows:

• The entry of foreign lawyers is on a reciprocal basis only (this includes the UK and US);
• The right to practice law in the concerned foreign country is the primary criteria to permit registration;
• The FLF needs to register itself with the BCI;
• The practice in India needs to be carried out in a restricted, regulated and controlled manner.

No registration continues to be required where the FLF practice is undertaken:

• On a fly in and fly out basis for the purposes of giving legal advice;
• The advice has been procured by the client in a foreign country;
• FLF does not maintain an office in India for the purpose of such practice;
• Such practice does not, in aggregate, exceed 60 days in any period of 12 months.

Prevailing structures for practising FLF in India

With the option for firms to open offices in India, it will be necessary to consider the appropriate choice of structure. The following represent the prevailing structures for practising law in India:

• Liaison office – prohibited from earning income in India. Its main purpose is to represent the foreign firm and act as a communication channel.
• Branch office of the foreign firm. It can directly provide services.
• Limited Liability Partnership - an alternative corporate business form that gives certain benefits of limited liability of a company and the flexibility of a partnership.

In addition, FLF are allowed to set up in India as a company although there is currently no clarity regarding how the company would be established and its features.

The repatriation of profits from the Indian law firm to its parent will naturally be a key issue for firms to work through with all structures having to comply with Indian exchange control and withholding tax regulations.

Market thoughts

There remains concern and uncertainties over how the FLF would work in India although some firms have expressed an intent to pursue the opportunity.

Some firms are concerned that the new regulations may actually further restrict their activities in India although there is some celebration citing the reforms to be the biggest step forward in more than a decade of negotiations.

There have been several high profile Indian tax cases involving international law firms with concern that the Indian tax authorities take an aggressive view with respect to the taxation of international businesses. Firms will naturally want to be cautious when considering opening offices and ensure they are fully appraised with the relevant tax, withholding and financial implications.

How can we help you?

BDO UK and India work closely together and are able to assist international law firms with their plans in India. Specifically we can assist with:

• Consideration of the optimal entity structure for your business;
• Advice regarding tax, M&A, company law and accounting services with respect to Indian operations;
• Obtaining registrations with the BCI; and
• End to end assistance with the office set up.

BDO’s international network operates in 167 countries and is able to provide coordinated, international solutions with a sector specific angle. For further information on how these changes will affect your business, please contact Louise Cupples, Louis Keeping, Pranay Bhatia (BDO India), Saloni Kothari (BDO India) or your usual BDO contact.

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