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Foreign company registration options in India.

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Foreign company registration options in India

Foreign company registration options in India

Foreign businesses looking to set up a company in India can opt for a number of options, all of which fall under the laws and regulations outlined by the Companies Act of 2013 and its rules made thereunder, the Foreign Exchange Management Act (FEMA) 1999 and its regulations as amended from time to time.

This article outlines specific ways in which foreign businesses can establish and structure their foreign-owned operations in India.

Entry options for foreign businesses & investors

India is one of the world’s fastest-growing economies with vast human potential and a large market consisting of more than 1.4 billion people. Numerous business opportunities present in India have already attracted a large amount of foreign direct investment into the country and the amount of FDI keeps increasing each year as more foreign companies establish their presence in India.

A business can enter the Indian market by completing incorporation in accordance with the Companies Act of 2013 through:

  • Wholly owned subsidiaries (100% Indian subsidiary)
  • Joint ventures with other Indian companies (preferable in case where 100% FDI is not permitted)

Otherwise, if having commercial operations conducted within India is not required, there are also the following business structures:

  • Liaison office/representative office
  • Project office
  • Branch office

Basic registration requirements

The following approvals/registrations will be required in order to proceed with the formation of the above-mentioned business structures:

  • ROC Registration
  • PAN / TAN
  • Shops and Establishment Act Registration
  • Import Export Code
  • Goods and Services Tax
  • Registration with RBI under FEMA

To learn more about all the business entities available in India read our guide here.

Wholly owned subsidiary company

A wholly owned subsidiary is a company that is incorporated in accordance with the provisions of the Companies Act of 2013 and that holds 100% share capital of the company. In other words, a wholly owned subsidiary company is an entity whose total share capital is owned by another foreign or Indian company.

Criteria for a set up

  1. No minimum paid-up capital requirements, but the minimum authorised share capital of USD 1250 is required
  2. Minimum of two shareholders
  3. Foreign direct investment is subject to FDI Policy and compliances under FEMA, 1999

Permitted activities

All business activities, including those in the manufacturing, marketing, and service sectors, are permitted. Where 100% foreign direct investment is allowed, no prior RBI approval is required.

Set up time

4-8 weeks

Advantages of wholly owned subsidiary

  • Simpler mechanisms for reporting – the parent firm may consolidate the financial statements of its wholly owned subsidiaries into a single financial statement.
  • Increased financial resources – The parent company acquires more financial resources through the subsidiary earnings. The company can then use these extra funds to invest in other profitable initiatives or to grow the enterprise, thus increasing the return rate.
  • Overall cost reduction – the parent company and the wholly owned subsidiary can combine their financial systems and information technology, resulting in reduced expenses and costs.
  • Increased control – a wholly owned subsidiary helps the parent company retain operational control, allowing it to make strategic decisions if needed.

Disadvantages wholly owned subsidiary

  • Additional taxes for the parent company – as more taxes are imposed on businesses that have subsidiaries, the tax on the parent company may increase as well.
  • Complex paperwork – owning a wholly owned subsidiary entails a lot of paperwork and legal procedures, which increases the parent company’s cost structure.
  • Increased losses impact – if the wholly owned subsidiary has to bear any losses, they will directly impact the parent company, as the parent organization needs to intervene to help the subsidiary recover.

Joint venture

A joint venture is a strategic partnership when two or more people or businesses agree to contribute capital, goods, or services to a joint commercial project. A joint venture is the best option for businesses looking to access India’s vibrant market in sectors where 100% FDI is prohibited by Indian law.

Criteria for a set up

  1. No minimum paid-up capital requirements, but the minimum authorised share capital of USD 1250 is required
  2. Joint Venture Agreement/ Memorandum of Understanding to be executed.
  3. Two or more person/Entity.

  4. Foreign direct investment is subject to FDI Policy and compliances under Foreign Exchange Management Act (FEMA), 1999.

Permitted activities

All and any activities permitted under FEMA either in automatic route or approval route and as agreed in the Agreement.

Set up time

4-8 weeks

Advantages of a joint venture

The main benefits for a foreign investor opting for a joint venture structure when entering the Indian market are as follows:

  • Access to the reputable marketing and distribution channels of an Indian partner
  • Access to the available financial resources of Indian partners
  • Access to the partners’ established contacts will make it easier to set up a business there
  • A joint venture also provides the parties involved with an opportunity to share risk management associated with new enterprises. By sharing the liabilities through a joint venture, they can reduce their individual exposure.

Disadvantages of a joint venture

Joint ventures can also include significant risks related to liabilities along with the potential for disputes and conflicts between partners. Problems are likely to arise if:

  • The partners have different expectations for the joint venture
  • The investments and levels of expertise aren’t equally matched
  • The resources and work aren’t distributed equally
  • The different management styles and cultures can pose barriers to co-operation

Get our in-depth guide covering everything you need to know about starting and managing your business in India.

