India being a developing nation attracts thousands of passionate entrepreneurs from outside to launch their enterprise in India. When a person not a resident of India plans to start a business in India, he becomes a foreign owner. A foreign owner can begin by opening an Indian Subsidiary Company or a liaison office or project office. For foreign nationals wanting to do business in India, Indian markets are quite suitable for their needs and therefore they plan to start a business in India.
Establishing a subsidiary company is a very effective way used by Foreign Owner to expand the business. Many foreign companies resort to this method to establish their Indian Subsidiary Company. This not only helps them in targeting the right market but also makes them aware of the better business environment like “ease of doing business” in other countries. Today we can find many Indian Owners as well opening a Foreign Subsidiary of Indian Company.
Also as the government of India is aiming as making our nation, “entrepreneurial friendly”, more number of foreign owners are attracted to open their Subsidiary Company in India. The company which exercises control over subsidiary or the sister company is known as the parent company. However a subsidiary company of a foreign firm has separate legal entity and needs to follow rules and regulations of the country where it is operating. For Example, a foreign owner has a subsidiary company in India, so his subsidiary company needs to follow all the rules and regulations of India.
Wholly Owned Subsidiary Company
For establishing a subsidiary company, the holding company needs to have at least 50% of total equity capital of the subsidiary company. When the investment in subsidiary firm by the parent firm is 100% then the Subsidiary Company becomes ‘Wholly Owned Subsidiary Company’. Many foreign nationals prefer to incorporate Wholly Owned Subsidiary Companies in India.
If a Foreign Owner wants to undertake the business for a very limited purpose and doesn’t want to take any business activity, he can do so by opening a liaison office.
Procedure to Set up an Indian Subsidiary Company
- Availability of Names (INC-1)
- Making DIN’s & DSC’s with the help of MCA
- Drafting MoA & AoA along with registration fees and stamp duties
- Filing form INC-22 & Form DIR-12 with RoC
Liaison Office is a structure whereby an entity establishes its presence in another country for a very limited purpose and does not undertake any direct business activity (Liaison Office Companies Act 2013). This is basically done in order to test the feasibility of cross border markets for our business. However if a foreign national secures a project by Indian Company he can proceed further by opening a project office.
Under the Indian Exchange Control Regulations, a Liaison Office is defined as under: Liaison Office in India means a place of business to act as a channel of communication between the Principal place of business or Head Office, by whatever name called and entities in India, but which does not undertake any commercial /trading/ industrial activity, directly or indirectly, and maintains itself out of inward remittances received from abroad through normal banking channel.
Activities of Liaison Office
Only liaison activities can be performed by liaison offices that is it can act as a communication channel between head office abroad and its various parties in India. However these offices have a responsibility to check the feasibility of markets in India and test them according to their product. Also adequate information needs to be provided to the interested customers about the business.
Formation of Liaison office in India
- Application Submission in Form FNC along with the documents to the General Manager, Foreign Exchange Department, Central Office Cell, Reserve Bank of India
- Consideration of Form FNC by RBI
- Track record and Net worth considerations
- Permission for setting up liaison office (permitted within 3 years or more)
- Filing of Annual Activity Certificate by Liaison Offices
A project office in India can be set up by a foreign owner when he has secured a contract by an Indian Company. For opening a Project office of foreign company in India, the concerned foreign company will be filing of Form FNC-10 with the regional office of the Reserve Bank of India is necessary. Today, opening of branch office abroad by Indian company can also be seen as more and more Indian companies are going global. Many foreign owners depending on the kind of operations also go for Indian Subsidiary Company.
But, if the above criteria is not met or even if the parent entity is established in Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau, the applications have to be forwarded to General Manager, Foreign Exchange Department, Central Office Cell, Reserve Bank of India, New Delhi Regional Office, Parliament Street, Delhi, India.
Project Office in India
Project Office is taken as an extension of the foreign company in India which is why taxation is done on the rates applicable to foreign companies in India. A project office by foreign owner can repatriate the profits freely once the project is completed and after payment of taxes and fulfillment of duties.
However a foreign national wanting to expand his business can open an Indian Subsidiary Company.
Incorporation of Project Office
In order to set up a project office by foreign Non-Government Organizations/Non-Profit Organizations/Foreign Government Bodies/Departments, by whatever name called, the entities are required to apply to the Reserve Bank for prior permission to establish an office in India, whether Project Office or otherwise. However this is all under government route.
RBI will grant the permission, if:
- the project funding is directly by inward remittance from abroad; or
- the project funding is by a bilateral or multilateral International Financing Agency; or
- the project clearance has been done by an appropriate authority; or
- the company or entity in India awarding the contract has been granted Term Loan by a Public Financial Institution or a bank in India for the project
This Post Has Been Viewed 128 Times
- Business Compliance
- Corporate Compliance
- Income Tax Compliance
- Other Business Compliances
- International Taxation
- Arrival – Departure tax briefings
- Assistance in Internation Tax Litigations
- Certificate of Coverage
- Double Taxation Avoidance Agreement
- Foreign Tax Credits And Treatment of Grossing up Components
- FRRO Registrations and Extensions
- Hypothetical Tax Computations
- Income Tax Compliance
- OCI CARD AND PO CARD
- Salary Structuring and Payoff Processing
- Secondment Agreements
- Tax Equalization Policy and Computations
- Other Services
- Foreign Company
- Transfer Pricing
- Not For Profit Sector
- Start a Business
- Company Formation Outside India
- Foreign Owner
- Indian Owner
- Special Entities
- Starters’ CFO Special
Contact Us Today