INVESTING IN INDIA
Foreign Companies looking to invest in India, can do it in many ways. However, there are certain restrictions to enter, invest or do business in India.
A Foreign Company can either choose to register as an Indian Company, or it can operate from outside India, without establishing a Company in India.
Foreign Companies can choose any of the below mentioned ways that will suit their business needs and their long term plans.
AS AN INDIAN COMPANY
A foreign Company can set up its operations as an Indian company in one of the following ways.
> Joint Venture
> Wholly Owned Subsidiary
If a Foreign Company wishes to register itself as an Indian Company, it can either enter into a Joint Venture with an Indian Company or create a Wholly Owned Subsidiary in India.
In both the above cases, the Foreign Company has to incorporate an Indian Company under the Companies Act, 1956.
They can have 100% equity in the Indian Companies, but these are subject to certain caps based on the sector.
OPTION 1: JOINT VENTURE WITH AN INDIAN COMPANY
Foreign Companies can enter into strategic alliances with any Indian Partner and register the Joint Venture as a different company.
The advantages to a Joint Venture are:
Foreign Companies can take advantage of the already established Marketing/ Distribution set up of its Indian Partner.
Adequate Financial Resource of the Indian Partner will be an added advantage to the setting up of the operations, which is much easier, as the Indian Partners will have good and established contacts.
OPTION 2: WHOLLY OWNED SUBSIDIARY
Under India's FDI policy, 100% investment is possible in its wholly owned subsidiary.
The advantage of having a wholly owned subsidiaries is that, the parent company can retain 100% operational control over them.
To know about the Procedure to Register a Foreign Company in India, click here
SETTING UP OPERATIONS AS A FOREIGN COMPANY
A Foreign Company can set up its operations in India through any of the following
> Branch Office
> Project Office
> Liaison Office
Any place of business mentioned above must also be registered with ROC (Registrar of Companies) within 30 days of its set up.
OPTION 1: LIAISON OFFICE (LO)
After setting up a Liaison office, a foreign company cannot do business through its Liaison office.
As the name implies, a Liaison office acts as a channel of communication between the foreign office and India.
It cannot do any business in India, nor earn any income.
The following are the activities that are permitted to be performed by a Liaison Office.
> Study market conditions, possible opportunities in India and communicate the same to its Foreign office.
> Provide information about the Company and Company's products to its customers in India
A Liaison office shall have the following features:
> It bears the same name as its parent company
> The Liaison office does not generate any revenue, hence the expenses of the Liaison office are met by the Foreign company with its inward remittances.
> License to operate a Liaison office is generally given for 3 years by the RBI. It may be extended further upon application.
> In order to set up a Liaison office in India, RBI approval has to be sought.
Option 2: BRANCH OFFICE (BO)
If the Foreign company wishes to earn income and remit it outside India, it can establish a Branch office in India.
They can be established for the following purpose
> Rendering Information Technology related services like development of IT projects, etc
> Render technical support to the products of its parent company
> Rendering professional or consultancy services
> Importing and Exporting of goods to and from India
> Representing the Parent company in India and acting as their buying or selling agents.
In order to set up a Branch Office in India, RBI's approval has to be sought.
Profits can be remitted outside India with the approval of RBI and adhering to the FEMA guidelines.
Profits can be remitted Net of Applicable taxes in India.
The branch office can open a Bank Account with designated Banks by the RBI called the AD Category 1 Banks.
The credits to the account can be only the remittances received from its Parent to meet its expenses or any other legitimate receivables arising in the process of their business operations in India.
Debits to the account can be all legitimate expenses incurred for its operation in India and debits on remittances made to the Parent company
OPTION 3: PROJECT OFFICE (PO)
Foreign Companies, planning to execute specific projects in India, can set up their Project Offices, also called as Site Offices in India.
Such offices cannot undertake any activity other than relating to the execution of the project. This also includes activity incidental to carrying out the projects.
The remittances of surplus generated by the Project office, can be made outside India to the Parent company, upon completion of the project.
The remittances could also be made intermittently with the approval of AD( Authorized Dealer) Category-1 Banks, provided the PO satisfies certain conditions.
If there is a need to establish a second Project Office in India, then maintaining bank accounts, books of accounts, submission of closure documentation on completion of projects have to be done separately for all the Project Offices.
RBI has granted a general permission to open a Project office in India subject to certain conditions.
OTHER GENERAL CONDITIONS FOR LO/BO/PO
Any LO/BO/PO can open and operate only through the AD Catergory 1 Bank.
They are required to register with the Registrar of Companies within the stipulated time.
They are required to obtain PAN number from the Income Tax Authorities.
Each LO/PO/BO can transact only through one designated AD Category 1 Banks. These AD Category 1 Banks are the ones responsible for its Due Diligence and compliance with the KYC norms.
Acquisition of property shall be governed by FEMA( Acquisition and Transfer of Immovable Property Outside India) Regulations.
Application for setting up a BO/LO/PO shall be submitted in Form FNC1.
To know about the Procedure to Register a Branch Office/ Project Office or Liaison Office in India, click here
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