  • Discover foreign registration options & restrictions
  • Learn about available government incentives & promotions
  • Understand all compliance requirements
Incorporation Playbook

 

Liaison office/representative office

A liaison office/representative office serves as a place that represents a foreign company in India in order to explore and understand the general business environment, conduct market research for the parent company’s products and seek and provide information from potential vendors and customers.

A liaison office can be established to represent the parent company in India, promote import/export to/from India, promote financial/technical collaborations between a parent company and companies in India and serve as a communication channel between the Indian companies and parent company.

Criteria for a set up

Net worth of a minimum of USD50,000 or its equivalent. The applicant’s parent company must demonstrate a track record of profit during the preceding three fiscal years in the home country.

Permitted activities

  1. Representing Group Companies
  2. Promoting export & import from/to India
  3. Promoting Technical /Financial Collaborations between Parent /GroupCompanies & Companies in India
  4. Acting as a communication channel between the Parent Company & Indian Entity

Set up time

6-8 weeks

Advantages of a liaison office

  • Simple set-up process
  • Not subject to taxation in India
  • Indian transfer pricing regulations do not apply to transactions conducted between liaison offices and the overseas parent company
  • Able to coordinate quality control of buying and sourcing activities in India
  • Less ongoing formalities when compared to other businesses entities

Disadvantages of a liaison office

  • Not permitted to conduct any commercial or industrial activities in India
  • Unable to engage in import and export activities directly
  • Not permitted to generate any income in India

Branch office

A branch office functions as an extension of the head office’s operations and conducts the same business and activities as those of its parent company. A branch office is an ideal business model for foreign businesses looking to establish a temporary presence in India.

Criteria for a set up

  1. Net worth of a minimum of USD100,000 or its equivalent.
  2. The applicant’s parent company must demonstrate a track record of profit during the preceding five fiscal years in the home country.

Permitted activities

  1. 1. Branch open in India by Foreign company, Conduct similar activity as in home Country.
  2. 2. BO are allowed to do Following Activity by RBI:
    • Representing parent Company in India & acting as Buying /Selling Agent in India
    • Export/Import of goods(only on Wholesale Basis)
    • Rendering Professional & Consultancy Services.
    • Rendering IT Services, Software Services.

Services not permitted in Branch Office:

  • Construction & Development Activities.
  • Manufacturing & Processing
  • Retail Trading

Set up time

6-8 weeks

Advantages of a branch office

The following are some benefits of establishing a branch office in India:

  • The branch office grants a greater level of control to a parent company. Since a branch office is known as a dependent type of business, its decision-making process and activities are fully managed by the parent company.
  • A branch office sustains the parent company’s brand value as it has to use the same name as that of the parent firm.

Disadvantages of a branch office

  • The branch office has a higher tax rate than the Indian Subsidiary.
  • The branch office is only permitted to conduct the operations that are specified in its constitution. 
  • If the branch office in India is unable to meet the expenses, then the revenue must be met by the foreign head office.
  • Opening a branch office in India is time- and money-consuming as it needs to obtain prior approval from RBI and this procedure typically takes 45 to 60 days.

Project office

A project office is a place established to represent the interests of a foreign company conducting business in India. These offices are prohibited from carrying on or undertaking any activity other than that which is related to the execution of the business for which the office was established.

Criteria for a set up

Obtain a contract from an Indian business to conduct a project therein India. The Project must secure the required regulatory approvals, and it is directly funded by remittances received from overseas.

Alternatively, the Project is sponsored by a firm, or a bilateral or multilateral international financing agency, or a bank of India

Permitted activities

  1. Execution of a project in India and activities relating to execution of a project.
  2. PO cannot lend money to any person in India and can-not undertake any activity other than execution of project. 3.Transfer of funds inter-se projects not allowed, except with RBI permission.

Set up time

4 weeks

Advantages of a project office

  • A project office sustains the parent company’s brand value as it has to use the same name as that of the parent firm.
  • Facilitating project completion.

Disadvantages of a project office

  • PO cannot lend money to any person in India and can-not undertake any activity other than execution of project.
  • Transfer of funds inter-se projects not allowed, except with RBI permission.
  • After Completion of project such project office Shall not to operate business further.

How we can help

Before deciding on your business structuring for market entry into India, businesses should understand the advantages and limitations of setup type. You will need to consider the company’s goals, the sector, the controlling interest and the mode of business structure.

If you find need help with expanding into India, our team at Acclime will gladly assist you. We can help answer your questions and aid in determining the most effective business structure, long-term goals, and preferences depending on your situation to ensure your successful market entry in India.


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About Acclime.

Acclime helps established multinational companies and startups start and operate their business in India and beyond. By seamlessly navigating our clients through the complexities of the local regulatory systems, we maximise opportunities while ensuring compliance and good governance.

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