Setting Up Business in India

Our firm is engaged in providing various services to foreign entities/investors to help them setting up their business in India. A foreign company planning to set up their business operation in India has two alternatives:

AS AN INDIAN COMPANY

A foreign entity/investor planning to set up their business operations in India may incorporate a company under Companies Act, 1956, as a

• Joint Venture
• Wholly Owned Subsidiary.

An Indian Company may receive foreign equity up to 100% depending on the necessities of the investor, subject to equity caps in respect of the area of activities under the Foreign Direct Investment (FDI) policy.

Joint Venture with an Indian Partner
Foreign entities can commence their business in India by forming strategic alliances with Indian partners.
Joint Venture may entail the following advantages for a foreign investor:

• Offers opportunity to jointly manage the risks associated with new ventures.
• Accessible financial resource of the Indian partners.
• Established contacts of the Indian partners which help smoothen the process of setting up of operations.
• Established distribution/ marketing set up of the Indian partner.

Wholly Owned Subsidiary Company
Foreign entities can also set up wholly owned subsidiary in sectors where 100% foreign direct investment is permitted under the FDI policy. For incorporation, a set of application has to be filed with Registrar of Companies (ROC). Once a company has been duly incorporated as an Indian company, it is subject to Indian laws and regulations as appropriate to other domestic Indian companies.

AS A FOREIGN COMPANY

Foreign Companies can commence their operations in India through:

• Liaison Office/Representative Office.
• Project Office.
• Branch Office.

Such offices can undertake any acceptable activities. Companies have to register themselves with Registrar of Companies (ROC) within 30 days of setting up a place of business in India.

Liaison Office/ Representative Office
A Liaison Office is a kind of a representative office set up with the prime motive of exploring and understanding the business and investment prospects in the host country and coordinating their activities. It acts as a communication channel between head office abroad and parties in India. It is not allowed to undertake any business activities in India directly or indirectly and cannot, therefore, earn any income in India. Expenses of such offices are to be met entirely through inward remittances of foreign exchange from the head office outside India. Its role is restricted to collecting information about possible market opportunities and providing information about the company and its products to the prospective Indian customers. A Liaison office can undertake following activities in India:

• Representing in India the parent company/group companies.
• Promoting export/import from/to India.
• Promoting technical /financial collaborations between parent/group companies and companies in India.
• Acting as a communication channel between the parent company and Indian Companies.

Approval for establishing a liaison office in India is granted by Reserve Bank of India (RBI).

Project Office
Foreign Companies planning to execute specific projects in India can set up temporary project/site offices in India. RBI has now granted general permission to foreign companies to establish Project Offices in India, provided they have secured contract with an Indian company to execute a project in India, and

• The project is funded directly by inward remittances of foreign exchange from abroad; or
• The project is funded by a bilateral or multilateral International financing agency; or
• The project has been cleared by an appropriate authority; or
• A company in India awarding the contract has been granted Term Loan by a Public Financial Institution or a bank in India for project.

Branch Office
Foreign entities engaged in manufacturing and trading activities are allowed to set up Branch Offices in India with the specific approvals of the Reserve Bank of India for the following purposes:

• Carrying out research work, in which the parent company is engaged.
• Rendering professional or consultancy services.
• Export/Import of goods.
• Foreign airline/shipping Company.
• Rendering services in Information Technology and development of software in India.
• Promoting technical or financial collaborations between Indian companies and parent or overseas group company.
• Rendering technical support to the products supplied by the parent/ group companies.
• Representing the parent company in India and acting as buying/selling agents in India.

Normally, the Branch Office should be engaged in the activity in which the parent company is engaged.

Advantages enjoyed by a branch office over a representative office are as follows: 

• Acquire assets such as immovable property
• Repatriate its profits after paying the applicable taxes to its parent company
• Treated as an extension of foreign company for taxation purpose

Note:

• Retail trading activities of any nature is not allowed for a Branch Office in India.
• A Branch Office is not allowed to carry out manufacturing or processing activities in India, directly or indirectly.
• Profits earned by the Branch Offices are freely repatriable from India, subject to payment of applicable taxes.