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Incorporation of Foreign Company In India

Advantages

  • Limited Liability Protection
  • Foreign Direct Investment
  • Lower Registration Cost
  • Separate Legal Entity
  • Less Procedural Compliances

Minimum Requirements

  • Minimum Two Persons
  • DIN of the Person
  • No Minimum Capital required
  • DSC of one of the Person
  • One Partner shall be Indian resident
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Introduction

Under the Companies Act, 2013, a Foreign Company is an entity incorporated outside India (in a foreign country) but has a place of business i.e. a premise that indicates the visible or physical contact with a foreign company in India or carries out business activity in India in any other way.

A Foreign Company can be incorporated in India by complying with the provisions of Companies Act, 2013. A person can easily set up a Foreign Company by contacting the best firm for Foreign Company Registration in India. Following are the ways through which one can set up a Foreign Company:

  • As an Indian Company registered under the Companies Act, 2013
    • Wholly Owned Subsidiary
    • Joint Venture
  • As a Foreign Company
    • Setting up a Liaison Office
    • Representative Office or a Project Office or
    • Branch Office of the foreign company

Setting Up a Liaison Office or a Representative Office

Liaison Office is also known as Representative office which is primarily set up for exploring the business environment and also for understanding the business and investment needs and climate of a country in which the parent (company outside India) company wants to diversify or through which the parent company will facilitates its business.

Note: Liaison Office cannot conduct any commercial activities also must use remittance received only from its parent foreign company to carry its activities.

The Reserve Bank of India (RBI) prescribes the criteria for setting up a Liaison office or Representative Office in India. If you want any help regarding it then you can follow the following steps or can take help from a professional for Foreign Company Registration in India.

  • It is essential to have a profit-making record in the immediately preceding 3 financial years in the home country, and the net value should be more than USD 50,000.
  • If the subsidiary does not fulfill the above condition, the parent company must submit an authorization that meets the above conditions.
  • Specific approval of RBI under FEMA 1999 and Insurance Regulatory and Development Authority (IRDA) is required.
  • A designated Authorized Dealer Category–I Bank needs to forward an application for establishing an office to the RBI.
  • The RBI gives the office a unique identification number.

Project Office

In the event that a foreign company wishes to establish an office and the foreign company has entered into an agreement with an Indian company to carry out a project in India, the prior approval of the RBI is not required if:

  • Funded directly from abroad by inward remittance, or
  • Funded by a bilateral or multilateral international financial institution, or
  • Authorized by the appropriate authority, or
  • An Indian company or entity provided that a term loan has been granted for the project by an Indian bank or public financial institution.

Besides that, in case that the above conditions are not met, the foreign entity has to approach the RBI for the approval.

Branch Office of The Foreign Company

By opening a branch office, a foreign company can conduct business activity in India with the prior approval of RBI, provided:

  • The company should be engaged in manufacturing or trading activities,
  • Profit in the immediately preceding five financial years is necessary,
  • The net worth is not less than USD 100,000 in its home country.

Branch Office as stated in section 2(13) of Companies Act, 2013 "office in relation to a company, means any establishment described as such by the company". With help Branch Office foreign companies can conduct their business in India in a full-fledged manner. Branch Offices are allowed to carry the same or substantially the same activities as carried out by their main/parent or group organizations. They can carry out the following activities:-

  • Import or Export of goods
  • Rendering of professional or consultancy services in the India
  • Carrying or conducting out research work, in which the respective parent company is already engaged.
  • Promoting technical or the financial collaborations between the Indian companies and parent or overseas group companies
  • Representing the parent company or overseas group companies in India and acting as the buying/selling agents in India.
  • Rendering of their services in the Information Technology and the development of software in India
  • Rendering of their services for technical support to the products supplied by the parent or overseas group companies.
  • Foreign airline or shipping company.
  • Foreign Banks

Note:

  • The Branch Office is not allowed to indulge in carrying out the activities of manufacturing as they are permitted to sub-contract such kind of services to any Indian manufacturer.
  • The branch offices are allowed to repatriate the profit earned from their branch, net of the applicable tax rates & also subject to the guidelines of Reserve Bank of India.
  • There is not ownership provided in case of Branch office as it is only the extension of the exiting company in the foreign country.

Document Required

The following documents are required to be filed within 30 days of the establishment of its place of business in India for setting up of Liaison Office/Branch Office in India.

