A. Operation in India
A foreign company planning to set up business operations in India has the following options:
Joint Venture With An Indian Company
Foreign Companies can set up their operations in India by strategic alliances with existing Indian company through various instruments.
Wholly Owned Subsidiary Company
Foreign companies can also to set up wholly-owned subsidiary in sectors where 100% foreign direct investment is permitted under the FDI policy.
Incorporation of Company/LLP
Incorporate a Company in India under Companies Act, 2013 or LLP under Limited Partnership Act, . Once a company/ LLP has been duly registered and incorporated as an Indian company/LLP , it is subject to Indian laws and regulations as applicable to other domestic Indian companies/LLP. Foreign Fund thereafter can be introduced in the company through shares and/ or ECB and various other routes.
Note : Foreign equity in Indian companies is permitted through automatic route or with prior approval while in certain sector it is completely prohibited. Details of the FDI policy, sectoral equity caps & procedures can be obtained from Department of Industrial Policy & Promotion, Government of India
https://dipp.gov.in/ and https://rbi.org.in/
B.As a Foreign Company
Foreign Companies can set up their operations in India in permitted activities and after taking necessary approval, permission and exercise either of the following options :
Liaison Office/Representative Office
Liaison office acts as a channel of communication between head office abroad and parties in India. Liaison office can not undertake any commercial activity directly or indirectly and therefore cannot earn any income in India. Its role is limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers. It can promote export/import from/to India and also facilitate technical/financial collaboration between parent company and companies in India.
Approval for establishing a liaison office in India is granted by Reserve Bank of India (RBI).
RBI has granted general permission to foreign companies to establish Project Offices in India provided they have secured a contract from an Indian Company to execute a project in India and
· The project is funding directly by inward remittance from abroad; or
· the project is funded by a bilateral or multilateral International Financing Agency; or
· the project has been cleared by an appropriate authority; or
· a company or entity in India awarding the contract has been granted Term Loan by Public Financial Institution or a bank in India.
If the above criteria is not meet, the foreign entity has to approach the Reserve Bank of India, Central Office, for approval.
Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up Branch Offices in India for the following purposes:
· Export/Import of goods
· Rendering professional or consultancy services
· Carrying out research work, 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 agents in India.
· Rendering services in Information Technology and development of software in India.
· Rendering technical support to the products supplied by the parent/ group companies.
· Foreign airline/shipping company.
Normally, the branch Office should be engaged in the activity in which the parent company is engaged.
A branch office is not allowed to carry out retail trading, manufacturing or processing activities either directly or indirectly in India. Foreign Banks do not require approval under FEMA, for opening branch office as they are regulated under Banking Regulation Act, 1949 and Department of Banking Regulation, Reserve Bank of India (RBI).
Reserve Bank has given general permission to foreign companies for establishing branch/unit in Special Economic Zones (SEZs) to undertake manufacturing and service activities. The general permission is subject to the following conditions:
· such units are functioning in those sectors where 100 per cent FDI is permitted;
· such units comply with part XI of the Companies Act,1956 (Section 592 to 602);
· such units function on a stand-alone basis.
Source : FEMA Notification No. FEMA 22/2000-RB dated May 3, 2000 and FEMA Master Direction No. 11/2017-18 dated March 8, 2019
Disclaimer : The above is brief explanation only for reference purpose for actual compliances and consultancy kindly contact.
CS Moksha Kotian Sirsat
Moksha Kotian & Co.
Firm of Practising Company Secretary
Email : email@example.com