As India is developing country and that too one of the fastest developing country in world, it is normal that other countries wanted to invest in India. India is actually a hub doing business as the cost of production in India is low which ultimately increases the Demand curve of a product or service.

With each year passing the foreign entities are coming and doing business in India. Now the question arises how a foreign entity runs a business in India. Let me explain you the basic question related to this in simple question and answer way.

What is Foreign Company?

As per section 2(42) of the Companies Act, 2013, a foreign company means any company or body corporate incorporated outside India which:-

(a) has a place of business in India whether by itself or through an agent, physically or through electronic mode; and

(b) conducts any business activity in India in any other manner.

Foreign Company In India And Registration

What are ways that a foreign company can run business in India?

A foreign company which is desirous of entering and doing business in India can enter in any of below given ways:-

As an Indian Company:- A Indian Limited company is incorporated in India and the shares are held by foreigners in below given ways.

  • Wholly Owned Subsidiary:- For an Indian company to Become Wholly Owned Subsidiary Company of a Foreign Company, a foreign company needs to invest 100% FDI in that Indian company through automatic route, for the purpose of foreign company registration in India.
  • Joint Venture:- It is important for the foreign company to elect a local partner with whom it wants to enter into a joint venture. A Memorandum of Understanding or a Letter of Intent is to be signed which will state the basis for the joint venture agreement. A thorough discussion of all the terms should be done and they must be consistent with regional as well as international law.
  • Subsidiary Company:- In this Foreign company hold shares of Indian company upto the limit of 49.99% of the total shares of the company.

As an Foreign Company:- A foreign company get register under the Companies Act, 2013 to start business in any of below given ways:-

  • Branch Office:- A branch Office is established by foreign company in India. Foreign company must be large business and provide proof of profitability.
  • Liaison Office:- Liaison office can be established for all liaison activities in India. All the expenses of liaison office must be met through foreign remittance from parent company.
  • Project Office:- This office can be established to execute projects awarded to a foreign company by an Indian Company. Approval of from Reserve Bank of India may be required.

Starting a private limited company is the coolest and fastest way to set up in India. Foreign Direct Investment (FDI) of up to 100% into a public limited or private limited is permitted under the FDI policy.

Is Reserve Bank of India is also involved in registering business of Foreign Company in India?

Yes, as generally remittance of foreign currency is involved, the Reserve Bank of India regulates them through Foreign Direct Investment (FDI) policy, Foreign Exchange Management Act (FEMA), 1999 etc.

How to register a Foreign Company in India?

Registration or incorporation for any of ways of doing business in India by foreign company as stated in question no. 2 varies. The professionals are involved in this matter as there are various important aspects which are kept in mind while starting the business, who explain all the pros and cons of how to enter in India and which mode is more beneficial for different type of business.

What are the documents required for registration of is Foreign Company in India?

Depending upon the way a foreign company start a business in India, the documentation also varies. However, lets have look on documents required in each of way of doing business as discussed in question no. 2.

  • Wholly owned subsidiary Company

Following documents are required for such foreign company registration in India:

1) Address proof of the office (In case of a rented property, the latest electricity bill)

2) For Indian citizen

PAN card mandatory

Address proof

Photograph ID proof like Aadhar card.

3) For foreign national

Passport mandatory

Address Proof

Photograph ID Proof like any government license

Documents submitted must be certified by the Indian Consular or consulate.

  • Joint Venture

In case of joint venture, well contract is drafted, hence the following points to be taken care of by parties involved: –

1) Dispute resolution agreements

2) Law Applicable

3) Holding shares

4) Transfer of shares

5) Board of Directors Non-Compete

6) Confidentiality, etc

  • Liaison Office or Representative Office

RBI prescribes the criteria for setting up a Liaison office or Representative Office in India, which are as follows:

1) 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.

2) In case, the above condition is not satisfied by the subsidiary company, a letter of comfort is to be submitted by the parent company which satisfies the above condition.

3) Specific approval of RBI under FEMA 1999 and Insurance Regulatory and Development Authority (IRDA) is required.

4) A designated Authorised Dealer Category–I Bank needs to forward an application for establishing an office to the RBI.

5) The office will be given a Unique Identification Number by RBI.

6) Along with the Application, English version of the Certificate of Incorporation/Registration or MOA & AOA (attested by the Indian Embassy/Notary Public), required documents should also be filed.

7) Latest Audited Balance Sheet of the applicant entity should also be filed in the Country of Registration.

  • Project Office

In case a foreign company wants to establishment office, and the foreign company has secured a contract from an Indian company to execute a project in India, prior permission from RBI is not needed, provided:

1) Funded directly by inward remittance from abroad or

2) Funded by a bilateral or multilateral International Financing Agency or

3) Cleared by an appropriate authority or

4) A company or entity in India provided that a contract has been granted Term Loan by a bank in India or a Public Financial Institution for the project.

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

  • Branch Office

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

1) The company should be engaged in manufacturing or trading activities,

2) Profit in the immediately preceding five financial years is necessary,

3) The net worth of not less than USD 100,000 in its home country.

