Procedure and Tips to Follow before Partnering with a Foreign Company (Indian Scenario)

The Foreign investments in India are governed by Foreign Direct Investment (FDI) Policy and are controlled by its central bank “Reserve Bank Of India”. FDI policy outlines the sectors that are permitted to be invested by foreign investors as well as percentage of shareholding which can be retained with or without any permission from the Government. It is significant for foreign investors to comprehend these necessities before setting up a corporation in India. However, India has liberalized most of the sectors which are permitted to be invested by means of foreign investors without taking any prior permission, though, a detailed review and advice on FDI policy is suggested before setting up of a corporation in India.

In order to enter into a partnership with Indian Company, a Company which is owned by Non-Resident's must get registration done with the Registrar of Companies and they are also required to abide by certain rules and guidelines as specified down by Companies Act 2013, FEMA and Reserve Bank of India (RBI).

Any foreign company who wants to set up a business in India could enter the market in one of the following ways:

1. COMPANY OR A LLP

Foreign investors could set up a business in India either as a Limited Liability Partnership (LLP) or a Company. The main idea of LLP is a new structure which combines the benefits and features of a Corporation and that of a partnership form of business. A foreign company could get registered as a Wholly Owned Subsidiary or could enter into a joint venture with an Indian citizen, who shall be the partner of the foreign company. The foreign equity in such as arrangement shall be 100% even though relying on the equity caps in line with the Foreign Investment Policy

Joint Venture With A Partner In India

One of the simple ways to set up a foreign company in Indian is towards entering into a joint venture with an Indian partner. By means of this arrangement, foreign investors may have the following benefit which includes;

• An established marketing or distribution network already made by the Indian partner
• Monetary resources of the Indian partner shall be readily available
• The Indian partner shall also ensure that the operation of the business goes smoothly

Wholly owned Indian subsidiary Company:

Corporate format which shall be 100% owned through international investor is treated as Indian citizen for taxation and regulatory purposes. This entity format is perfect for multiple goals and flexibility of operations. While setting up a corporation in India many procedures are involved which require attention and advisory by experts.

2. As A Foreign Company

Foreign Companies could establishment businesses in India by means of a Liaison Office, Branch Office, and Project office. The business could operate freely and could take lawful actions so far the actions are within the range of the law. Though, such businesses should register with the Ministry of Corporate Affairs not less than 30 days the operation of the corporation started.

Branch, Liaison or Project office in India:

These options are very much suitable only if the investor is having limited activities or a short-term projects or particular objective in India. Any of these setups generally have restrictions on some activities and selected only for a specific purpose or term.

REQUIREMENTS TO SET UP A FOREIGN COMPANY IN INDIA

DIRECTORS AND SHAREHOLDERS’ NUMBER

• For a Private Limited Company, the shareholders number must be two and a maximum of seven for a Public Limited Company
• For a Private Limited Company, the Directors number must be two and a maximum of three for a Public Limited Company
• There should be at least an Indian resident who should have lived in the nation for more than 182 days in preceding years

FOREIGN OWNERSHIP

• Subjected to the equity sectoral cap of the Reserve Bank of India, Foreign Direct Investment is 100%.
• Make certain that you check with the RBI if your business requires prior approval.

Initial Share Capital

• Setting up a foreign company in India doesn’t need a minimum capital
• Promoters of the business must, however, plan for the initial capital expenditures until a point when the business could operate smoothly.

Registered Office

In order to set a foreign company in India, the proposed corporation should have a register office address for purposes of AGM as well as communication. Though, there is a window of 30 days to get a registered office address starting from the date of incorporation.

DOCUMENTS REQUIRED WHEN ESTABLISHING A FOREIGN COMPANY

The required documents that are required when setting a foreign company in India are;

• A copy of the foreigners’ passport
• Proof of address (which includes Bank statement or driver’s license)
• Copies of the relevant business documents
• All the originals documents are required to be notarized in the country of origin of the foreigner or at the Indian Embassy where the foreigner lives.

TAX REGIME

Indian direct tax regime is a bit complex with number of adjustments. Furthermore, the annual finance act brings up amendments in several provisions depending on industry demands etc. While establishing up a company in India, it becomes applicable to recognize the direct as well as indirect tax implications on business, tax incentives in the form of deductions, tax holidays, subsidies, and special provisions under SEZ schemes and so on shall be applicable.

India has signed Double Tax Avoidance Agreements (DTAA) with many countries. Such DTAAs and tax benefits can be availed through structuring the investments right before establishing up a business in India.

Conclusion

The FDI inflow in India has risen up in the last few years. Thus it could be concluded that foreign companies are inclined to invest in India because of the presence of abundance of resources, labor at relatively lower remuneration and special investment benefits likes tax exemptions, etc.

By: Harshavardhan Abburi