India Entry Services:
India is one of the most progressive countries across the globe, which has larger
and an enormous market with the population of 1.36 billion individuals. According to
bank’s data, India’s GDP in 2018 was recorded around USD 2.7 Trillion.
Foreign companies invest in India due to abundance of resource, presence of labor at
relatively lower wages and special investment privileges such as tax exemptions,
etc. For a
nation where, foreign investments are being made, it also means achieving technical
and generating employment.
Major Requirements for incorporation of company in India:
To start a company in India, a minimum of two persons and an address are required in
A company at least should have two directors and minimum of two shareholders.
Indian rules and regulations, one of the directors should be both a citizen and as
resident of India. In this case, 100% of the shares of the Indian company can be
foreign nationals/ NRI. The address in India is served as the registered office of
company. Foreign companies establish their offices in metro cities like Delhi,
Mumbai and Chennai, Hyderabad etc.
But why India? What are the main advantages of doing business in India?
- Wholly owned subsidiary- permits 100% Foreign Direct Investment under the
- Joint Venture- with an Indian partner, for example, strategic
Indian partner organizations
- Limited Liability Partnership (LLP)-a new arrangement of business
India, that combines the advantages of a company with the benefits of
flexibility associated with a partnership.
Skilled Workforce: Highly-rated human capital base.
Growth Potential: The world’s largest democracy and the 2nd
Healthy Legal System: Efficient legal and judicial system, improved
Work Ethics: Professional manner of working and willing to learn.
Stability of Government: Political stability is vital to foreign
Extensive Trade Network: Trade network backed by regional and bilateral
trade agreements with numerous trading partners helps leverage investor’s role.
Competitive Tax System: Competitive tax regime and comprehensive network
Treaties, further modified by the introduction of Direct Taxes Code and the
Service Tax – single tax for the whole nation.
Corporations in India are classified either into domestic corporation or foreign
- For domestic corporation with annual turnover less than 250 crores, corporate
25% with 7% surcharge on income greater than 1 crore and less than 10 crores.
if the net income is more than 10 crores then the surcharge applicable is 12%.
For domestic corporation with annual turnover more than 250 crores, corporate
30% with identical surcharge applicable i.e. 7% and 12% for net income between 1
10 crore and for net income greater than 10 crores, respectively.
For foreign companies, corporate tax is 40% with 2% and 5% surcharges.
Moreover, there are few modifications in the personal tax as well. In budget
CESS has been increased to 4% (earlier 3%) with basic exemption limit depending
age of the individual. Following table demonstrates new income tax slabs.
What all options does the foreign companies have to enter the Indian market?
A foreign company planning to set up business operations in India has the following
- As an incorporated entity
- Liaison Office
- Branch Office
- Joint Venture
- Wholly owned subsidiaries
- As an office of a foreign entity through
A foreign company can begin processes in India by incorporating a company under the
companies Act, 1956 through registration of company or establishing a branch or
Starting a private limited company is the coolest and fastest way to set up in
India. FDI of
up to 100% into a public limited or private limited is permitted under the FDI
Under the automatic route, FDI up to 100% is allowed in all activities/sectors,
some of the cases which requires prior approval of the government.
Let’s have a look at the subdivisions where FDI is not allowed in India, under the
Route as well as Government Route?
FDI is forbidden under Government as well as Automatic Route for the following
- Retail Trading (except single brand product retailing)
- Atomic Energy
- Housing and real estate business (except development of townships, construction
residential/commercial premises, roads or bridges to the extent specified in
No. FEMA 136/2005-RB dated July 19, 2005)
- Gambling and Betting
- Business of Chit Fund
- Trading in Transferable Development Rights (TDRs).
FDI in activities not covered under the automatic route requires prior Government
and are considered by the Foreign Investment Promotion Board (FIPB), Ministry of
Request can be made through Form FC-IL, which can be copied from www.dipp.gov.in.
What will be the next step, once the investment is made under the Automatic Route or
A two-stage reporting procedure has been introduced for this purpose.
On receipt of money for investment:
Upon issue of shares to non-resident investors:
Within 30 days from the date of issue of shares, a report in Form FC-GPR, PART A
with the following documents should be filed with the concerned regional office of
Reserve Bank of India.
- Certificate from the company secretary of the company
- The proposal is within the sectoral policy under the automatic route of RBI and
fulfils all the conditions laid down for investments under the Automatic
What is the procedure to be followed for obtaining Reserve Bank's approval for
A Liaison office can carry on only liaison activities and is not allowed to
any business activity in India and cannot earn any income in India. Expenses of
offices are to be met completely through inward payments of foreign exchange
Head Office abroad.
The companies eager of opening a liaison office in India can make an application
form FNC-1 along with the documents mentioned therein to Foreign Investment
Reserve Bank of India, Central Office, Mumbai.
Permission to set up such offices is initially granted for a period of 3 years
this may be extended from time to time by the Regional Office.
What is the procedure for setting up Project Office?
Foreign companies have settled projects in India by Indian entities. General
Permission has been granted by Reserve Bank of India
The projects are cleared by an appropriate authority
However, if the above criteria are not met, such applications are forwarded to
Office of the Foreign Exchange Department of the Reserve Bank at Mumbai for
What is the procedure for setting up branch office?
