A foreign company can commence business
operations in India by incorporating a company under the Companies Act, 2013.
Necessary documents and forms need to be filed for incorporation of the Company
with jurisdictional Registrar of Companies (ROC) working under Ministry of
Corporate Affairs, Government of India (http://mca.gov.in). Once a company has been duly
incorporated and registered as an Indian company, it is subject to Indian laws
and regulations as applicable to other domestic Indian companies. An Indian
company can be incorporated in the form a wholly owned subsidiary (WOS) in
sectors where FDI policy permits 100% foreign direct investment.
Available Business Models in India to Overseas Owners with summarised Comparison
| Basis | Liaison
Office | Branch Office | Project
Office | Joint Venture
Company | Subsidiary
Company |
| Constitution | - An extension of the Head Office - It is a simple form of structure | -An extension of the Head Office with right to accrue income in India - It is a simple form of structure | - Company form of organization | - Company form of organization | |
| Registration | - With RBI’s prior approval | - With RBI’s prior approval | -
With RoC | -
With RoC | |
| Permitted
Activities | - 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. | - Export/import of goods. - Rendering professional or consultancy services. - Carrying out research work, in areas in which the parent company is engaged. - Promoting
technical or financial collaborations between Indian companies and parent or overseas group company. - Representing the parent company in India and acting as buying/ selling agent in India. -
Rendering services in Information Technology and development of software in India. - Rendering technical
support to the products supplied by parent/group companies. | As per its’ Main
Objects’ stipulated in the Memorandum of Association subject to Indian regulations | As per its’ Main
Objects’ stipulated in the Memorandum of Association subject to Indian regulations | |
| Criteria for
set up | - Parent
Company should have a profit making track record during the immediately
preceding three financial years in the home country. - Net Worth of
the Parent Company
not | - Parent Company should have a profit making track record
during the immediately preceding five financial years in the home country. | - A private company
is required to be incorporated with a minimum Authorised & paid up capital
of Rupees 100,000 and minimum two subscribers. | - A private company
is required to be incorporated with a minimum Authorised & paid up capital
of Rupees 100,000 and minimum two subscribers. | |
| Typical Terms
of approval | - Not to
undertake any activity of a trading, commercial or industrial nature and not to
enter into any business contracts in its own name without RBI's prior
permission. - No
commission/fees shall be charged or any other remuneration received / income
earned by the office in India for the liaison activities/services rendered by
it or otherwise in India. - The entire expenses of the
office in India will be met exclusively out of the funds received from head office
through normal banking channels. | - Not to expand its activities or undertake any new
trading, commercial or industrial activity other than that is expressly
approved by the RBI. - The entire
expenses in India will be met either out of the funds received from head office
through normal banking channels or through income generated by it in India. - The Branch Office will not accept any deposits in India - The
commission earned by the Branch Office from parties abroad for any agency
business will be repatriated to India through normal banking channels - Not to undertake any retail trading activity | A private company is required to be incorporated with a
minimum paid-up capital of INR 100,000 and minimum two subscribers. Broadly,
it: i) restricts the right to transfer its shares ii) limits
the number of its members (shareholders) to fifty; iii) prohibits any invitation to the public to subscribe
for any of its shares or debentures; and; iv) Prohibits any invitation or
acceptance of deposits from persons other than its members, directors or their
relatives. The conditions will be different for Public | A private company is required to be incorporated with a
minimum paid-up capital of INR 100,000 and minimum two subscribers. Broadly,
it: i) restricts the right to transfer its shares ii) limits the number of its members (shareholders) to
fifty; iii) prohibits any invitation to the public to subscribe
for any of its shares or debentures; and; iv) Prohibits any invitation or acceptance of deposits
from persons other than its members, directors or their relatives. The conditions will be different for Public | |
| Time limit of
approval | Normally 3 years from the
date of approval | Normally 3 years from the
date of approval | Until the company decides
to close down | Until the company decides
to close down | |
| Basic
Registration | The following registrations /
approvals will be required: 1. Professional Tax 2. Shops and Establishment Act
Registration 3. PAN / TAN 4. ROC Registration 5. Import Export Code | The following registrations /
approvals will be required: 1. PAN / TAN 2.Goods & Service Tax 3. Service Tax (Limited) 4. Professional Tax 5. Shops and Establishment Act
Registration 6. Importer Export Code 7. VAT(Limited) | The following registrations /
approvals will be required: 1. PAN / TAN 2. Goods &
Service Tax 3. Service Tax
(Limited) 4.
Professional Tax 5. Shops and
Establishment Act Registration 6. Importer
Export Code | The following registrations /
approvals will be required: 1. PAN / TAN 2. Goods &
Service Tax 3. Service Tax
(Limited) 4.
