Incorporation of Foreign Company In India

Establishing a Foreign Business Presence in India

1. Introduction

Under the Companies Act, 2013, a Foreign Company is defined as a corporate entity incorporated outside India that establishes a 'place of business' within India. A 'place of business' includes any physical premises or other arrangements that indicate a systematic and ongoing business activity in the country.

To operate legally, a foreign company must comply with Indian regulations, primarily governed by the Companies Act, 2013, the Foreign Exchange Management Act (FEMA), 1999, and guidelines issued by the Reserve Bank of India (RBI).

Foreign entities can structure their Indian operations in two primary ways:

• As an Indian Company:
  • Wholly Owned Subsidiary (WOS)
  • Joint Venture Company (JVC)
• As a Foreign Company:
  • Liaison Office (LO) / Representative Office (RO)
  • Project Office (PO)
  • Branch Office (BO)

2. Liaison Office / Representative Office

A Liaison Office is also known as a Representative Office which is primarily set up for exploring the business environment and also for understanding the business and investment needs and climate of a country in which the parent (company outside India) company wants to diversify or through which the parent company will facilitates its business.

Note: Liaison Office cannot conduct any commercial activities also must use remittance received only from its parent foreign company to carry its activities.

The Reserve Bank of India (RBI) prescribes the criteria for setting up a Liaison office or Representative Office in India. If you want any help regarding it then you can follow the following steps or can take help from a professional for Foreign Company Registration in India.

• 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.
• If the subsidiary does not fulfill the above condition, the parent company must submit an authorization that meets the above conditions.
• Specific approval of RBI under FEMA 1999 and Insurance Regulatory and Development Authority (IRDA) is required.
• A designated Authorized Dealer Category–I Bank needs to forward an application for establishing an office to the RBI.
• The RBI gives the office a unique identification number.

Project Office

In the event that a foreign company wishes to establish an office and the foreign company has entered into an agreement with an Indian company to carry out a project in India, the prior approval of the RBI is not required if:

• Funded directly from abroad by inward remittance, or
• Funded by a bilateral or multilateral international financial institution, or
• Authorized by the appropriate authority, or
• An Indian company or entity provided that a term loan has been granted for the project by an Indian bank or public financial institution.

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

Branch Office of The Foreign Company

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

• The company should be engaged in manufacturing or trading activities,
• Profit in the immediately preceding five financial years is necessary,
• The net worth is not less than USD 100,000 in its home country.

Branch Office as stated in section 2(13) of Companies Act, 2013 "office in relation to a company, means any establishment described as such by the company". With help Branch Office foreign companies can conduct their business in India in a full-fledged manner. Branch Offices are allowed to carry the same or substantially the same activities as carried out by their main/parent or group organizations. They can carry out the following activities:-

• Import or Export of goods
• Rendering of professional or consultancy services in the India
• Carrying or conducting out research work, in which the respective parent company is already engaged.
• Promoting technical or the financial collaborations between the Indian companies and parent or overseas group companies
• Representing the parent company or overseas group companies in India and acting as the buying/selling agents in India.
• Rendering of their services in the Information Technology and the development of software in India
• Rendering of their services for technical support to the products supplied by the parent or overseas group companies.
• Foreign airline or shipping company.
• Foreign Banks

Note:

• The Branch Office is not allowed to indulge in carrying out the activities of manufacturing as they are permitted to sub-contract such kind of services to any Indian manufacturer.
• The branch offices are allowed to repatriate the profit earned from their branch, net of the applicable tax rates & also subject to the guidelines of Reserve Bank of India.
• There is not ownership provided in case of Branch office as it is only the extension of the exiting company in the foreign country.

Document Required

The following documents are required to be filed within 30 days of the establishment of its place of business in India for setting up of Liaison Office/Branch Office in India.

Within a time-span of 30 days of the establishment of place of conduct in India, A foreign company must file an application with the registrar Form FC-1 along with an application fee as prescribed in the Companies (Registration Offices and Fees) Rules, 2014 and the documents needed for the registration by a foreign company under the provisions of section 380 (sub-section 1).

It should be noted that the application must be backed by an attested copy signifying the RBI’s (Reserve Bank of India) approval under the Foreign Exchange Management Act or the laws.