Setup Business in India Form of Wholly Owned Subsidiary Company

 

 A foreign company looking to setup business in India can do so in several ways like the incorporation of an Indian entity or continue to work in India as a foreign entity. If the intent is to incorporate an Indian entity, they have the following options for company incorporation in India.

1. Private Limited Company Registration.
2. Public Limited Company Registration.
3. Registration of Limited Liability Partnerships.
4. Registration of Joint Ventures in India.

Another option for foreign company registration in India is in form of a foreign entity. Here, they have the following options, namely:

1. Liaison office Registration in India.
2. Branch Office Registration in India.
3. Project office Registration in India.

Further, it may be noted that a foreign company can acquire 100% shares in an Indian Private Limited Company, in such a case, the Indian company will become a wholly-owned subsidiary of a foreign parent company. When instead of acquiring 100% shares in an Indian company, the foreign company acquires shares more than 50% in an Indian company, the Indian company will become a subsidiary of a foreign company.

Subsidiary company registration is the most preferable form of entity registration in India and is quite.

suitable for companies that want to do full-scale business activities in India to stay in India for a long period of time. Also, suitable for companies that want to use their global brands in India. 

Permissible activities for the Wholly Owned Subsidiary company in India 

1. The Wholly Owned Subsidiary company can do any business activities which are prescribed under its memorandum of association subject to FDI guidelines.
2. Indian Wholly owned subsidiary can be set up subject to FDI guidelines. Foreign companies can invest in the majority of business sectors in India under automatic routes. Only for investment in some sectors and for investment over the specified limit, prior approval of government is required which is called a government route.
3. There are some prohibited lists of business in FDI guidelines. It means subsidiary companies in India cannot be engaged in prohibited business activities.

Therefore, this is an important aspect to be kept in mind before the registration of a wholly-owned subsidiary in India. 

Conditions required for registration of a wholly-owned subsidiary company

1. Wholly Owned Subsidiary can be registered in India either as Public Limited Company or Private Limited Company.
2. For Wholly Owned Subsidiary as Private Limited Companies, minimum 2 Directors and minimum 2 shareholders are required out of which at least 1 Director shall be Indian Citizen and Indian Resident.
3. For Wholly Owned Subsidiary as Public Limited Companies, minimum 3 Directors and minimum 7 shareholders are required out of which at least 1 Director shall be Indian Citizen and Indian Resident.
4. Shareholders can be companies also (including the foreign company), however, Directors has to be individuals. Companies can hold shares in Indian WOS through authorized representatives.
5. 100% shares in an Indian subsidiary company can be held by a foreign parent company.
6. At least one of the Directors shall be an Indian Resident and Indian Citizen.
7. There should be a local office address in India.

Legal Status 

The legal status of the wholly-owned subsidiary is an Indian company. Therefore, it is independent of its parent entity. It has limited liability i.e liability is limited to the amount of capital invested in the company and has separate legal existence.

Approvals Required

1. For subsidiary company registration in India, prior approval of ROC/MCA is required. Also, approval of RBI, AD Banker, and FIFP may be required in case of a government approval route.
2. Further, if the activities of the Indian wholly-owned subsidiary fall under the Government approval route, then approval from the Government has to be obtained. Government approval can be taken by filing an online application with Foreign Investment Facilitation Portal (FIFP)
3. Once a subsidiary company is registered in India and share subscription money has been received in the Indian subsidiary’s bank account, RBI needs to be intimated about such receipt of FDI in India by login into the portal and filing prescribed forms online. Further, allotment of shares needs to be done, Share certificates need to be issued and ROC compliance needs to be done. Any excess money received in the Indian subsidiary bank account needs to be refunded within 2 months of such receipt. Failure to make aforesaid compliance will lead to a penalty from RBI.
4. Besides above, the wholly-owned subsidiary company needs to comply with all the laws, rules & regulations as applicable, including but not limited to Companies Act, 2013, Foreign Exchange Management Act, 1999, Shops and Establishment Act, Income Tax Act, etc., failing which may result in heavy interest and/or penal implications.

Accordingly, the cost of running and maintaining expenses of a wholly-owned subsidiary company is high and requires expert professional guidance all the time. 

Tax Applicability 

The wholly-owned subsidiary, being a company, is liable to tax on global income at different tax rates like 15%, 22%, 25%, and 30% depending upon case to case. Also, Subject to MAT @ 15% of book profits. 

