How set up Foreign Companies in India?
India remains a sought after destination for foreign investors despite reports of a slowdown. The large market size and immense potential for growth make the country a safe option for business investment. There are various ways of creating a business setup in India and foreign entities need to know the best route for themselves. The ideal setup will help them fulfill their business objectives while minimizing their liabilities like compliance and taxes. They must also know the best way to bring in the investment needed to fund the project. Here we are discussing the different ways in which an overseas commercial organization can enter Indian markets and how they can set up their entities for doing business in India.
Different Ways to Enter Indian Markets
There are mainly two ways in which overseas companies can enter local markets.
#1. A Foreign Company
In case, the investors are not looking at full-fledged commercial operations, then the following business forms will be suitable for them:
i. Liaison Office
A liaison office is used as a representative agency of the parent company in India. This office is used as a communication link between the parent organization and the local entities. It can promote the enterprise in India but cannot generate any kind of revenue. Companies with a profit-making record for the past 3 financial years and a net worth of US$50,000 or more can apply for company formation open such an office.
ii. Branch Office
A branch office is an extension of the overseas company in India. It can carry out commercial transactions like import and export, offer consultancy services, and provide technical support to its users in the country. Entities that have been generating profits for 5 previous financial years and have a net worth in beyond $100,000 can use this route to enter the India market.
iii. Project Office
Project offices are set up for executing a specific function in the country. For instance, a company wins an infrastructure project then it can open an office to handle that task. The project must be approved by the relevant authority or be funded by global organizations such as the World bank. The funding of the project must be through inward remittances from abroad or the Indian entity awarding it must be providing the money.
#2. An Indian Company
The second option for creating a business setup in India is to start an Indian entity. This can be done in the following ways:
i. Joint Venture
Joint ventures are a low-risk option for those overseas investors who are interested in setting up their business in India. They can partner with a local company and leverage its existing infrastructure to run operations in the country. This is also a good option of company formation for those sectors where 100% foreign direct investment is not approved by the government. Moreover, after paying the applicable taxes, the foreign company can remit the profits made in the country, to another location. The approval for the venture will be granted by the ministry or the department under whose purview the industry of the proposed enterprise falls. However, the investors need not approach the ministry and can submit their applications through the Foreign Investment Facilitation Portal (FIFP).
ii. Wholly Owned Subsidiary
This is the most popular way for foreign companies to start a business in the country.
They can also consider setting up an LLP in India but it will need approval from the RBI. In order to register such an entity, they will need 2 directors, one of which must be an Indian resident.
There are no minimum capital requirements that needed to be fulfilled for such kind of Company incorporation in India.
The company must have a minimum of 2 shareholders who can be individuals, entities or both.
They also need to apply for the company’s PAN registration.
Once the business is incorporated the Memorandum and Articles of Association (MoA and AoA) of the company must be submitted to the Registrar of Companies (RoC).
Other important requisites for a foreign company setting up in India
There are some more essentials that a foreign company that intends to establish itself in India:
If the annual turnover of the company exceeds INR 40 lacs, it is mandatory to get a GST registration.
If the principal activity of the company is the food business, i.e. if it is related to the food sector, it must possess an FSSAI registration or license.
Essential Barcode Registration
As we know that in today’s era of globalization, quality assurance can be attained only by adopting global benchmarks. One way to fulfill this requirement is to obtain a Barcode Registration and adopt GS1 Barcodes.
GS1 barcode plays an imperative role in the entire supply chain.
It enables all the participants of the supply chain viz. distributors, wholesalers, and retailers to track goods easily.
The barcode is electronically scanned to fetch all the product details faster.
This speeds up the entire supply chain and ensures accuracy and saves a lot of time.
To conclude, we must say that setting up a business in India is one of the best options for foreign enterprises looking to spread their footprints. They must identify the best entity type for their purpose and then hire local legal and financial advisors to guide them through the process.
If you need any kind of assistance in setting up foreign companies in India, please feel free to contact our business advisors at 8881-069-069.
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