Business Setup in India: A Practical Guide for Japanese Investors

Expanding into India is a practical move for many Japanese companies today. The two nations share a stable trade partnership, strengthened by the India–Japan CEPA signed in 2011. As of December 2024, Japan has invested over US $43.28 billion in India, making it the fifth-largest foreign investor.

For those navigating the business setup in India for Japanese companies, figuring out where to start with regulations, paperwork, and local requirements can feel daunting, even for the most prepared teams. You're not alone in finding this process overwhelming, but with a clear roadmap, you can move forward confidently.

That said, setting up a business in India as a Japanese company involves detailed regulatory steps, from choosing the right entry structure and securing tax registrations to meeting FEMA and RBI compliance. If you're planning to enter, it’s important to know the exact process and timelines to avoid delays.

TL;DR: What You'll Learn

• How Japanese investors can align with India’s FDI norms and the automatic approval sectors
• Comparison of entry routes: Private Ltd vs Liaison/Branch/Project Offices for business setup in India for Asian companies
• A complete incorporation checklist; documents, timelines, and registration essentials
• Insights into capital infusion, FEMA compliance, and RBI reporting requirements
• Guidance on workforce deployment, statutory filings, and risk governance

Why India Is a Strategic Choice for Japanese Companies?

India isn’t just an emerging option; it’s becoming the preferred one for Japanese businesses aiming to diversify manufacturing and expand market access. In 2023 alone, Japan invested over ¥706.9 billion (~US $5 billion) into India, more than it invested in China. This shift reflects more than changing trade winds; it signals a deep recalibration of long-term strategy.

Several factors are driving this pivot:

• Favorable FDI climate: Automatic approval routes for key sectors like auto components, electronics, and industrial robotics
• Strong policy alignment: India’s Production Linked Incentive (PLI) schemes reward foreign manufacturing and tech investments
• Bilateral stability: The CEPA agreement strengthens trade, tax, and IP protections between Japan and India
• Cost efficiency: Competitive labor, lower operating costs, and access to a large domestic market
• Strategic location: India serves as a regional hub for South Asia and emerging markets

For Japanese firms in automotive tech, robotics, electronics, and EVs, India is no longer a long shot. It’s the next move. What comes next is knowing how to approach the business setup in India for Asian companies, with the right structure, registrations, and timelines.

Also read: Cost of Registration of a Company in India | Quick, Easy and Affordable Process

Before you set things in motion, especially if you're exploring how Asian companies can set up business in India, here’s a clear roadmap to help you get every step right.

Business Setup Process: Step-by-Step Timeline for Japanese Companies 

Establishing operations in India requires careful management through regulatory frameworks and compliance requirements. This step-by-step approach ensures you complete your business setup in India for Asian companies efficiently while adhering to all statutory obligations:

Step 1: Sector Eligibility & FDI Route Selection

Before registering your business, it’s critical to determine whether your intended activity is eligible for foreign direct investment (FDI) and, if so, under which route. For those navigating India business registration for Asian investors, this step lays the groundwork for regulatory alignment and seamless entry. India follows a two-path FDI framework:

Two Routes Available:

• Automatic Route: Get approval instantly for most sectors, no government permission needed
• Government Route: Requires ministry approval, takes 8-12 weeks minimum

This classification depends on the nature of the business activity. The Department for Promotion of Industry and Internal Trade (DPIIT) publishes updated sectoral caps and conditions under India's Consolidated FDI Policy.

For Japanese Companies - High Priority Sectors:

• Manufacturing: 100% FDI allowed (Automatic Route)
• Automotive & Components: 100% FDI (Automatic Route)
• Electronics Hardware: 100% FDI (Automatic Route)
• Industrial Machinery/Robotics: 100% FDI (Automatic Route)
• IT Services: 100% FDI (Automatic Route)

Red Flag Sectors (Government Route Required):

• Defense manufacturing above 74%
• Multi-brand retail above 51%
• Banking above the specified limits

Your Action Steps:

1. Cross-check your business activity against the FDI policy list
2. Confirm the exact FDI percentage allowed in your sector
3. Identify if any conditions apply (like sourcing requirements)

FDI classification isn’t just legal, it’s strategic. The wrong assumption could delay your entry by weeks or months. VJM Global’s Business Setup Advisory provides Japanese investors with sector-wise eligibility mapping, documentation support, and regulatory vetting aligned with DPIIT and RBI mandates.