Repatriation of Profits 

For the repatriation of profits out of India, there are no restrictions. No specific approvals are required. The profits can be repatriated outside India subject to proper payment of taxes in India, filing of forms 15CA and 15CB, and completion of other procedural compliance. 

Exit out of India

Winding up procedure of wholly-owned subsidiary company is a complex procedure. Also, it is time-consuming. Further, it also depends upon the exit strategy adopted. Exit can be either by sale of shares or by liquidation. However, exit is possible only when all compliances under various statutes have been completed and there is no litigation pending before any authorities in India.

Thus, from above, it may be seen that wholly-owned subsidiary has many advantages due to which more and more foreign companies are opting for registration of the wholly-owned subsidiary company in India. It allows Indian subsidiary companies to use the brand name of the parent company. Further, it has less tax rates as compared to other entities in India like Limited Liability Partnerships. Although the compliance cost of a subsidiary company in India is slightly higher due to overall benefits, it is best suited for foreign companies.

A Complete Guide for Branch Office Registration in India

A foreign company desirous of business set up in India has multiple options to enter India and operate its business activity. One such option is to set up a branch office.

This article will discuss branch office registration in India, the procedure involved, documentation required, and time is taken in the entire procedure.

  

What is a Branch Office? 

A branch office can be defined as an extension of the head office of a corporate house. It is a business model for establishing a temporary office in India usually taken up by foreign companies that want to learn more about the Indian market without making long-term investments or commitments. The activities undertaken by a branch office is similar to those of its parent company.

Establishing a branch office in India by foreign entities is regulated in Section 6(6) of the Foreign Exchange Management Act, 1999, read with 1Notification No. FEMA 22(R)/2016-RB dated March 31, 2016.

Branch Office registration in India is subject to prior approval of the Reserve Bank of India and fulfillment of the following conditions by the parent company-

1. The applicant parent company must be incorporated outside the Indian Territory.
2. The company must be engaged in activities like trading or manufacturing etc.
3. The company’s net worth or business in its home country should not be less than US $100,000.
4. In case the financial criteria are not met by the parent company. It must issue a Letter of Comfort (LOC) from the ultimate parent company/Group company subject to the condition that the parent/ group company satisfies the prescribed criteria for net worth and profit.
5. The parent company should have a continuous track record of profit for five years in the home country.
6. Also, the name of the parent company and the branch office in India must be exact. The parent company is liable to meet the expenses of the branch office in case it does not generate apt revenue through its operations in India.

Permissible activities to be undertaken by Branch Office:

As per RBI guidelines, the branch office can do only the following prescribed activities:

1. Import and export of goods
2. Research and development work
3. Buying and selling agent representative of the parent company
4. Consultancy services
5. Rendering any professional services

Registration of branch office in India for carrying out manufacturing activities directly is not permissible unless the manufacturing work is carried on in a Special Economic Zone (SEZ). The purpose behind this is to export products outside India. However, the branch office can sub-contract an Indian manufacturer for manufacturing any products.

The procedure of registration of branch office in India 

The following steps must be taken for registering a branch office in India by its parent company-

1. Non-Resident entities desirous of registering Branch Office in India may apply form FNC to designated AD category-1 bank along with prescribed documents in case the principal business of the foreign company falls under any sector where 100% Foreign Direct Investment (FDI) is permissible through automatic route. In other sectors, i.e. where the automatic approval route is unavailable, the application needs to be filed with the Ministry of Finance and relevant documents.
   
2. On receipt of such application and documents, the AD banker would exercise his due diligence and, in case all conditions are satisfied, grant approval for setting up a branch office in India.
3. For establishing more than one branch office across India, the parent company must seek approval from RBI for each location separately.
4. Approval from RBI for every additional business activity undertaken by the branch office is also required.
5. Once approval is granted, the Branch office need to be opened within six months. Otherwise, the approval will lapse.
6. For opening BO in the Special Economic Zones (SEZs) to undertake manufacturing and service activities, general permission has been given to non-resident companies, subject to fulfilment of prescribed conditions.

Registration with police authorities

In case, parent company desirous of opening BO in India is from certain prescribed countries, they have to register with the state police authorities.

Prescribed countries are as under:

Sri Lanka, Bangladesh, China, Iran, Pakistan, Afghanistan, Hong Kong, Macau.