Professional Tax 5. Shops and
Establishment Act Registration 6. Importer
Export Code | |
| Liabilities
of parent company/Head office | Parent company's liability
is unlimited for all acts and omission of LO | The liability of the Branch
is unlimited. The assets of the parent company are at risk of attachment in
case the liabilities of the branch exceeds its assets | The liability of the Parent
company is limited to the extent of its shareholding in the WOS. The assets of
the foreign company are not subject to any attachments | The liability of the Parent
company is limited to the extent of its shareholding in the WOS. The assets of
the foreign company are not subject to any attachments | |
| Permitted
Incomes | The entire expenses of the LO in India will be met out of the funds received from Head Office through normal banking channels. | The entire expenses of the BO in India will be met either out of the funds received from Head Office through normal banking channels or
through income generated by it | All income arising
out of its business activities. | All income arising
out of its business activities. | |
| Indian Income
Tax | Since there
is no income accrual, there is no income tax. LO is
required to file information in Form | Since a branch office
of a foreign company is taxed as a foreign company in India, it is taxed @
41.2% or 42.23% if the taxable income exceeds INR 10,000,000 during any
financial year (FY) | Any Indian
company is taxed @ 30.90% or 33.99% if the
taxable income exceeds INR | Any Indian
company is taxed @ 30.90% or 33.99% if the
taxable income exceeds INR | |
| Payment of Dividend
to Parent | Cannot pay Dividend | Dividend paid to
Parent is tax free. | Dividend can
be paid after payment of | Dividend can
be paid after payment of | |
| Management | LO is managed by Authorised
Representative, resident in India (Country Manager) | BO is managed by
Authorised Representative, resident in India (Country Manager) | Minimum two directors
(can be foreign national, no need to be resident in India) | Minimum two directors
(can be foreign national, no need to be resident in India) | |
Audit | Financials would be
liable to Statutory Audit by a Chartered Accountant | Financials would be
liable to Statutory Audit by a Chartered Accountant | Financials would be
liable to Statutory Audit by a Chartered Accountant | Financials would be
liable to Statutory Audit by a Chartered Accountant | |
| b. Internal
Audit | Not Applicable | Not Applicable | Applicable, subject
to conditions Paid up capital + free reserves exceeding Rs.5 million or Average
turnover during the past 3 years exceeding Rs. 5 million | Applicable, subject
to conditions Paid up capital + free reserves exceeding Rs.5 million or Average
turnover during the past 3 years exceeding Rs. 5 million | |
| c. Tax Audit | Not Applicable | Applicable in
case of Turnover exceeding Rs. | Applicable in case of
Turnover exceeding Rs. 4 million. Non Compliance would result into a penalty @
0.5 % of the total turnover or Rs. 0.1 million whichever is less. | ||
| Transfer
Pricing | Not Applicable | Applicable | Applicable | ||
Annual Compliance | - Yearly
filings include the filing of audited accounts of the LO, World Accounts with Registrar
of Companies - Yearly
submission of Activity Certificate with RBI and AD Bank - Filing
Quarterly TDS returns - Yearly
filing of audited accounts of the LO with the Directorate of Income Tax, New
Delhi - File Form
49 C with Income Tax | - Yearly
filings include the filing of audited accounts of BO, World Accounts with
Registrar of Companies - Yearly
submission of Activity Certificate with RBI and AD Bank - Annual
return with the Income Tax Department - Filing of
Quarterly TDS returns - Filing of
monthly Service Tax returns | - Yearly
filing of financials and Annual Return with the Registrar of Companies. - Filing of
Compliance Certificate if paid up capital exceeds INR 1 Million - Annual
Compliance with Reserve Bank of India in case share are allotted to foreign
Individual (Form FC-GPR Part A & Part B) - Annual
return with the Income Tax Department - Filing of
Quarterly TDS returns - Filing of
monthly Service Tax returns | - Yearly
filing of financials and Annual Return with the Registrar of Companies. - Filing of
Compliance Certificate if paid up capital exceeds INR 1 Million - Annual
Compliance with Reserve Bank of India in case share are allotted to foreign
Individual (Form FC-GPR Part A & Part B) - Annual
return with the Income Tax Department - Filing of
Quarterly TDS returns - Filing of
monthly Service Tax returns | |
| b. Meeting | Not Applicable | Not Applicable | Board - One
meeting per quarter | Board - One
meeting per quarter | |
| Remittance of
Profit to Parent company | None, except upon
closure of LO | Profits can be freely
repatriated to the Parent Company subject to payment of applicable taxes. | - By way of
Dividend subject to Dividend Distribution
Tax - By way of
Royalty/ fees for technical services - By way of
Management Fees | - By way of
Dividend subject to Dividend Distribution Tax - By way of
Royalty/ fees for technical services - By way of
Management Fees | |
| Borrowing | Not allowed | The Branch Office is
not allowed to borrow locally unless the prior approval of RBI is taken | - There is no
restriction on local borrowing. | - There is no
restriction on local borrowing. |