To do business in India, following options are available to foreign companies:
Setting up a non-corporate entity
Liaison office: A liaison or a representative office can be opened in India subject to approval by Reserve Bank of India. Such an office can undertake liaison activities on its company’s behalf. A liaison office can also undertake:
- Representing parent/group companies in India
- Promoting import/export in India
- Promoting technical/financial collaborations on parent company/group’s behalf
- Coordinating communications between parent/group companies and Indian companies
Branch Office: Foreign companies can conduct their business in India through its branch office which can be opened after obtaining a specific approval from Reserve Bank of India. A branch office can undertake following activities:
- Import & export of goods
- Rendering professional or consultancy services
- Carrying out research work in area which its parent company is engaged
- Promoting technical/financial collaborations on behalf of parent company/ overseas group company
- Representing parent/group companies in India and acting as buying/selling agent in India
- Providing IT services and developing software in India
- Providing technical support for products supplied by parent company/group
Project office: If a foreign company is engaged by an Indian company to execute a project in India, it may set up a project office without obtaining approval from Reserve Bank of India subject to prescribed reporting compliances. As applicable in case of a branch office, a project office is treated as an extension of foreign company and is taxed at the rate applicable to foreign companies.
Setting up a corporate entity
Wholly owned subsidiary: Foreign companies can set up wholly owned subsidiary companies in India in form of private companies subject to FDI guidelines. A wholly owned or a subsidiary company has the maximum flexibility to conduct business in India when compared with a liaison or branch office and has following salient features:
- Funding can be done via equity, debt (foreign as well as local) and internal accruals
- Indian transfer pricing regulations apply
- Repatriation of dividends is allowed without approvals
Joint Venture with Indian partner: Foreign companies can also set up joint venture with Indian or foreign companies in India. There are no separate laws for joint ventures in India and laws governing domestics companies apply equally to joint ventures.
Foreign Institutional Investors: FII’s can invest in India in financial markets such as pension funds, mutual funds, investment trusts and asset management companies or their power of attorney holders. FII’s can invest in all securities in primary and secondary markets including the equity and other instruments of companies which are listed or are to be listed on stock exchanges of India.