Your sector is clear. Now, choosing the right legal structure becomes essential, not just for compliance, but for shaping how Asian companies can set up business in India in a sustainable, scalable way.

Step 2: Choosing Your Legal Vehicle

With 1,439 Japanese companies already operating in India and maintaining 4,970 establishments, your legal structure choice determines everything, from profit repatriation to tax obligations. 

Here's your decision framework:

Once your legal structure is finalized, the next step is getting incorporated with the right paperwork.

Step 3: Incorporation Workflow & Documentation

This is where paperwork meets reality. One missing document can delay your incorporation by weeks. If you're looking at how Asian companies can set up business in India, this stage demands precision. Here’s your exact roadmap with realistic timelines.

Phase 1: Name Reservation (2-3 days)

• Apply through the RUN (Reserve Unique Name) portal
• Submit 6 name options in order of preference
• Avoid names similar to existing companies or trademarks
• Pro Tip: Include "India" or "Hindustan" to increase approval chances

Phase 2: Digital Infrastructure Setup (3-5 days)

• Digital Signature Certificate (DSC): Required for all directors
• Director Identification Number (DIN): Mandatory for each director
• Japanese Directors: Can obtain DIN remotely with proper documentation

Phase 3: Document Preparation From Japan (Get These Ready):

• Passport copies of all directors (notarized)
• Address proof (utility bills, bank statements - translated to English)
• NOC from parent company (if subsidiary)
• Board resolution authorizing India incorporation

In India Documentation:

• Memorandum of Association (MoA) - the company's constitution
• Articles of Association (AoA) - internal governance rules
• Registered office address proof (rent agreement/NOC)

Phase 4: MCA Filing & Incorporation (5-7 days)

• File SPICe+ form with all documents
• Pay government fees and stamp duty
• Receive Certificate of Incorporation
• Total Realistic Timeline: 12-15 working days

Critical Requirements for Japanese Companies:

• All foreign documents must be apostilled/notarized
• Address proof from Japan must be recent (within 3 months)
• Bank statements should show sufficient funds for the minimum capital

With your company now incorporated, the focus shifts to essential tax and regulatory registrations.

Step 4: Tax & Regulatory Registrations

Your company is incorporated, but you can't legally operate or issue invoices yet. This registration phase is non-negotiable; skip any step and face penalties. Here's your mandatory checklist.

Immediate Registrations (Within 30 days of incorporation):

a) PAN (Permanent Account Number) - Day 1 Priority:

• Apply immediately after incorporation
• Required for opening bank accounts
• Needed for all other registrations
• Timeline: 15-20 days for processing

b) TAN (Tax Deduction Account Number):

• Mandatory if you'll have employees or pay contractors
• Required for TDS (Tax Deducted at Source) compliance
• When Required: Before first salary payment
• Timeline: 7-10 days

c) GST Registration - Critical Decision Point:

• Mandatory: If annual turnover exceeds $20,000 ($10,000 for services)
• Voluntary: Register early for input tax credit benefits
• Export Advantage: Zero-rated supplies, input tax credit refunds

d) GST Classification Choice:

• Regular GST: Full compliance, monthly returns, input tax credit
• Composition Scheme: Simplified compliance, quarterly returns, no input credit
• Export-Oriented: Additional benefits, refund mechanisms

e) For Japanese Manufacturing Companies:

• Register for GST immediately (manufacturing typically exceeds threshold)
• Opt for regular GST for input tax credit advantages
• Leverage export exemptions for overseas sales

f) Registration Sequence (Follow This Order):

1. First: PAN application
2. Second: TAN (if applicable)
3. Third: GST registration
4. Fourth: Professional tax (state-specific)
5. Last: ESI/PF registration (after hiring employees)

g) State-Level Registrations:

• Professional tax registration (varies by state)
• Shop & establishment license
• Pollution clearance (if manufacturing)

Issuing invoices before GST registration, missing TDS compliance from day one, or ignoring state-specific tax rules can trigger penalties and disrupt operations, key concerns when mapping out how Asian companies can set up business in India effectively.

To prevent these, VJM Global’s GST Outsourcing & Advisory service ensures timely registration of PAN, TAN, and GST, accurate GST classification (regular vs. composition), and complete TDS setup aligned with your payroll or vendor structure. We also handle monthly filings and help Japanese businesses claim export-related input tax credits without compliance gaps.

Also read: How Foreign Investors Can Set Up a Company in India 

Before you can start operations, you'll need a bank account and a clear process for bringing in capital.

Step 5: Capital Infusion & Bank Account Setup

Capital infusion is not just about moving money, it’s about timing, documentation, and compliance. A missed step here can delay your operations or trigger regulatory scrutiny.

a) Bank Account Opening (Immediate Priority)

• Choose AD Category I Banks: HDFC, ICICI, SBI, Axis Bank
• Required Documents: Incorporation certificate, PAN, address proof, board resolution
• Timeline: 7-10 days after document submission
• Pro Tip: Relationship manager assignment speeds up approvals

b) Capital Infusion Documentation

• Inward Remittance: Wire transfer from Japan parent company
• Purpose Code: Equity investment in Indian company
• FIRC Issuance: Bank issues Foreign Inward Remittance Certificate automatically
• Amount: No minimum, but should match authorized capital

c) RBI Compliance Filing

• Form FCGPR: File within 30 days of capital receipt
• Online Filing: Through RBI's FIRMS portal
• Late Filing Penalty: Rs. 7,500 for delays beyond 30 days

d) Capital Infusion Best Practices:

• Timing: Complete within 180 days of incorporation
• Documentation: Maintain board resolution approving capital increase
• Bank Coordination: Inform the bank about the expected inward remittance
• FIRC Safekeeping: Required for future repatriation

For Japanese companies, a few legal and tax aspects need early attention. Understanding the India-Japan DTAA, designed to lower withholding tax on dividends, interest, and royalties, offers a practical lens into how Asian companies can set up business in India with structured tax advantages.

If you’re transacting with your parent or group entities, transfer pricing laws apply, pricing must match market rates, and documentation is mandatory. Also, plan how you’ll repatriate profits later, structuring dividends or royalty flows from day one, which avoids future compliance issues.

Realistic Timeline:

• Bank account opening: 7-10 days
• Capital infusion: 2-3 days (wire transfer)
• FIRC receipt: 3-5 days
• FCGPR filing: Same day (online)
• Total Process: 15-20 days

Once capital lands in India, staying compliant with RBI and FEMA rules becomes an ongoing priority.

Step 6: Ongoing FEMA Compliance & RBI Reporting

Once your capital is infused, compliance doesn’t stop. FEMA (Foreign Exchange Management Act) regulations require continuous monitoring, and missing even a single filing can invite penalties. Japanese companies must stay vigilant, especially when operating through a Branch or Project Office.

a) FLA Return (Foreign Liabilities & Assets):

• Mandatory if there's any foreign investment (equity or debt)
• Must be filed annually with the RBI via the FLAIR portal
• Non-filing or errors can trigger penalty notices

b) Late Submission Fee (LSF):

• Applies if you miss the FCGPR/FLA deadlines
• Starts at $7,500 and escalates based on delay

c) Branch/Project Office Approvals:

• RBI approvals required for establishment, renewal, or closure
• Any change in activity must be reported promptly

d) Repatriation & FEMA Penalties:

• Dividends, royalties, or fees remitted without compliance can attract steep fines
• Documentation must match bank and RBI expectations

• Delays in filings (like FCGPR, FLA) attract penalties up to $10,000 or more

To avoid this, VJM Global supports Japanese businesses with year-round FEMA compliance, from FLA returns and repatriation documentation to RBI approvals and timely filings. Book an appointment to ensure your India operations stay penalty-free and fully compliant.

With capital in place, it's time to set up strong accounting and audit systems to stay compliant.

