How Can a Foreign Company Set-Up its Business in India?
Written by Anuranjita Pathak Dt. September 7th, 2022
Population is blamed for a lot but it is also a reason for India being a great market place. It has rapidly growing demand which makes India a very attractive place for doing business. The Indian government has also taken steps to make it easier for foreign businesses to set up in India. When a foreign company sets up its business in India, it directly adds on to the economy by way of providing employment opportunities, advancement of technologies and providing quality products at competitive rates. There are numerous other advantages also.
India is ranked 63rd out of 190 economies in ease of doing business. India has various advantages for any foreign nation company to set up its business in India. A foreign nation company can establish itself in India through any of the various options available. The following are the structures in which a foreign company can establish itself in India:
Joint Venture with Indian Partner
Joint Venture refers to a planned partnership in two or more business entities with purpose of gaining a competitive advantage. Joint Venture with foreign company in India refers to planned partnership between two or more business entities out of which at least one is a foreign nation company. When a foreign company unites with any local company, it immediately reduces its time and cost of understanding an entirely different market. For Example- Suzuki Motor Corporation is a Japanese company. In order to establish itself in India smoothly, it entered India as a Joint Venture company. It joined hands with Maruti Udyog Limited which was already well established in India.
Limited Liability Company
Limited Liability Company can be established easily in India by any foreign company and is highly preferred too. It gives the company a status of separate legal entity from its members and the foreign company can hold up to 99.9 per cent shares in the limited company. These companies have all major rights as of a national company. They are also eligible to raise funds. It is best suited for companies which want the high control and robust presence in their Indian establishment.
Limited Liability Partnership
Formation of a LLP can be the best option for those foreign companies which are looking for advantages of both a private limited company and a partnership firm but it can be established only in sectors where RBI has permitted it. LLP must be incorporated on the MCA Portal to have a legible proof its existence in India. It is also eligible to buy or own property in India, remit its earnings outside India and produce revenue in India.
In simple words Liaison Offices is an office established to facilitate close working relationship between the parent company and the related business parties. A foreign company can establish its Liaison Office in India for ease of interaction, promotion of imports/exports and for cooperation between overseas and Indian companies. These offices face some restrictions as they are not allowed to conduct business activities in India and also they are not allowed to earn any income in India. RBI has prescribed a specific criteria for setting up a Liaison Office (Representative Office) in India, which are as follows:
- The entity must be a profit making entity in its home country with respect to its record of last three financial years. Its net worth must not be less than USD 50,000 or its equivalent.
- The company’s latest audited financial statements are required.
- The Liaison Offices also need to obtain PAN from Indian Income Tax Authorities.
- The company must submit its Certificate of Incorporation or MOA & AOA (Attested by Indian Embassy/Notary Public)
When the application of the company is approved, RBI allots Unique Identification Number (UIN) to the Liaison Office (LO). As the Liaison Offices are not allowed to conduct business activities in India, they are also not taxable in India. They are taxable in their home country only.
A branch office is an office established at a location other than the main office representing the same entity as the main office or head office represents. A foreign company can establish its branch office in India while having head office in their respective nation only. A branch office of foreign company is allowed to do import/export, render professional services, promote technical and financial collaborations, render technical support in India on behalf of its parent company, carry out research in subjects in which parent company is engaged, and represent parent company in India. A foreign company can set a business activity by way of branch office in India with the prior approval of the Reserve Bank of India, provided:
- The company is engaged in trading or manufacturing activities
- The last five years profit is necessary to be mentioned
- Minimum net worth of USD 1 Lakh required in home country
- Must obtain PAN from Income Tax Authorities on setting up the offices in India
The concept of Branch office, can be best understood from the example of Nestle India, a subsidiary of Nestle S.A. of Switzerland. It has four branch offices in India at Delhi, Mumbai, Chennai and Kolkata and is highly successful in Indian market.
As the name suggests Project Office (PO) is established with reference to a project that is to be executed by foreign company in India. It is prohibited from undertaking any activity irrelevant to the project for which a representative Project Office is established in India. A Project Office can be easily established where the foreign company has secured any contract from any Indian company for execution of a project without prior permission of RBI, provided:
- Directly funded by remittance from abroad or
- Bilateral or Multilateral International Financing Agency has funded or
- Cleared by an appropriate authority or
- An Indian company provided a contract has been granted a Term Loan by any Indian bank or any Public Financial Institution for the project.
If the above conditions are not met then the foreign company has to look for approval of RBI. Setting up a foreign company in India can be tedious task as the foreign companies have serious legal formalities and compliances but there are a lot of mutual advantages for which a foreign company is established in India. The government has already taken steps to ease the establishment of foreign company in India and further ease of doing business can be expected.