INCORPORATION OF COMPANY BY FOREIGN NATIONALS?
Incorporation of Company by Foreign Nationals/Non Resident Indian/Overseas Citizen Of India (OCI) is a cumbersome process and subject to Regulatory approvals.
The laws which here are of concern are:
2. Foreign Exchange Management Act, 1999.
Starting point of Foreign investment is inflow of funds into India and at that point FEMA comes into picture. Therefore shall start by looking into FEMA Regulations.
Every Foreign National can own a company in India (partly or even wholly) or set up your own company in India. Setting up or owning a company in India can broadly be achieved with the following options:
1. Buying shares in an existing business
2. Starting a new company
However in this write up we will restrict our discussion on Staring up a new company.
Any Investment from a territory outside India is defines as Foreign investment. Foreign Investment can be classified under following:
1. Foreign Direct investment
2. Foreign portfolio investment.
These terms have been defined in Foreign Exchange Management (Non-debt Instruments) Rules, 2019) as follows:
It clearly says that Foreign Investment In Unlisted Company is always treated as Foreign Direct investment and is subject to FDI Linked performance conditions as will be discussed later.
WHO IS ELIGIBLE TO INVEST?
Rule 6 of Foreign Exchange Management (Non-debt Instruments) Rules, 2019 clearly says that every PROI can subscribe, purchase or sale of equity instruments of an Indian company subject to the terms and conditions of Schedule 1 other than citizens of / entities incorporated in Pakistan and Bangladesh and even under Approval Route, their investments can be for sectors other than defence, space, atomic energy and sectors or activities prohibited for foreign investments.
SCHEDULE 1 enclosed which prescribe certain conditions:
FDI LINKED PERFORMANCE CONDITIONS
As per Schedule 1 of Foreign Exchange Management (Non-debt Instruments) Rules, 2019 the foreign Investment is allowed under two routes:
1. Automatic Route
2. Approval route
There are also certain Maximum limits are specified in each sector of how much Foreign Investment can flow into into India.
It is advisable to open such notification and read their own sector specific conditions.
REPORTING OF FOREIGN INVESTMENT:
Initially Reporting of Foreign Investment Is done manually but RBI recently has Done it Online through FIRMS Portal and one is to File Single master form for compliance.
Link for user manual of such form is enclosed herewith
COMPANIES ACT PERSPECTIVE
A foreign national can open business in India in following ways:
2. Limited Liability partnerships
3. Liaison office
4. Branch Office
5. Project office
In this write up we are making our focus on Company. It must be noted all conditions relating to LLP, Branch office, Liaison Office are different from both FEMA aspect and Companies Act aspect.
|Legal Composition||Entire Share Capital can be owned by foreign investor- Wholly Owned Subsidiary-WOS
2 or more parties can jointly hold the share capital-Joint Venture -JV
|Minimum Number of Directors||2 Directors, 1 to be resident in India|
|Minimum Number of Investors||2|
|Minimum Share Capital||Authorized Capital: Rs. 100,000 Paid-up Capital: No Minimum requirement|
|Legal Permission||Automatic Route/Approval by individual Government Departments|
|Corporate Liability||Limited to the subscribed share capital|
|Tax Structure||Taxed as Domestic Company @30% plus surcharge|
In an event where revenue of Indian entity is below Break Even Point (BEP), the initial Capex (Capital Expenses) & Opex (Operational Expenses) requirement can be met through Share Capital (Investment) funded from the shareholders.
External Commercial Borrowings (ECB) is allowed for Capital Expenditures. In current scenario, ECBs are also allowed for Working Capital Expenditure; however certain conditions are imposed by Reserve bank of India (RBI) need to be followed. Please click on the link for (master Circular Master Circular on External Commercial Borrowings and Trade Credits)
Conatct for any Taxation and Fema Query: [email protected] or 7986255468 or 6284454180