Foreign companies can expand their operations to India by setting up a place of business, either by themselves or through agents, physically or electronically. To be considered a ‘Foreign Company,’ one must fulfill both criteria mentioned above.
The foreign company incorporation in India is divided into four categories: Project Offices (PO), Branch Offices (BO), Liaison Offices (LO), and Foreign subsidiaries. Each entry route has its set of conditions, rules and regulations that need to be followed.
Project Offices (PO)
If a foreign company plans to execute a specific project in India, it can set up a Project Office (PO) to represent its interests. Essentially, a PO is a branch office with a limited purpose of executing a specific project. Foreign companies engaged in construction or installation typically set up a PO for their operations in India.
Branch Offices (BO)
Branch Offices (BO) are suitable for foreign companies who wish to test and understand the Indian market with stringent control by the Reserve Bank of India (RBI). With BOs, companies can conduct business activities listed in the BO application.
An application from a person resident outside India for BO requires prior approval from the RBI. The AD Category-I bank forwards it to the General Manager, Reserve Bank of India, Central Office Cell, Foreign Exchange Department, 6, Sansad Marg, New Delhi – 110 001, who processes the application in consultation with the Government of India.
When applicants belong to certain countries such as Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong, or Macau and apply for a BO in Jammu and Kashmir, North East region, and the Andaman and Nicobar Islands, the authority consults with the Government of India. Additionally, if the applicant’s principal business falls in the defense, telecom, private security, and information and broadcasting sector, government approval is mandatory.
Furthermore, entities such as Non-Government Organization (NGO) and Non-Profit Organization, Body/ Agency/ Departments of foreign governments, must obtain a certificate of registration as per the Foreign Contribution (Regulation) Act, 2010.
The non-resident entity for BO in India should have a financially sound track record of a profit-making track record during the preceding five financial years in the home country and net worth of not less than USD 100,000.
The general conditions for setting up a BO in India include registering with the Registrar of Companies under the Companies Act, 2013. BOs can open non-interest bearing current accounts in India, obtain Permanent Account Number (PAN) from Income Tax Authorities, transact through one designated AD Category-I bank, and acquire property following the guidelines issued under Foreign Exchange Management.
A Liaison Office (LO) does not conduct commercial or trading activity; it’s a place of business to act as a communication channel between the principal place of business or head office and entities in India. LO maintains itself through inward remittances received from abroad through a normal banking channel.
Permitted Activities for LO in India of a person resident outside India
- Representing the parent company/group companies in India.
- Promoting export/import from/to India.
- Promoting technical/financial collaborations between parent/group companies and India.
- Acting as a communication channel between the parent company and Indian companies.
Applications from foreign companies for establishing an LO in India shall be considered by the AD Category-I bank as per the guidelines given by RBI. An application from a person resident outside India for opening an LO in India requires prior approval from RBI.
The non-resident entity applying for an LO in India should have a financially sound track record, viz: a profit-making track record during the immediately preceding three financial years in the home country and net worth of not less than USD 50,000 or its equivalent.
Steps in setting up an LO
There are two routes available under the Foreign Exchange Management Act 1999 (FEMA) for setting up an LO in India: Reserve Bank Approval Route and Automatic Route.
- Designate a bank and branch where an account will be opened (post-approval of RBI) and an Authorized Dealer Bank (AD Bank) for LO in India.
- Apply LO with all necessary documents to the RBI through the AD Bank.
- Obtain approval of RBI.
- Apply to the Registrar of Companies (ROC) to obtain a ‘Certificate of Establishment of Place of Business in India’ within 30 days of approval by RBI.
- Apply for Permanent Account Number with Income Tax Authority.
- Apply for TAN with the Income Tax Authority.
- Open an account with the bank and obtain a bank account number.
- Registration with police authorities if required.
Foreign Subsidiary in India
A foreign subsidiary company is any company where 50% or more of its equity shares are owned by a company incorporated in another foreign nation. In such a case, the said foreign company is called the holding company or the parent company.
To operate in India through a subsidiary company, any foreign company (parent company) registered/incorporated outside India must hold at least 50% of the shareholding of the subsidiary company. The subsidiary can be registered as either a public limited company or a private limited company in India, with the latter being the preferred mode.
The subsidiary company must comply with additional Reserve Bank of India (RBI) regulations since it receives foreign investment through Form FC-GPR and FC-TRS. Additionally, the subsidiary company must be compliant with FC-1, FC-3 & FC-4 forms.
The subsidiary company must have a registered office in India, and out of the minimum requirement of two directors, the company must have at least one Indian citizen (a person who has stayed in India at least 182 days in the previous year) as a Director.
The foreign subsidiary must be compliant with the Foreign Direct Investment policies filed through FC-TRS, which report the transfer of foreign subsidiary company shares between an Indian resident and a non-resident investor. Additionally, the foreign subsidiary must be compliant with FC-GPR which reports on the remittance received by the shareholders of the foreign subsidiary company.
Steps in brief
To set up a foreign subsidiary company in India, companies must:
- Apply for the company’s name reservation in Spice+ Part A with the Registrar of Companies (ROC).
- Post-approval of the company’s name, apply for incorporation of the company through Spice+ Part B, attaching the Memorandum and Articles of Association of the Company. ROC fees and Stamp duty must be paid online.
- Post verification of documents, ROC will issue the Certificate of Incorporation (COI), PAN and TAN of the company simultaneously by the department.
- The subsidiary must open a current account and bring share subscription money from all the shareholders.
- Intimate RBI regarding the receipt of share subscription, which will be considered as FDI, and within 30 days must file e-Form FC-1.
Foreign subsidiaries are treated at par with any other Indian company. Therefore, general requirements pertinent to any private/public company follows. By following these guidelines, foreign companies can easily enter the Indian market and establish a subsidiary company. Compliance is key to meet all legal and regulatory requirements for each entry route, and compliance with the OPC annual compliance checklist can help ensure that all regulations are being adhered to.
As long as laws for foreign companies in India are adhered to, these subsidiaries are treated at par with any other Indian company. Whether via project office, branch office, liaison office or a foreign subsidiary, each mode of entry has its own advantages and disadvantages, hence the choice depends on the business’ objectives and requirements.
FAQs about Foreign Company Incorporation in India
Q: What documents are required to register a foreign company in India?
A: The documents required to register a foreign company in India include the Memorandum and Articles of Association of the company, attested by a notary public or Indian embassy/consulate. Other documents include a certificate of incorporation, a certificate of good standing, and a resolution from the board of directors of the foreign company authorizing the opening of a branch office in India. Additionally, the documents must be translated into English and notarized.
Q: What is the difference between an Indian company and a foreign company?
A: An Indian company is a company that is incorporated in India, according to the Companies Act, 2013. In contrast, a foreign company is a company that is incorporated outside India. Indian companies require registration with the Registrar of Companies in the state in which it is registered, while foreign companies can operate in India through various entry routes such as Project Offices (PO), Branch Offices (BO), Liaison Offices (LO), and Foreign Subsidiaries. Foreign companies are also subject to different regulations compared to Indian companies and must comply with additional regulations under the Foreign Exchange Management Act (FEMA) and the Companies Act, 2013.
Disclaimer: The content of this article is for information purpose only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that the Author / Treelife is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof.
Last Updated on: 7th December 2023, 07:18 pm
The content of this article is for information purpose only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc. before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that the Author / Treelife is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof.