Establishing Foreign Companies in India: The tremendous growth of the Indian market attracts global businesses to set up companies in the country. With market fluctuations and fierce competition, it is critical for a company to have qualified staff at every stage.
with enormous human potential and a market opportunities in India have drawn a considerable amount of foreign direct investment, and the quantity of FDI entry into the country is increasing each year as a number of foreign enterprises begin operations in India.
Now a days there are various ways for a foreign organization to establish a business in India. There are two main ways to enter the country: one is to register as a foreign company, and the other is to register as a totally Indian entity.
Foreign Companies’ entry strategy into India
- Branch Office
- Private Limited Company
- Liaison Office
- Joint Ventures
- Project Office
- Limited Liability Partnership
Branch Office – A Branch Office is an extension of a foreign corporation that is not incorporated. Branch office can conduct commercial activity on behalf of the parent firm. The branch office can perform import and export, provide information technology services, research, provide technical support for products supplied by its parent company, and Provide consultancy support.
As per the RBI (Reserve bank of India) foreign company in India can only interfere if the branch office is working in the SEZs (Special Economic Zone), otherwise RBI restricts the working of the branch office in the activities such as directly engaging in their manufacturing, retail trading of any type, and processing activities.
To establish a Branch Office, the parent firm must have made a profit in the previous five financial years and have a net worth of at least USD 100,000 or its equivalent. It must also submit an application to the Reserve Bank of India for clearance under the Foreign Exchange Management Act of 1999.
Private Limited Company – For foreign nationals and international companies, forming a private limited company is the simplest and fastest way to enter India. The automatic route allows foreign direct investment of up to 100 percent in a private limited business or limited corporation with no need for Central Government approval.
As a result, forming a private limited company as a wholly owned subsidiary or joint venture of a foreign company is the cheapest, easiest, and fastest way for international companies and foreign persons to enter India.
Liaison Office – A Liaison Office is a commercial location that serves as a communication link between a company’s headquarters, or major place of business, and its Indian subsidiaries. However, it is unable to engage in any trading, economic, or manufacturing activity, either indirectly or directly, and relies completely on remittances received from overseas through traditional banking channels to survive.
To be eligible for a Liaison Office, a foreign firm must have made a profit in the previous three financial years and have a net value of at least USD 50,000 or its equivalent. Furthermore, the RBI and ultimately the MCA must authorize its registration.
Permission to operate a Liaison Office was originally granted for a three-year period, which can be extended later. The approval process normally takes 40 days. The cost of starting up, including all tax registrations, is between $ 2000 and $2500 USD.
Joint Ventures – A Joint Venture is an agreement between at least two companies or individuals to pool funds or goods in order to complete a project. It can have up to 100 participants. A foreign corporation and its Indian partner sign a Joint Venture or a Memorandum of Understanding arrangement for the long term or for a specific project. The Indian Partnership Act of 1932 governs it.
In India, Joint Venture are prevalent in industries where foreign direct investment (FDI) is not allowed to be 100 percent. It carries a modest risk for its foreign partners as long as these partners undertake due diligence on their Indian partners.
It not only allows foreign corporations to use their Indian partners’ existing networks, but it also allows them to send their profits outside of India after paying taxes. Joint ventures are subject to a 30 percent corporate tax rate, plus a Surcharge and Cess.
Project Office – A Project Office (PO) functions similarly to a branch office, with the exception that the former is set up to carry out a specific project in India. A liaison office is not included. A foreign corporation must have received a contract from an Indian company to undertake a project in India before establishing a project office. It is prohibited from engaging in any activity other than those related to the project.
Furthermore, the project can only be supported by the Indian body that gave it, inbound remittances from outside, multilateral or bilateral foreign financial institutions, or a term loan from an Indian bank.
If a project office wants to set up there business in India then company needs to pay 40 percent of corporate tax, 5 percent on taxable income if income is more than 10 crore, 4 percent on education and health cess will be applicable, 2 percent on the taxable income if income is more than 1 crore, but less than 10 crore.
Limited Liability Partnership – A Limited Liability Partnership is a type of corporate entity that provides limited liability for its members while also allowing them to organize their internal administration through agreement, as in a joint venture. The provisions of the Limited Liability Partnership Act of 2008 regulate it.
An LLP can only be formed by a foreign company in industries where the RBI allows 100 percent foreign direct investment. These constraints have been significantly loosened in recent years, and the number of businesses that can join an LLP is growing.
An LLP, like an LLC, can hold property, generate money, and transfer revenues overseas. In comparison to an LLC, it involves less paperwork and record keeping, and it has a reputational advantage over a joint venture.
It is taxed at 30 percent, with a 12 percent surcharge if total income exceeds one crore. To provide convincing confirmation of the company’s existence, a Limited Liability Partnership must be registered with the Ministry of Corporate Affairs.
Documents which are required to establish a company in India
- Foreign nationals who will serve as Directors of the Firm must present a copy of their passport as well as evidence of address to register the company (Drivers License, Bank Statement, etc.,).
- A Notary in the home country or the Indian Embassy in the overseas Director’s country must notarize a copy of the original documents.
- A Board Resolution from the foreign company allowing the investment in the Indian Company would also be required if a corporate entity became a shareholder in the Indian Company.
- Attach the Board Resolution, a copy of the notice, and the foreign entity’s certificate of incorporation.
At the time of the incorporation process foreign client does not required to be in India, due to which it make easy for the foreign directors to start a business in India.
The size, aspirations, and planned trajectory of a company must all be considered before deciding whether to open an office, a firm, or a corporation in India. To make an informed decision. Contact for any further assistance with the formation of the foreign company in India.
Ishita Ramani is a young female entrepreneur who works for EbizFiling India Private Limited as the operations director. She has led a staff of 50+ professionals, including CAs, CSs, MBAs, and retired bankers, over the course of her career.
She developed a broad understanding of all aspects of Indian statutory compliance, including business incorporation, legislation, and taxation. She has been crucial in successfully guiding and building up activities at Ebizfiling throughout her career.