There are huge opportunities in India as a Foreign Company even in the E-commerce Sector where govt recently allow 100% FDI in the E-commerce Sector.

What are laws/ statutes governing the is Foreign Company in India?

Depending upon your business entity set up, The Companies, Act, 2013 and its related rules, Foreign Direct Investment (FDI) policy, Foreign Exchange Management Act (FEMA), 1999 governs the Foreign company business in India.

What are the Compliances related to is Foreign Company in India after the Incorporation?

Now this question again depends upon the business entity set up compliances also varies. Let us discuss them point wise.

Wholly Owned Company/ Subsidiary Company

  • All the Compliances required under the Companies Act, 2013
  • FEMA Compliances as per FEMA Act
  • DGFT (Director General of Foreign Trade) compliances
  • Annual Compliances under GST Act
  • Tax filing under the Income Tax Act, 1961
  • And other specific regulatory act, regulations depending upon the business type of company.

Joint Venture

  • Conditions upon which RBI or FIPB (Foreign Investment Promotion Board) approval is given.
  • Abiding by Conditions and clauses which are stated under the Joint Venture.
  • Annual Compliances under GST Act
  • Tax filing under the Income Tax Act, 1961

Liaison Office/ Project Office/ Branch Office

  • Filing of E-form FC-1 to Registrar of Companies within thirty (30) days from starting business or establishing office in India.
  • Filing of E-form FC-3 for Annual accounts along with the list of all principal places of business in India established by foreign company.
  • Filing of E-form FC-4 for Annual return of a foreign company.
  • Branch Offices / Liaison Offices have to file Annual Activity Certificates (AAC) and Annual return on Foreign Liabilities and Assets has been notified under FEMA 1999
  • Annual Compliances under GST Act
  • Tax filing under the Income Tax Act, 1961

What is penalty for Non-Compliances by Foreign Company if it fails to file the forms required to file?

Depending upon the non-Compliance and its related penal provision, penalty, fine or other fees are levied upon the foreign company.

What if Foreign Company stops doing business in India?

A foreign company doing business in India can also close down its business alike an Indian company. However, its process is little varies.

A) A wholly owned company or subsidiary can go for winding up or striking of the name of the company from the register of companies as per the Companies Act, 2013 as well as Reserve Bank of India.

Liaison Office/ Project Office/ Branch Office are closed in two (2) steps file application of closure of Liaison Office with ROC in E-form FC-3 and then Filing application for closure of Liaison Office with RBI through designated AD Category – I bank and remittance of proceeds abroad and closure of bank account in India.

Once ROC closure has taken place, the application for winding up/closure of Liaison Office may be submitted along with the following documents with designated AD Category – I bank:

  • Copy of the Reserve Bank’s approval for establishing the LO.
  • Auditor’s certificate : Along with a statement of assets and liabilities of the applicant and indicating the manner of disposal of assets and the manner how the remittable amount has been generated;
  • Confirming that all liabilities in India including arrears of gratuity and other benefits to employees, etc. of the office have been fulfilled.
  • Confirming that no income accruing from sources outside India (including proceeds of exports) has remained un-repatriated to India.
  • Confirmation from the applicant/parent company that no legal proceedings in any Court in India are pending against the LO.
  • A report from the Registrar of Companies (ROC) regarding compliance with the provisions of the Companies Act, 2013.
  • The designated AD Category – I banks will confirm that the LO had done their respective compliances.
  • Any other document/s, required by Reserve Bank of India/AD Category-I bank while granting approval.

Designated AD Category-I bank may allow remittance of winding up proceeds in respect of offices of banks and insurance companies, after obtaining copies of permission of closure from the sectorial regulators (like IRDA etc.) along with the documents mentioned above.

The designated AD Category – I bank will report to the Reserve Bank (the Regional Office concerned for LOs), along with a declaration stating that all the necessary documents submitted by the LO have been scrutinized and found to be in order for closure of Liaison Office.

Disclaimer: – The above article is prepared keeping in mind all the important and basic question which cross’s a mind of foreign investor or professionals regarding Foreign company in India. Wherever possible. I have tried to state the specific provisions. Section, regulation under the Companies Act, 2013, Foreign Direct Investment (FDI) policy, Foreign Exchange Management Act (FEMA), 1999 etc. Under no circumstance, the author shall not liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information.

(The Author is Corporate Consultant and provides varied array of services including Start-ups mentor, Secretarial, Legal, Trademark, taxation, Audit, GST, Book keeping and other ancillary advisory service in Delhi, Chandigarh as well as The National Capital Region (NCR) and can be contacted through email id:- [email protected] and Contact Number: 91-8178515005)

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Qualification: CS
Company: Proventure- Aiding your Business
Location: NEW DELHI, New Delhi, IN
Member Since: 06 Jul 2019 | Total Posts: 63
I am Company Secretary and engaged with this profession from last nine (9) years. Throughout this journey, my moto is to help people start their startups and business. View Full Profile

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One Comment

  1. Saurabh Sharma says:

    For closure of branch office I think form FC-2 should be file. Please correct me if I am wrong. Also I am in process to closure of branch office in India. can you share documents which need to file with ROC.

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