India has emerged has global market in the current time. Many Foreign Companies and Individuals are desirous of starting business in India or are already engaged in business in India directly. In many cases, it requires such Foreign Companies and Individuals to make compliance with Indian Tax Laws. We provide all services to such foreign companies and individuals to make their compliance with their Tax obligations to Indian Tax Laws.
Regulatory requirement for Foreign Investment
Entry options - Choice of entity type and assistance in setup
There are number of prevailing entity type in India such as company, limited liability partnership, partnership, proprietorship etc. Every format has its own features and regulatory requirements. One can choose any of them based on the business objective and regulatory framework for that business.
Indian regulations allow investment in all industries expect those in the negative list. Additionally, there are sectoral caps for investing in certain industries. FDI is not permitted beyond these caps. FDI can be brought into India through the automatic approval route and, for certain activities, on obtaining prior government approval. A foreign enterprise can consider the following routes for doing business in India.
1. Corporate entity
2. Non-corporate entity
Companies in India can either be public or private. Further, a private company can be limited by shares or by guarantee. In the former, the personal liability of members is limited to the amount unpaid on the share subscription, while in the latter the personal liability is limited by a pre-decided nominated amount. For a company with unlimited liability, the liability of its members is unlimited.
Wholly Owned Subsidiary
A foreign corporate can invest and start its operations in India by incorporating a WOS company under the provisions of the Indian Companies Act, 1956. It is treated at par with a domestic company and all regulations applicable to an Indian company equally apply to the WOS.
The set-up can be under the automatic route, wherein no prior approval of the government is required. One needs to take into consideration the business activities proposed for India as well as the sector of operation. In case restrictions apply, prior approval is required from the FIPB - Ministry of Finance.
In case the foreign investor has an existing joint venture technical collaboration or trade mark agreement with any Indian company in an area similar to that in which the new investment is proposed, a prior approval from the FIPB is required, irrespective of the nature of activities and sector of operation.
Set-up Process â€“ Private Company
The set-up process for a private limited company can essentially be divided into 3 stages:
1. Exchange Control
After deciding to set up a company in India, the immediate questions which have bearing are:
(i) Is the proposed investment in a restricted industry or sector or subject to sectoral caps?
(ii) Is the proposed investment effected by Press Note 1?
Most industrial activities now fall within the automatic route whereby only intimation is to be made to the RBI post incorporating the company. In case the above issues have bearing on the proposed investment will require clearance from the FIPB normally takes 4-6 weeks.
2. Company Incorporation
A company to be incorporated in India as a private company must have a minimum paid up capital of Rs 100,000 (US$ 2,500 approximately). It requires atleast two directors and two subscribers. The whole process of incorporation generally takes 15-20 days depending upon the availability of required documents.
3. Intimation to the RBI
(i) Within 30 days of receiving the application money, intimation is tobe made to the concerned regional office of RBI in respect of the inward bank remittance received as share application money.
(ii) The company is required to intimate the RBI within 30 days of issuing shares to the foreign investor.
(iii) RBI will issue a registration number to the company which is to be mentioned for future correspondence with the RBI i.e. while repatriating funds, etc.
OTHER ENTRY OPTIONS
A foreign company may also enter the Indian markets by establishing a non-corporate entity which operates as an extension of the foreign company. These are:
- Project Office (PO)
- Liaision Office (LO)
Branch Office (BO)
A foreign company may consider establishing a branch to carry out trading, business dealing, etc. on behalf of the head office.
Scope of Activities
(i) Export / import of goods
(ii) Rendering professional or consultancy services
(iii) Research work linked to activities of the parent
(iv) Promoting technical or financial collaborations between Indians and parent
(v) Rendering services in information technology including software development
(vi) Technical support in respect of products supplied by the parent
(vii) Foreign airline / shipping company
Set-up of a BO requires a prior permission from the RBI which will closely examine the proposed activities to be carried out in India. Subsequently, one is required to obtain a certificate of establishing a place of business in India from the ROC.
BO may remit the surplus revenue from the project subject to payment of applicable taxes in India. BO is considered an extension of the foreign company and taxed at 40 per cent (plus surcharge and cess). Besides, it is required to meet compliance requirements viz. Income tax, tax withholding, audit, etc.
To close a BO and to repatriate balance funds, an application is to be submitted with the RBI. The application is to be accompanied with a tax clearance certificate from the Income tax authorities which are issued only once the entire verification process, namely assessments, is completed.
BUSINESS OPERATIONS â€“ COMPLIANCE MATTERS
Once a business entity has been registered in India, it is important to handle various regulatory compliances. These can be initial registrations, record keeping, tax matters etc. This chapter looks at these matters.
IMMEDIATE ON SET-UP REGISTRATIONS
Generally, the following registrations need to be considered
(i) Permanent Account Number (PAN):
All tax payers are required to obtain anincome tax registration i.e. PAN, which is a unique number of 10 characters allotted by the Income tax authorities. Besides quoting this for tax issues, itis required for various transactions viz. asset acquisition, etc
(ii) Tax Deduction Account Number (TAN):
While running a business, certain payment will require the payee to withhold tax (TDS). A new business is required to obtain a TAN from the Income Tax authorities It is mandatory to quote the TAN in all tax withholding documents viz. challans, certificates, quarterly returns, etc.
(iii) Goods and Service Tax: It is an indirect tax imposed on Goods and services. A person liable to Goods and service tax needs to register within 30 days of providing the services.
(iv) Foreigners Regional Registration Officer (FRRO) : Foreigners coming to India on employment need to register with the FRRO within 14 days of their arrival in India.
(v) Import Export Code (IEC) : Prior to carrying out any export or import activities from India, it is mandatory to obtain an IEC number from the Directorate General of Foreign Trade (DGFT).
The laws governing labor in India, listed below, are somewhat complex. In general, the employment legislation normally addresses concerns of the blue collared staff. Employers are commonly required to provide employees with written terms and conditions of employment. The statement should detail salary, hours of work, disciplinary rules and complaint procedures, the notice period for termination, holidays, the providentfund, pensions, gratuities and other employee related details. Violation of labor law is viewed with strictness.
Incorporation of Company, Foreign Branch / Liaison Office
For setting up business in India through limited liability company involves registration with Registrar of Companies (ROC) under the Companies Act. Formation of company involves various steps like name approval, obtaining DIN & digital signature of directors, preparation of Memorandum of Association etc. Our Business Setup Solution takes care of all the required compliances and procedure for incorporation of company and endeavors to provide our clients ready to operate business setup in shortest time frame under "turnkey" methodology.
Registration with Various Authorities
In India a Business Setup to become fully functional requires to register with various tax, labour and other authorities. For example a manufacturing / trading setup is required to get registered with Sales Tax / VAT Authorities, Income Tax Department, Excise Department, Custom Department (if involved in import / export), Provident Fund Department, ESI Department etc. Our Business Setup Solution working on "turnkey" methodology provides services for registration with various authorities immediately after incorporation. This leads to providing our clients ready to operate business setup within the shortest possible timeframe.
Account management and other compliances
Precise accounting of the transactions involved in Indian operations is essential to ensure compliance with Indian GAAP as well as and other provisions as may be required under specific circumstances. Development, institution & regular monitoring of internal control systems are also essential to ensure integrity of operations and prevent frauds, mismanagement, etc. Our Financial & Accounting Services Team provides comprehensive service in these areas which includes: