Introduction to Foreign Company Registration in India
Under the Companies Act, 2013, a Foreign Company is defined as any company or body corporate incorporated outside India, but which has a place of business in India. This place of business could either be a physical premise or any form of visible or physical contact with the foreign company in India. Additionally, a foreign company can also carry out business activities in India through other methods.
A Foreign Company can be set up in India by adhering to the relevant provisions outlined in the Companies Act, 2013. Entrepreneurs or businesses seeking to establish a foreign entity in India can do so by following the appropriate registration process, which involves complying with the legal requirements of the Indian Government.
Here are some of the primary ways through which one can set up a Foreign Company in India:
As an Indian Company Registered under the Companies Act, 2013
A foreign company can opt to register as an Indian company, complying fully with the rules of the Companies Act, 2013.
Wholly Owned Subsidiary
A foreign company may choose to set up a wholly-owned subsidiary in India, where the foreign entity owns 100% of the shares in the Indian company.
Joint Venture
A joint venture (JV) involves a partnership between a foreign company and an Indian entity, where both share ownership, responsibilities, and risks.
As a Foreign Company
A foreign entity may directly register as a foreign company under the Companies Act, 2013, without having to comply with the setup of an Indian company.
Liaison Office
A liaison office is typically used for activities like promoting business and communication between the parent company and Indian entities. It cannot engage in direct revenue-generating activities.
Representative Office
A representative office can be set up to promote the business of the foreign company in India, without directly participating in any commercial activity.
Project Office
A project office is established for executing specific projects in India, under the contract with the Indian government or private companies. It can only work for the completion of a specific project.
Branch Office
A branch office can carry out a wide range of business activities, including manufacturing, services, and trading in India, subject to compliance with the Foreign Exchange Management Act (FEMA).
Setting Up a Liaison Office or a Representative Office in India
A Liaison Office, also known as a Representative Office, is established primarily for non-commercial activities. The main purpose of such an office is to explore the business environment, understand the investment climate, and facilitate the parent company’s business operations in India. These offices act as intermediaries between the parent company (located outside India) and the Indian market.
Key Characteristics:
- A Liaison Office cannot engage in any commercial activities such as earning revenue or making direct profits.
- It is allowed to receive remittance only from its parent company to carry out its activities.
- The office helps the parent company to promote business, establish contacts, and explore market opportunities, but it cannot conduct direct business or generate income from its activities.
Criteria for Setting Up a Liaison Office:
Profit-Making Record:
The parent company must have a profit-making record in the immediately preceding 3 financial years in its home country. Additionally, the net worth of the parent company should be more than USD 50,000. If the parent company does not meet this criterion, they must submit a special authorization that complies with these requirements.
Approval from Reserve Bank of India (RBI):
A Liaison Office requires the specific approval of the Reserve Bank of India (RBI) under the Foreign Exchange Management Act (FEMA) 1999. The RBI’s approval is essential for establishing the office in India.
Authorization from Authorized Dealer Category-I Bank:
An Authorized Dealer Category-I Bank must forward the application for setting up the Liaison Office to the RBI. This ensures that all foreign exchange and financial transactions related to the Liaison Office comply with regulatory norms.
Issuance of Unique Identification Number:
Upon approval, the RBI will issue a unique identification number to the Liaison Office, which is necessary for all future transactions and official purposes.
Important Notes:
A Liaison Office is not allowed to conduct any revenue-generating activities in India. Its role is to assist the parent company in understanding the Indian market and facilitate business contacts.The office can only use the remittance it receives from the parent foreign company to fund its activities in India.
Setting up a Liaison or Representative Office is a cost-effective way for foreign companies to explore the Indian market, conduct market research, and establish initial contacts without engaging in direct commercial transactions. If you need help in setting up such an office, it is recommended to approach professional services specializing in Foreign Company Registration in India to ensure compliance with all necessary regulations and approvals.
