There are various options that a foreign company has to enter the Indian market and avail the economic benefits that India has to offer. The foreign entity may setup a corporate or non-corporate entity.
A foreign entity can set up anIndian corporate entity in India as a wholly owned subsidiary, as a Limited Liability Partnership or through joint venture with an Indian partner. The foreign entity may choose to operate as a foreign company in India through a Branch office, Liasion Office or a Project Office in India as well.
Indian Entity options
Wholly owned subsidiary: Foreign companies can set up wholly owned subsidiary companies in India in form of private companies subject to FDI guidelines. A wholly owned or a subsidiary company has the maximum flexibility to conduct business in India when compared with a liaison or branch office and has following salient features:
- Funding can be done via equity, debt (foreign as well as local) and internal accruals
- Indian transfer pricing regulations apply
- Repatriation of dividends is allowed without approvals
Limited Liability Company:An LLP is governed by the Limited Liability Partnership Act, 2008 and came into force in India on 1 April 2009. FDI is permitted in an LLP with the prior approval of the GOI in sectors where 100% FDI is allowed under the automatic route and there are no FDI-linked performance conditions. LLPs with FDI are not allowed to operate in agricultural or plantation activity, print media or real estate business. FIIs/FVCIs are not permitted to invest in LLPs. LLPs with FDI are not eligible to make any downstream investments.
Joint Venture with Indian or foreign partner: Foreign companies can also set up joint venture with Indian or foreign companies in India. There are no separate laws for joint ventures in India and laws governing domestics companies apply equally to joint ventures.
Foreign company options
Liaison office: A liaison or a representative office can be opened in India subject to approval by Reserve Bank of India. Such an office can undertake liaison activities on its company’s behalf. A liaison office can also undertake:
- Representing parent/group companies in India
- Promoting import/export in India
- Promoting technical/financial collaborations on parent company/group’s behalf
- Coordinating communications between parent/group companies and Indian companies
Branch Office: Foreign companies can conduct their business in India through its branch office which can be opened after obtaining a specific approval from Reserve Bank of India. A branch office can undertake following activities:
- Import & export of goods
- Rendering professional or consultancy services
- Carrying out research work in area which its parent company is engaged
- Promoting technical/financial collaborations on behalf of parent company/ overseas group company
- Representing parent/group companies in India and acting as buying/selling agent in India
- Providing IT services and developing software in India
- Providing technical support for products supplied by parent company/group
Project office: If a foreign company is engaged by an Indian company to execute a project in India, it may set up a project office without obtaining approval from Reserve Bank of India subject to prescribed reporting compliances. As applicable in case of a branch office, a project office is treated as an extension of foreign company and is taxed at the rate applicable to foreign companies.
Find out more about the suitable options for you to start business in India by speaking to one of our advisors at AJSH & Co LLP. We can also advise you with regards to transfer pricing policies in India.
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