Entry Strategies for Foreign Investors – STARTING OPERATIONS IN INDIA

Entry Strategies for Foreign Investors

STARTING OPERATIONS IN INDIA

A foreign company  planning to set up business operations in India has the following options
AS AN INDIAN COMPANY
A foreign company can commence operations in India by incorporating a company under the Companies Act,1956 through

  • Joint Ventures; or
  • Wholly Owned Subsidiaries

Foreign equity in such Indian companies can be up to 100% depending on the requirements of the investor, subject to  equity caps in respect of the area of activities under the  Foreign Direct Investment (FDI) policy.  Details of the FDI policy, sectoral equity caps  & procedures can be obtained from Department of Industrial Policy & Promotion, Government of India

Joint Venture With An Indian Partner Foreign Companies can set up their operations in India by forging strategic alliances with Indian partners.Joint Venture may entail the following advantages for a foreign investor:

  • Established distribution/ marketing set up of the Indian partner
  • Available financial resource of the Indian partners
  • Established contacts of the Indian partners which help smoothen the process of setting up of operations
Wholly Owned Subsidiary Company Foreign companies can also to set up wholly-owned subsidiary in sectors where 100% foreign direct investment is permitted under the FDI policy.
Incorporation of Company For registration and  incorporation, an application has to be filed with Registrar of Companies (ROC).   Once a company has been duly registered and incorporated as an Indian company, it is subject to Indian laws and regulations as applicable to other domestic Indian companies.
AS A FOREIGN COMPANY
Foreign Companies can set up their operations in India through

  • Liaison Office/Representative Offic
  • Project Office
  • Branch Office

Such offices can undertake any permitted activities. Companies have to register themselves with Registrar of Companies (ROC) within 30 days of setting up a place of business in India.

Liaison Office/Representative Office Liaison office acts as a channel of communication between the principal place of business or head office and entities in India.  Liaison office can not undertake any commercial activity directly or indirectly and can not,  therefore,  earn any income in India.  Its role is limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers.  It can promote export/import from/to India and also facilitate technical/financial collaboration between parent company and companies in India. Approval for establishing a liaison office in India is granted by Reserve Bank of India (RBI).
Project Office Foreign Companies planning to execute specific projects in India can set up temporary project/site offices in India. RBI has now granted general permission to foreign entities to establish  Project Offices subject to specified  conditions. Such offices can not undertake or carry on any activity other than the activity relating and incidental to execution of the project.  Project Offices may remit outside India the surplus of the project on its completion, general permission for which has been granted by the RBI.
Branch Office Foreign    companies    engaged   in manufacturing and trading activities abroad are allowed to set up Branch Offices in India for the following purposes:

(i)                  Export/Import of goods

(ii)                Rendering professional or consultancy services

(iii)              Carrying out research work, in which the parent company is engaged.

(iv)               Promoting technical or financial collaborations between Indian companies and parent or overseas group company.

(v)                 Representing  the parent company in India and acting as buying/selling agents in India.

(vi)               Rendering services in Information Technology and development of software in India.

(vii)             Rendering technical support to the products supplied by the parent/ group companies.

(viii)           Foreign airline/shipping company.

A branch office is not allowed to carry out manufacturing activities on its own but is permitted to subcontract these to an Indian manufacturer.  Branch Offices established with the approval of RBI, may remit outside India profit of the branch, net of applicable Indian taxes and subject to RBI guidelines Permission for setting up branch offices is granted by the Reserve Bank of India (RBI).

Branch Office on “Stand Alone Basis” Such Branch Offices would be isolated and restricted to the Special Economic zone (SEZ) alone and no business activity/transaction will be allowed outside the SEZs in India, which include branches/subsidiaries of its parent office in India. No approval shall be necessary from RBI for a company to establish a branch/unit in SEZs to undertake manufacturing and service activities subject to specified conditions.

Application for setting up Liaison Office/ Project Office/ Branch Office may be submitted in form FNC 1


FOREIGN DIRECT INVESTMENT (FDI) POLICY

FDI under automatic route is now allowed in all sectors, including the services sector, except a few sectors where the existing and notified sectoral policy does not permit FDI beyond a ceiling.
Automatic Route No prior approval is required for FDI under the Automatic Route. Only information to the RBI within 30days of inward remittances or issue of shares to Non Residents is required.  RBI has prescribed  a new form, Form FC-GPR (instead of earlier FC-RBI) for reporting shares issued to the Foreign Investors by an Indian company.
Government Approval Foreign Investment proposed not covered under the ‘Automatic Route’  are considered for Governmental Approval on the recommendations of the Foreign Investment Promotion Board (FIPB)
Foreign Investors Non Resident Indians
Application for such cases are to be submitted in FC/IL form or on plain paper to Foreign Investment Promotion   Board (FIPB) in Department of Economic Affairs, Ministry of Finance, Government of India Non Resident Indians are required to submit their proposals to the Secretariat for Industrial Assistance (SIA) Department of Industrial Policy and Promotion, Government of India for consideration of FIPB.

TAXATION IN INDIA
India is moving towards reforming its tax policies and systems so as to facilitate globalization of economic activities.  The corporate tax rate for foreign companies  is 40%.  The net tax rate is far lower than this on account of various deductions and exemptions available under the tax laws.  Tax holidays are available in Special Economic Zones set up to make industry globally competitive. Infrastructure Sector Projects enjoy special tax treatment/holidays.  A user friendly tax administration is being introduced with round   the clock electronic filing of customs documents from 31.3.04

INVESTMENT FACILITATION

Secretariat for Industrial Assistance (SIA)  in Department of Industrial Policy and Promotion, Government of India provides a single window  service for entrepreneurial assistance,  Investor facilitation and monitoring implementation of the projects.
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