While drafting foreign collaboration agreements both parties have to necessarily take into consideration the tax laws in the respective countries. This is necessary so as to ensure, on the one hand, that the statutory requirements under the various tax laws in India and the other country are met, as also, on the other hand, to minimise the burden of tax which falls on the income, profits and gains arising from the collaboration.

Foreign collaboration is an alliance incorporated to carry on the agreed task collectively with the participation (role) of resident and non-resident entities. Foreign collaboration agreement entered into two or more companies, any of them being a foreign company for their mutual benefits and thereby starting their business in another country with or without forming a separate company.