S. No Particulars
1. Business Sector of the Company in order to whether RBI Approval is required or not
2. Certified True Copy of the charter, statutes or memorandum and articles, of the company and, if the instrument is not in the English language, a certified translation thereof in the English language;
3. Complete address of the registered or principal office of the company;
4. List of the directors and secretary of the company containing such following particulars
5. Name and address of the Authorized Person(s) in India authorized to accept on behalf of the company service of process and any notices or other documents required to be served on the company;
6. Full address of the office of the company in India which is deemed to be its principal place of business in India
7. Particulars of opening and closing of a place of business in India on earlier occasion or occasions
8. The declaration that none of the directors of the company or the Authorized Representative in India has ever been convicted or debarred from the formation of companies and management in India or abroad;

Within a time-span of 30 days of the establishment of place of conduct in India, A foreign company must file an application with the registrar Form FC-1 along with an application fee as prescribed in the Companies (Registration Offices and Fees) Rules, 2014 and the documents needed for the registration by a foreign company under the provisions of section 380 (sub-section 1).

It should be noted that the application must be backed by an attested copy signifying the RBI’s (Reserve Bank of India) approval under the Foreign Exchange Management Act or the laws.

FAQs on Foreign Company

The application for investment is considered by the Reserve Bank of India under two routes which are as follows:-

  • Automatic route – In this the principal business of the foreign Company falls under those sectors where the government has allowed 100 percent of the Foreign Direct Investment.
  • Government route – In this route the principal business of the foreign Company falls under those sectors where the government has not allowed 100 percent FDI. Here the applications from the entities falling under this category & the non-government organizations are considered in discussion with the Ministry of Finance, Government of India by the RBI.

A branch office is allowed to purchase a property in India if that respective asset is used for performing the company’s business activities and the other associated operations. A property with a purpose of purpose of renting cannot be purchased by the foreign company.

  • Import or Export of goods;
  • Rendering of professional or consultancy services in the India;
  • carrying or conducting out research work, in which the respective parent company is already engaged;
  • Promoting technical or the financial collaborations between the Indian companies and parent or overseas group companies;
  • Representing the parent company or overseas group companies in India and acting as the buying/selling agents in India;
  • Rendering of their services in the Information Technology and the development of software in India;
  • Rendering of their services for technical support to the products supplied by the parent or overseas group companies;
  • Foreign airline or shipping company;
  • Foreign Banks

Yes, a Branch Office shall be required to pay tax in India in accordance with the tax rates as prescribed under the Income Tax Act, 1961. The branch offices are allowed to repatriate the profit earned from their branch, net of the applicable tax rates & also subject to the guidelines of Reserve Bank of India.

  • Funded directly from abroad by inward remittance, or
  • Funded by a bilateral or multilateral international financial institution, or
  • Authorized by the appropriate authority, or
  • An Indian company or entity provided that a term loan has been granted for the project by an Indian bank or public financial institution

The initial approval by RBI for operating a liaison office is allowed for a period of three years which can be further extended for another 3 years subject to the compliances made and the permission granted by the Reserve Bank of India. Furthermore, the extension for the same can be applied at least one or two months before the expiry of the initial time period.

The Foreign Insurance company/ies can establish a Liaison Offices in India only after the approval from the Insurance Regulatory and Development Authority (IRDA). Likewise, the foreign banks can also establish Liaison Offices in India only after obtaining the approval from Department of Banking Regulations (DBR), Reserve Bank of India.

The Branch Offices are allowed to remit outside India the profit of the branch net of applicable Indian taxes, on production of the following documents upto the satisfaction of the Authorised Dealer through whom such remittance is effected:

  1. A Certified true copy of the audited Balance Sheet and Profit and Loss account for the relevant year;
  2. A certificate from the Chartered Accountant’s certifying –
    • the manner of arriving at the remittable profit
    • that the entire remittable profit has been earned by undertaking the permitted activities
    • that the profit does not include any profit on revaluation of the assets of the branch

Yes a Nidhi Company may declare dividends which shall not exceed 25% or higher as may be approved by Regional Director subject to the fulfillment of certain conditions.

No, a Nidhi Company cannot issue Preferential Shares as prescribed by the Companies Act, 2013.

Once the Nidhi Company is registered, it must fulfill the following mentioned requirements:

  • Have at least 200 members/shareholders.
  • Minimum Net Owned Fund should be Rs. 10 Lakhs.
  • Unencumbered term deposit must be at least 10% of the term deposit.
  • The ratio of Net Owned Fund to term deposit should not be less than 1:20.

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