Project Office
A Project Office is established by a foreign company in India for the purpose of executing a specific project or contract. The foreign company enters into an agreement with an Indian entity to carry out a particular project in India, such as construction, engineering, or infrastructure work.
Approval for Setting Up a Project Office:
- No prior RBI approval is required if:
- The project is funded directly from abroad through inward remittance.
- The project is funded by a bilateral or multilateral international financial institution.
- The project is authorized by the appropriate authority.
- The project is funded by an Indian company or entity, provided a term loan has been granted for the project by an Indian bank or public financial institution.
- If these conditions are not met, the foreign company must approach the Reserve Bank of India (RBI) for prior approval before setting up a Project Office in India.
Branch Office of a Foreign Company
A Branch Office allows a foreign company to conduct business activities in India with the approval of the RBI. The foreign company can establish a Branch Office to operate more fully in India and extend its business operations.
Criteria for Setting Up a Branch Office:
- The company should be engaged in manufacturing or trading activities.
- The foreign company must have made a profit in the immediately preceding five financial years.
- The net worth of the foreign company should be at least USD 100,000 in its home country.
Under Section 2(13) of the Companies Act, 2013, a Branch Office is considered an establishment of the foreign company and can be used to conduct business in India in a comprehensive manner. Branch Offices can engage in a variety of activities related to their core operations.
Activities Permitted for Branch Offices:
- Import/Export of goods.
- Rendering of professional or consultancy services in India.
- Carrying out research work in areas where the parent company is already engaged.
- Promoting technical or financial collaborations between the Indian companies and the parent or overseas group companies.
- Representing the parent company or overseas group companies in India and acting as buying/selling agents.
- Rendering services in the Information Technology sector, including software development in India.
- Providing technical support services for products supplied by the parent or overseas group companies.
- Operations by foreign airlines or shipping companies.
- Operations of foreign banks in India.
Important Notes Regarding Branch Offices:
- Manufacturing is not allowed for a Branch Office. However, it can sub-contract manufacturing to Indian manufacturers.
- Profits earned by the Branch Office can be repatriated to the parent company, after applicable taxes are paid, subject to RBI guidelines.
- The Branch Office does not have any ownership rights in India. It acts as an extension of the parent company from the foreign country.
In summary, Branch Offices are more involved in business activities than Liaison Offices, allowing foreign companies to carry out substantial operations in India, subject to the RBI’s approval and compliance with regulatory requirements.
Documents Required for Setting Up a Liaison Office/Branch Office in India
Here is a list of the required documents:
Business Sector Details: Information to determine whether RBI approval is necessary based on the business sector of the company.
Certified True Copy of the Company’s Charter or Statutes: This includes the Memorandum and Articles of Association. If the documents are not in English, a certified English translation must also be provided.
Registered or Principal Office Address: The complete address of the company’s registered or principal office in the home country.
List of Directors and Secretary: This list should include the names, addresses, and other details of the directors and secretary of the company.
Authorized Person(s) in India: The names and addresses of the authorized person(s) in India who are empowered to accept legal documents, such as notices or process service, on behalf of the company.
Principal Place of Business in India: Full address of the company’s office in India, which is designated as its principal place of business in India.
Details of Previous Business Presence in India (if any): Particulars regarding any previous opening or closing of a place of business in India.
Director or Authorized Representative’s Declaration: A statement confirming that none of the company’s directors or authorized representatives in India has been convicted or debarred from forming or managing companies in India or abroad.
Filing the Application
Within 30 days of setting up the place of business in India, the foreign company must file Form FC-1 with the Registrar of Companies (RoC). The application should be accompanied by the following:
- Application Fee: As prescribed in the Companies (Registration Offices and Fees) Rules, 2014.
- RBI Approval: An attested copy of the approval from the Reserve Bank of India (RBI) under the Foreign Exchange Management Act (FEMA).
This application is essential for the registration of the foreign company’s office in India and ensures that it complies with the legal and regulatory requirements of conducting business in India.