Also, the AD banker must submit an approval letter for countries above to the Ministry of Home Affairs, Internal Security Division-I, Government of India, New Delhi for necessary action and record. Company Registration in India

Documents required for Registration of Branch Office in India:

1. Form FNC duly signed by an Authorized Representative (AR).
2. Incorporation certificate, MOA, AOA of the parent company duly attested by a notary public or by the Indian Embassy in its registration country.
3. Information and details about the company duly attested by the notary public or the Indian Embassy in its home country.
4. Audited financial statements of the parent company for the last five years
5. Documents of incorporation of the Branch office
6. Proof of a registered office
7. Note on the proposed activity to be carried on by the branch office.
8. A board resolution for opening the branch office
9. KYC of authorized signatory
10. Information regarding the local representatives hired by the parent company.

Time Involved in the entire process

It takes upto 50 to 60 working days to get branch office registration approval from the date of submission of all the documents.

Various Options for Foreign Companies to Setup Business in India?

 

Indian economy is one of the fastest-growing economies in the world. It is considered one of the major driving forces of the global economic market. It is the 6th highest growing international economy. Even though India is still a developing nation, it has a vast impact on trading worldwide. Many developed countries have expanded their relations with India, and many more developed nations are keen on making ties with us. 

 

The major factors that have driven foreigners for setting up businesses in India are:-

1.      Large population and a massive base consumer market.

2.      The Indian economy has shown stable and steady growth in recent years. Its ranking on the Global Competitiveness Index by the World Economic Forum is exceptionally high. This high macroeconomic stability ranking has opened the foreign corridors for business setup in India.

3.      The Indian taxation system is very comprehensive due to its treaties or agreements with other countries, enhancing the ease of doing business in India.

4.      The financial system in India is well developed and well connected to the leading markets. It is properly regularized by the Reserve Bank of India, diminishing the chances of any fraudulent activity.

5.      The friendly Indian business laws and procedures make it easier for international investors for setting up businesses in India.

Some of the laws that have eased the laws for business setup are:-

a) Goods and Services Tax Regulations including the GST, CGST, SGST and IGST.

b) Companies Bill.

c) Land Acquisition Bill.

6. There are many possibilities for lower operational costs during business setup in India, from infrastructural costs to cheap labour, inexpensive internet, etc. The tax strategies in India are quite moderate in comparison to other countries. These factors can cut the cost of business operations. Foreign Company Registration in India

7. Startup India Initiative, introduced by the Government of India, is a major reform to encourage foreigners to invest in the country and enhance the business culture. This initiative is in alignment with the parameters of Ease of Doing Business of the World Bank. It will help India to improve its ranking on this index.

8. The Government of India undertakes various initiatives to boost Foreign Direct Investment (FDI) across various sectors. The attempts to ease the rules and regulations regarding FDIs could boost foreign companies setting up business in India.

9. India has a vast trading network that can help foreigners in company incorporation in India.

10. Digitalization in the country has made it more competitive and a powerhouse of modern technology.

How Foreign Investors can set up Business in India:-

Any foreign investors can set up business in India in one of the following manners:

The first option to set up business in India is in the form of an Indian Company:-

1.      Joint Venture: In this, two or more parties agree on pooling their resources to achieve a specific target or project.

2.      Wholly-owned Subsidiary: It is the most popular form of business set up in India in which the parent company completely owns the shares.

3.      Public Limited Company: Here, a minimum of 7 members and up to unlimited members are required. It has limited liability and can offer its share to the general public.

4.      Private Limited Company: Here, a minimum of 2 members and up to 200 members are required to set up a private company. It is a privately owned company.

Another option to set up business in India is in the form of a Foreign Company:-

1.      The branch office undertakes functions like import, export, consultancy, professional services, research and development, services related to information and technology, shipping, product supply support, and representation of the parent company. To open a branch office in India, the parent company requires a minimum of five years of profit records in its home country and a net worth of more than $100,000.

2.      Project office that commences activities as mentioned in the contract of the project. It cannot render any activity other than the ones related and incidental to the project execution. No eligibility requirements are compulsory for the parent company to open a project office in India. Company Registration in India

3.      Liaison office of the parent company. It is prohibited from commencing any commercial activity or earning any income in India. It acts as a communication channel between the head office of the parent company and other business entities all over India. To open a liaison office in India, the parent company requires a minimum of three years of profit records in its home country and a net worth of more than $50,000.

