Today the market of India has shown more growth than any other nation across the world and watching this, businessmen who reside overseas are taking interest in doing business in India. The "Make in India" campaign promoted by the honorable chief minister of India Narendra Modi Ji encouraged foreign entities to do more business in India. Numerous measures have been taken by the government of India to promote the initiative like cheap labour cost, simplified investment procedures, tax relaxation, skilled workforce, etc.
A foreign individual or a corporate entity is eligible to invest and start a business in India when they are in accordance with the Foreign Direct Investment policy. There are two ways through which a foreign individual or an entity can invest in India one is Automatic Route other is Government Route.
Things that a foreign entity can do in a way to enter the India Market.
- Liaison Office in India.
- Branch Office in India.
- Project Office in India.
- Wholly owned Subsidiary
Liasion office in India
The term ‘liaison’ means communication and co-operation. The liaison office is the office that is used for communication with head office of the company. It is commonly referred as the representative office of the company but it cannot undertake any trading, commercial or industrial activity, it also keeps itself all sorts of inward remittances.
The foreign entity needs to have good profit making track record in the home country and should also have a minimum net worth of $ 50,000.
- Importing / Exporting from/ to India.
- Acting as a channel of communication between parent and Indian companies.
- Promoting / representing the parent company in India.
- Promoting technical and financial collaboration between parent/group of companies and Indian Companies.
The permission to set up such office is granted by the Reserve Bank of India initially for a period of 3 years. The extension of this approval is also done on expiry by the RBI if the applicant fulfills the criteria of conditions.
Branch Office in India
Companies which are incorporated outside India and are involved in manufacturing and trading activities are allowed to establish Branch office in India with special permission of the RBI. The branch office should be concerned in doing the same activities in which the parent company is involved.
A good profit-making track record of immediate preceding five financial years and a net worth of at least $100,000.
- Rendering professional and consultancy services.
- Import and Export of Goods.
- Carrying out research work only in the activities in which the parent company is involved.
- Foreign airline and shipping.
- Representing the parent company and acting as an agent in business.
- Rendering services in information technology and software development in India.
Any sort of retail trading activities are not allowed for branch offices in India. Branch offices are also not allowed to carry out manufacturing or processing activities both directly or indirectly. The profit earned from the branch office is easily remittable from India.
Note: The branch of foreign banks does not require any separate approval under FEMA, but it requires special approval under the Banking Resolution Act, 1949 from the Department of Banking Resolution.
Project Office in India
Project office is established by foreign companies in India for the purpose of executing special projects. It is a temporary office that is established for short term projects. There are certain scenarios when you can establish project offices in India like the following:
- If the foreign company has secured a project from an Indian company.
- The project is funded by bilateral or multilateral financing agency.
Wholly Owned Subsidiary and Joint Venture in India
This is one of the best ways of doing business in India because the Reserve Bank of India has permitted 100% FDI on these formats of business. A wholly owned subsidiary is a company whose entire shares are held by the parent company. It is necessary to register the company with ROC in this case.
The company can also take the Joint venture option and invest directly in a foreign company by subscribing to its shares or it can also start their business operations forming a strategic association with one or more Indian Partners.
The Government of India has strictly prohibited certain Foreign Direct Investments such as:
- Lottery business.
- Nidhi Company.
- Betting & Gambling.
- Trading in Transferable Rights
- Real estate Business
- Manufacturing of Tobacco related products like cigars, cheroots, cigarillos, etc.
- Atomic energy and Railways operations
LLP in India
A foreign investor can also invest in a LLP in India. The RBI has permitted FDI under automatic route for investment in LLPs. 100% FDI is allowed and there is no FDI linked performance conditions.
The Investment in an LLP via capital contribution or acquisition of profit shares should not be less than fair price. The valuation of the fair price should be kept as per valuation norms which are internationally accepted. The certificate of valuation should be issued by a practicing Chartered Accountant or Cost Accountant or an approved registered valuer from the panel maintained by the Central Government.
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