Reserve Bank permits companies engaged in manufacturing and trading activities abroad
up Branch Offices in India for the following purposes:
- A branch office is not allowed to carry out manufacturing, processing activities
directly/indirectly. A Branch Office is also not allowed to undertake Retail
activities of any nature in India.
To represent the parent company in different issues in India e.g. acting as
buying/selling agents in India.
To direct research work in the region in which the parent organization is locked
Rendering professional or consultancy services
Rendering administrations in Information technology and programming in India
To undertake export and import exercises and exchanging on discount premise
To advance possible specialized and financial collaboration joint efforts
Indian organizations and overseas companies.
Rendering technical support to the items provided by the parent/Group
Branch Offices must submit Activity Certificate from a Chartered Accountant on
basis to the Central Office of FED.
Permission for setting up branch offices is granted by the Reserve Bank of
Reserve Bank of India considers the track record of the Applicant Company,
trade relations with India, the activity of the company proposing to set up
India as well as the financial position of the company while scrutinizing the
Can a foreigner invest through Preference Shares? What are the regulations
case of such investments?
Foreign investment through preference shares is treated as foreign direct
Foreign investment in preference share is considered as part of share capital.
Preference shares to be treated as foreign direct equity for purpose of sectoral
foreign equity, where such caps are prescribed, provided they carry a conversion
the preference shares are structured without such conversion option, they would fall
the foreign direct equity cap.
Can a foreigner set up a partnership/proprietorship
No, only NRIs/PIOs can set up partnership/proprietorship concerns in India. Even for
NRIs/PIOs (Non-resident of Indian/Person of Indian Origin) investment is allowed
What are the key businesses related legislations in
The Companies 2013 Act: this act governs the incorporation management,
restructuring and dissolution of companies
The Competition Act (which regulates combinations (merger control) and
The Income Tax Act (which prescribes the tax treatment of dividend,
gains, mergers, demergers and slump sales).
The Indian Contracts Act: this act basically lays down the general
relating to the formation and enforceability of contracts
The FEMA (Foreign Exchange Management Act, 1999): it regulates the inflow
outflow of foreign exchange and investment into/from, India including
The SEBI Act (Securities and Exchange Board of India): SEBI has
tried to lay down market rules in line with the best market practices. It enjoys
powers of imposing penalties on market participants, in case of a breach
The SCRA (Securities Contracts Regulation Act, 1956): it governs listing
trading of securities on stock exchanges in India and the Listing Agreement with
What are the regulations regarding
Investments by NRIs/PIOs?
NRIs and Persons of Indian Origin can purchase or sell shares of Indian
companies on stock exchanges under Portfolio Investment Scheme. For this
purpose, the NRI or PIO apply to a designated branch of a bank. All sale
purchase transactions are to be directed through the chosen branch.
The sale proceeds of the repatriable investments can be credited to the
NRE/NRO accounts of the NRI/PIO whereas the sale proceeds of
investment can be credited only to NRO accounts.
The sale of shares will be subject to payment of applicable taxes.
NRIs and Persons of Indian Origin can buy or offer offers of Indian
organizations on stock trades under Portfolio Investment Scheme. For
reason, the NRI or PIO apply to an assigned part of a bank. All deal or
exchanges are to be coordinated through the picked branch.
The deal continues of the repatriable ventures can be credited to the
and so forth records of the NRI/PIO while the deal continues of
speculation can be attributed just to NRO accounts.
The offer of offers will be liable to instalment of appropriate
What are the regulations for Foreign
A SEBI registered Foreign Venture Capital Investor with general consent
Reserve Bank of India can put resources into a Venture Capital Fund or
Venture Capital Undertaking, in the way and subject to the terms and
determined in Schedule 6 of RBI Notification No. FEMA 20/2000-RB dated
2000 as altered every now and then.
100% FDI in E-commerce in India –
As of January 2019, India allows 100% FDI in marketplace model of e-commerce;
is no FDI for inventory driven models.
Foreign companies can sell their goods and services to other businesses since 2015
100% FDI permitted under automatic route for B2B (Business to Business) e–commerce
However, there are some restrictions on B2C with a few limited exceptions like:
Manufacturers offering items produced in India can offer through e-commerce
Indian makers offering their own single brand items through e-commerce retail
Single brand trading entities who are operating through brick and mortar stores
The most important point is that all Indian and foreign companies should
the organizations set up in India are consolidated under the Companies Act 1956.
All foreign companies must consent to specific standards shaped by the Companies
A foreign company which intends to set up business in India has two noteworthy
alternatives: Joint ventures and wholly owned subsidiaries. A foreign
their activities in India by getting into a joint endeavor with an Indian
or wholly owned subsidiary in sectors where there is 100% foreign direct
FDI is not permitted in certain sector such as real estate, lottery, gambling,
A foreign investor can either incorporate a private limited company or a
limited company. Regardless of whether an organization is public or
only the registrar of companies (ROC) has jurisdiction. Each state in India has