4.      Limited Liability Partnership (LLP) regulated by the LLP Act, 2008. It is a form of company registration in which the partners have limited liability.

Setting Up Business in India

 

 

SETTING UP BUSINESS IN INDIA

FOREIGN COMPANY INCORPORATION IN INDIA

SUBSIDIARY COMPANY REGISTRATION IN INDIA

 

First thing which comes to anybody’s mind is why set up business in India? Well, presently, India is one of the fastest growing economies of the world.

 

Every year, more and more foreign companies are setting up business in India. Also, it is an attractive foreign investment destination in the world due to following factors:

 

a)      Vast range of industries,

b)      Availability of skilled and unskilled manpower,

c)      Huge middle class consumer base,

d)     Second highest English speaking population,

e)      Ease of doing business and

f)       Government initiative for attracting foreign investment and adoption of best practices in production of goods and services.

 

Let’s deep dive more and explore some more facts about India.

 

Facts about India

 

1)      It is world’s largest democracy

2)      It is highly populated, only next to China with 1.38 Billion People

3)      It is second largest English speaking country in world.

4)      It has huge market in terms of huge middle class consumer base of 500 million people with good purchasing power

5)      Fourth largest automobile industry in world and by 2026, it will be in no. 3 position

6)      Second largest telecommunication market in world with subscriber base of 1.18 Billion

7)      World’s largest offshoring destination for IT companies across the globe. Estimated revenue from ITES AND BPO was USD 135 Billion

8)      Total FDI in FY 2018-19 was approx. USD 45 Billion. Major countries are Japan, Singapore and Mauritius.

9)      World’s 5^th Largest global destination in RETAIL space

10)  Majority of the Fortune 500 companies have R&D centre and or assembly line in India

 

All the aforesaid factors have contributed to attracting foreign investment and leading to more and more foreign company incorporation in India.

 

 

Options available for Foreign Companies/Foreign Citizens to set up business in India

 

Foreign companies have following options to set up business in India, namely

 

a)      Wholly Owned Subsidiary Company

b)      Joint Ventures

c)      Limited Liability Partnerships

d)     Branch/Liaison/Project Office

 

Out of above, Subsidiary Company Registration in India is most popular and tax efficient option.

 

CORPORTAE TAX RATES ON ENTITY

 

a)      PRIVATE LIMITED COMPANY/ WOS- Company is liable to tax on global income at different tax rates like 15%, 22%, 25% and 30% depending upon case to case. Also, Subject to MAT @ 15% of book profits.

 

b)      LIMITED LIABILITY PARTNERSHIPS- LLPs are liable to tax on global income @30%. Further, LLPs are liable for alternate minimum tax @18.5% on its book profits.

 

c)      BRANCH OFFICE and PROJECT OFFICE - Tax rate applicable on income earned in India @ 40% plus surcharge and education cess

 

d)     LIAISON OFFICE- Since they cannot do any business. No Taxes applicable

 

PROCEDURE FOR OPENING PRIVATE LIMITED COMPANY OR WOS IN INDIA

 

1)      Minimum 2 Directors and 2 shareholders required

2)      Atleast 1 Director shall be Indian Resident

3)      Shareholders can be Company or Individual

4)      First of all Digital Signature of all Directors are prepared

5)      Second step is for applying name approval from Registrar of Companies [ROC]

6)      Third step is drafting of Memorandum and Article of Association and Director Identification number and other documents and applying for incorporation

7)      Finally, Certificate of Incorporation [ COI] is obtained

8)      Once COI is obtained, Bank account need to be opened

9)      Then share subscription money is brought in bank account

10)  Reserve Bank of India, Indian apex Bank for regulating foreign exchange need to be intimated about receipt of FDI from foreign company/foreign citizen

 

Time taken in entire process-

 

Approx. 3-4 weeks

 

Documents required

 

1)      KYC Documents of Directors and shareholders- Passport, utility bills, Bank statements, ID proofs

2)      Indian address proof of business premises

3)      Photos of Directors

4)      Mobile and email ids of Directors

5)      Certificate of registration of parent company

 

All documents of foreign director/ foreign shareholder need to be notarized and apostiled in home country. Further, if documents are not in English, English translation also need to be notarized and apostiled.