Setup Business in India by Foreigners (FDI)


We have vast experience in assisting international businesses in setting up shop, branch office, liaison office, project office in India through in-depth assessment of legal entity options for entry into India; hand-holding in establishing presence in India and several other start-up services including identification and regularizing applicable regulatory procedures and advising on the bottlenecks creeping from strategic, governance & management issues; on-going tax & regulatory compliance & Virtual CFO services.

 



Comparison between the Wholly Owned Subsidiary (WOS), Branch Office (BO), Liaison Office (LO) and Project Office (PO)

Basis Wholly Owned Subsidiary (WOS) Liaison Office (LO) Branch Office (BO) Project Office (PO)
Meaning An incorporated entity formed and registered under the Companies Act, 2013. It is a distinct legal entity, apart from its shareholders. A Liaison Office (also known as Representative Office) can undertake only liaison activities, i.e. it can act as a channel of communication between Head Office abroad and parties in India. It is not allowed to undertake any business activity in India and cannot earn any income in India.  Companies incorporate outside India and engaged in manufacturing or trading activities are allowed to setup Branch Offices with specific approval of the RBI. Normally, the Branch Office should be engaged in the activity of the Parent Company. Reserve Bank has granted general permission to foreign companies to establish Project Offices in India, provided they have secured a contract from an Indian company to execute a project in India.  
Constitution Company form of organization Separate legal entity An extension of the Head Office. No separate legal standing of its own An extension of the Head Office with right to accrue income in India. No separate legal standing of its own An extension of the Head Office with right to accrue income in India. No separate legal standing of its own
RBI Permission General Permission/Automatic Route General Permission Specific Permission General/Specific Permission
Permitted Activities As per main object clause mentioned in Memorandum of Association of Indian Company Representing in India the parent company. Promoting export / import from / to India. Promoting technical/financial collaborations between parent/group companies and companies in India. Acting as a communication channel between the parent company and Indian companies. Export / Import of goods. Rendering professional or consultancy services. Carrying out research work, in areas in which the parent company is engaged. Promoting technical or financial collaborations between Indian companies and parent company. Representing the parent company in India and acting as buying / selling agent in India. Rendering services in information technology and development of software in India. Rendering technical support to the products supplied by parent company. Foreign airline / shipping company. Project is funded directly by inward remittance from abroad; or Project is funded by a bilateral or multilateral International Financing Agency; or Project has been cleared by an appropriate authority; or A 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. However, if the above criteria are not met, the foreign entity has to approach the Reserve Bank of India, Central Office, for approval.
Criteria for set up A private company is required to be incorporated with a minimum authorized & paid up capital of Rupees 1,00,000/- and minimum two subscribers. No requirement of track record of parent company as shareholder Parent Company should have a profit making track record during the immediately preceding 3 financial years in the home country. Net Worth of the Parent Company shall not be less than $ 50,000 or its equivalent. Parent Company should have a profit making track record during the immediately preceding 5 financial years in the home country. Net Worth of the Parent Company shall not be less than $ 100,000 or its equivalent. No such Criteria
Typical Terms For Approval A private company is required to be incorporated with a minimum paid-up capital of INR 100,000 and minimum two subscribers. Broadly, it: restricts the right to transfer its shares limits the number of its members (shareholders) to 50; prohibits any invitation to the public to subscribe for any of its shares or debentures; and; Prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives. The conditions will be different for Public Limited Company. 1. Not to undertake any activity of a trading, commercial or industrial nature and not to enter into any business contracts in its own name without RBI's prior permission. 2. No commission/fees shall be charged or any other remuneration received / income earned by the office in India for the liaison activities/services rendered by it or otherwise in India. 3. The entire expenses of the office in India will be met exclusively out of the funds received from head office through normal banking channels. 4. The office in India shall not borrow or lend any money from/to any person in India without RBI's prior permission. 1. Not to expand its activities or undertake any new trading, commercial or industrial activity other than that is expressly approved by the RBI. 2. The entire expenses in India will be met either out of the funds received from head office through normal banking channels or through income generated by it in India. 3. The Branch Office will not accept any deposits in India 4. The commission earned by the Branch Office from parties abroad for any agency business will be repatriated to India through normal banking channels 5. Not to undertake any retail trading activity 6. A Branch Office is not allowed to carry out manufacturing or processing activities in India, directly or indirectly. Not to undertake any activity except project activity for which Office is opened.
Time limit of approval Until the company decides to close down Normally 3 years from the date of approval Normally 3 years from the date of approval Until the project completes.
