Joint Venture Registration in India

When a foreign company wants to set up business in India in the form of incorporated entity, one of the options available for doing so is in the form of Joint Venture Registration in India. Other options available for foreign company registration in Indiaare:

 

•  Subsidiary company registration in India and 
•  Limited liability partnership.

 

Foreign companies can  establish a Joint Venture with Indian companies and make investment in same. Foreign companies can also contribute capital, infrastructure, knowledge, technology etc. It can be set up as an entirely new company in India with an Indian partner or it may involve investing in a company which is already existing in India. Joint venture registration can be in the form of Private limited company registration or public limited company registration. 

Permissible activities for Joint Ventures in India

 

1. Subject to FDI guidelines, Joint Ventures (JVs) can do all the business activities mentioned in itsMemorandum of Association. However, there is some prohibited list of business in FDI guidelines which cannot be done by JVs in India. 
2. Normally, JVs are a temporary partnership, established for a definite purpose and for a stipulated period, to fulfill a specific purpose such as accomplishing a task, activity or project. 
3.  FDI in JVs are allowed only in those sectors where 100% foreign investment is permitted under automatic route with no FDI-linked performance conditions. There are certain other conditions also, as specified by Government, which needs to be fulfilled. 
4.  There are some prohibited lists of business in FDI guidelines. It means JVs cannot be engaged in prohibited business activities. 

Therefore, this is an important aspect to be kept in mind before setting up of JVs in India.

 

Conditions required for setting up JVs

 

JVs in India can be formed in 2 ways.

 

•  First in form of new company where both Indian company and foreign company has fixed percentage shareholding or ownership right in new company. This is similar to opening wholly owned subsidiary in India.
• Second way of forming JVs in India is that foreign company can invest in shares of existing Indian company by way of allotment or transfer of shares already allotted.

 

What is the Legal Status of JVs in India?

 

•  Legal status of JVs is Indian Companies.
• A Joint Venture company can be set up as a separate legal entity, distinct from both, the foreign entity & Indian entity.

 

 

What approvals are required for setting up business in form of JVs

 

• For setting up JVsin India, prior approval of ROC/MCA is required. Also, approval of RBI, AD Banker and FIFP may be required in case of government approval route.
•  Further, if the activities of the JVs fall under Government approval route, then the approval from the Government has to be obtained. Government approval can be taken by filing online application with Foreign Investment Facilitation Portal (FIFP)

 

 

Tax Applicability in case of JVs

 

JVs are similar to Indian companies and therefore 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 of JVs

 

Profits of JVs can be freely repatriable. For repatriation of profits out of India, there are no restrictions. No approvals required. However, necessary taxes need to be paid in India, also subject to filing of form 15CA and 15CB and fulfillment of some other procedural compliance.

 

Winding up or closure of JVs

 

It is a complex procedure. Also, time consuming. Depend upon exit strategy adopted. Exit can be either by sale of shares or by liquidation. 

 

Thus JVs are very good option for foreign company registration in India where foreign partner and Indian partners collaborate for a common purpose and bring their own expertise, resource, technical knowledge, experience, technology and capital.

Filing of Form 15CA through new Tax Portal

 

Introduction

Income Tax department has introduced new Income Tax Portal for better user interface and with many new features. However, unfortunately, right from inception, it has been facing many glitches which have defeated the very purpose of its introduction. Most of the forms are unable to be filed through new tax portal. 

 

In the same category, are form for remittance of money outside India i.e. Form 15CA and 15CB. Inability to properly file Form 15CA and 15CB has led to frustrations amongst the tax payer and accordingly, from time to time relief has been provided by CBDT in filing such form in manual manner.

Initially, CBDT has allowed filing of Form 15CA and Form 15CB manually till 30^th June 2021 which was further extended to 15^th July 2021; then again date was extended to 15^th August 2021. Although, post 15^th August 2021, the CBDT has resumed electronic filing of such forms, however, practically it has been seen that still users are facing lot of issues in proper filing of Form 15CA and 15CB.

Filing of Form 15CA

It is an online declaration made by the remitter of money confirming that proper taxes has been deducted while making any payment to the Non Resident.

Form 15 CA is required by the banker to confirm that taxes has been paid on amount to be remitted.

 

Further, in few cases, proper certificate of Chartered Accountant in form 15CB is required for uploading form 15CA.

 

There are 4 parts of form 15CA:

 

Part A- If amount of remittance does not exceed Rs 5 lac in a Financial Year and is chargeable to tax.

 

Part B- If amount of remittance exceeds Rs 5 lac in a Financial Year and is chargeable to tax. Also, order has been taken from the AO under section 195(2)/195(3)/197

 

Part C- If amount of remittance exceeds Rs 5 lac in a Financial Year and is chargeable to tax. Also, CA certificate in form 15CB has been obtained.

 

Part D- If remittance is not chargeable to tax.

Submission of Form 15CA

The entire procedure of submission of form 15CA is online.

•  First step is to login into tax portal by using user ID and Password.
• 
  
•  Second step is to click on “efile”, then “Income Tax Forms”, then “File Income Tax forms”. Then select Form 15CA
• Third step is to choose relevant part of form 15CA and fill the required details.
•   Fourth step is to verify the details on preview page and then click proceed to e-verify.
• After successful e-verification, message with acknowledgment number will be displayed.
•  In case, part C of form 15CA needs to be filled, first of all, CA need to be added whose digital signature will be used for filing form 15CB.
• For adding CA, on tax portal, first of all, Login to e-filing portal, click on authorized partners, click on My Chartered Accountants, click Add CA, Enter membership number of the CA and click Add
•   After filling relevant details in the form, click Yes to submit the form to CA.
•   CA will submit form 15CB, after which you can either Accept or Reject form 15CA and then click on Submit. For rejecting the form, reason needs to be provided. After accepting the form, further details will be required to be filled.
•   After accepting the form, form needs to be verified using DSC or EVC
• Once form is verified successfully, success message will be displayed with transaction ID and acknowledgement number. Income Tax Return
  

Filing of Form 15CA and 15CB are compulsory for remittance of money abroad, however, it may be noted that till date of this write up, users are facing lot of difficulty in filing form 15CB through new Income Tax Portal although filing of form 15CA has been enabled on the portal.

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.