Registrations The following registrations / approvals will be required: 1. PAN / TAN 2. GST 3. Importer Export Code 4. ROC Registration 5. Shops and Establishment Act Registration The following registrations will be required: 1. Shops and Establishment Act Registration 2. PAN / TAN 3. ROC Registration 4. Import Export Code The following registrations / approvals will be required: 1. PAN / TAN 2. GST 3. Shops and Establishment Act Registration 4. Importer Export Code 5. ROC Registration The following registrations / approvals will be required: 1. PAN / TAN 2. GST 3. Shops and Establishment Act Registration 4. Importer Export Code 5. ROC Registration
Liabilities of parent company The liability of the Parent company is limited to the extent of its shareholding in the WOS. The assets of the foreign company are not subject to any attachments Parent company's liability is unlimited for all acts and omission of Liaison Office The liability of the Branch is unlimited. The assets of the parent company are at risk of attachment in case the liabilities of the branch exceeds its assets The liability of the Project office is unlimited. The assets of the parent company are at risk of attachment in case the liabilities of the project office exceeds its assets
Permitted Incomes All income arising out of its business activities. The entire expenses of the Liaison Office in India will be met out of the funds received from Head Office through normal banking channels. There will not be any income of the Liaison Office The entire expenses of the Branch Office in India will be met either out of the funds received from Head Office through normal banking channels or through income generated by it in India. The entire expenses of the Project Office in India will be met either out of the funds received from Parent Company through normal banking channels or through income generated by it in India
Income Tax in India Any Indian company is taxed @ 25.75% or 27.04% if the taxable income exceeds INR 10,000,000 during any financial year (FY) Since there is no income accrual, there is no income tax. Liaison Office is required to file information in Form 49C with the Income Tax Department. Since a branch office of a foreign company is taxed as a foreign company in India, it is taxed @ 41.2% or 42.024% if the taxable income exceeds INR 10,000,000 during any financial year (FY) Since a project office of a foreign company is taxed as a foreign company in India, it is taxed @ 41.2% or 42.024% if the taxable income exceeds INR 10,000,000 during any financial year (FY)
Payment of Dividend Dividend can be paid after payment of Dividend Distribution Tax Not Applicable Not Applicable Not Applicable
Management Minimum two directors (can be foreign national but one Director must be resident in India) Liaison Office is managed by Authorized Representative, resident in India. Branch Office is managed by Authorized Representative, resident in India. Project Office is managed by Authorized Representative, resident in India.
Audit
a. Statutory Audit Financials would be liable to Statutory Audit by a Chartered Accountant Financials would be liable to Statutory Audit by a Chartered Accountant Financials would be liable to Statutory Audit by a Chartered Accountant Financials would be liable to Statutory Audit by a Chartered Accountant
b. Internal Financial Control Audit Compulsory for All Company Not Applicable Not Applicable Not Applicable
c. Tax Audit Applicable in case of Turnover exceeding Rs. 10 million. Non Compliance would result into a penalty @ 0.5 % of the total turnover or Rs. 0.15 million whichever is less Not Applicable Applicable in case of Turnover exceeding Rs. 10 million. Non Compliance would result into a penalty @ 0.5 % of the total turnover or Rs. 0.15 million whichever is less. Applicable in case of Turnover exceeding Rs. 10 million. Non Compliance would result into a penalty @ 0.5 % of the total turnover or Rs. 0.15 million whichever is less.
Transfer Pricing Applicable Not Applicable Applicable Applicable
Annual Compliance
a. Filing Yearly filing of financial statements and Annual Return with the Registrar of Companies. Filing of Compliance Certificate if paid up capital exceeds INR 50 Million. Annual Compliance with Reserve Bank of India in case share are allotted to foreign Individual (Form FC-GPR Part A & Part B) Annual return with the Income Tax Department Filing of Quarterly TDS returns Filing of monthly GST Returns Yearly filings include the filing of audited accounts of the LO, World Accounts with Registrar of Companies Yearly submission of Activity Certificate with RBI and AD Bank Filing Quarterly TDS returns Yearly filing of audited accounts of the Liaison Office with the Directorate of Income Tax, New Delhi File Form 49 C with Income Tax Department Yearly filings include the filing of audited accounts of BO, World Accounts with Registrar of Companies Yearly submission of Activity Certificate with RBI and AD Bank Annual return with the Income Tax Department Filing of Quarterly TDS returns Filing of monthly GST returns Yearly filings include the filing of audited accounts of Project office, World Accounts with Registrar of Companies Yearly submission of Activity Certificate with RBI and AD Bank Annual return with the Income Tax Department Filing of Quarterly TDS returns Filing of monthly GST returns
b. Meeting Board - One meeting per quarter Shareholder - One meeting per year Not Applicable Not Applicable Not Applicable
Remittance of Profit to Parent company 1. By way of Dividend subject to Dividend Distribution Tax 2. By way of Royalty/ fees for technical services 3. By way of Management Fees 4. Related party transactions are subject to Transfer pricing Regulations. None, except upon closure of Liaison Office Profits can be freely repatriated to the Parent Company subject to payment of applicable taxes. Profits can be freely repatriated to the Parent Company subject to payment of applicable taxes.
Borrowing 1. There is no restriction on local borrowing. 2. External Commercial Borrowings are subject to guidelines issued by the RBI. Not allowed The Branch Office is not allowed to borrow locally unless the prior approval of RBI is taken There is no restriction on local borrowing.


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P V R & Associates

4A/54, Old Rajinder Nagar, Delhi - 110060, India

Mobile : +91-9990958035, +91-9968220076, +91-9911251615

Phone : +91-11-49537200

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