Step 7: Accounting, Audit & Financial Controls

Once operational, maintaining accurate financial books becomes non-negotiable. Every Japanese company in India, whether a Pvt Ltd company or an LLP, must comply with Indian GAAP and be ready for audits.

a) Your Financial Backbone:

• Books of Accounts: Must be prepared in INR and follow Indian GAAP.
• Audit Threshold: Mandatory for Pvt Ltd and LLP (if turnover exceeds $40,000)
• IFRS Conversion: For group reporting, IFRS-based statements can be maintained parallelly.

b) Internal Financial Controls (IFC):

• Required by Companies Act for larger entities.
• Covers risk management, approvals, and fraud prevention.

c) Transfer Pricing Compliance:

• Applies if your Indian unit transacts with the Japanese parent.
• Requires benchmarking, documentation, and filing Form 3CEB annually.
• Common Risk: Using arbitrary markup without benchmarking can trigger ITD scrutiny.

d) Other Compliance Areas:

• Tax Audit: Applicable if turnover exceeds $100,000
• Withholding Tax: TDS must be correctly applied on vendor, employee, and intercompany payments.

After setting up financial controls, the next focus is meeting local licensing and labor law obligations.

Step 8: Local Licensing & Labor Compliance

Setting up your entity is just the start, operating legally on the ground means securing multiple local licenses and adhering to labor norms. Each Indian state has its own rules, timelines, and authorities. Japanese companies must factor this into project timelines and hiring plans.

a) Must-Have Local Registrations:

• Shops & Establishment License: Required before starting office operations; issued by local municipal authorities.
• Professional Tax Registration: Mandatory in states like Maharashtra, and Karnataka.
• Environmental Licenses: Needed if you're in manufacturing, especially for chemicals, electronics, or auto sectors.
• Fire & Trade Licenses: Required in certain sectors and jurisdictions.

b) Labor Compliance Obligations:

• PF (Provident Fund) and ESI (Employee State Insurance): Compulsory if employing more than 10–20 workers, even for expats.
• Contract Labor Registration: If using third-party staff, compliance must be ensured for both principal employer and vendor.

Note for Japanese Companies: States like Gujarat and Tamil Nadu offer industry-specific clearances faster through Single Window Systems, ideal for manufacturing units.

Once your local team is in place, staying compliant with statutory timelines and risk controls becomes critical.

Step 9: Expatriate Management & Workforce Deployment

If you plan to relocate Japanese staff to India, early visa planning and tax compliance are essential. Indian laws are strict on employment, payroll, and social security, even for foreign nationals.

a) Visa Categories:

• Business Visa: Short-term visits; no income allowed.
• Employment Visa: Mandatory for long-term deployment; issued based on annual salary (minimum USD 25,000 per annum).
• Project Visa: Specific to infrastructure and power sector projects.

b) Tax Residency Rules:

• 183-day Rule: Anyone staying in India for 183+ days becomes a tax resident, liable for global income taxation.
• Withholding Tax: Employers must deduct TDS (tax deducted at source) from expat salaries monthly.

c) Payroll Compliance:

• Income must be routed through Indian payroll systems, even if paid offshore.
• Ensure proper payslip structure to reflect benefits, housing, etc.

d) Social Security Agreements (SSA):

India and Japan have a bilateral SSA. Japanese employees posted to India for <5 years are exempt from Indian PF contributions if they remain covered under Japan’s social security.

After building your workforce, your focus must shift to keeping the business compliant, structured, and audit-ready.

Step 10: Compliance Calendar & Risk Governance

As trade between India and Japan strengthens, with US $17.69 billion in exports from Japan to India and US $5.15 billion in imports in FY 2023–24, Japanese companies need more than just an operational setup. Sustained success depends on robust compliance and risk management from day one.

Once incorporated, your Indian entity must follow a fixed statutory calendar. Missing even a single filing can lead to penalties, reputational damage, or disruptions in repatriation and expansion plans.

Key Annual Compliance Deadlines:

• AOC-4 (Financial Statements): Within 30 days of AGM
• MGT-7 (Annual Return): Within 60 days of AGM
• DIN KYC (Director Identification): Annually, for all directors
• GST & Tax Filings: Monthly, quarterly, and annual returns as per thresholds
• Board Meetings: At least 4 per year with documented minutes

Strategic Risk Practices:

• Use compliance automation tools to avoid manual errors
• Schedule internal audits biannually for risk checks
• Build contingency plans for exits, JV dissolution, or corporate restructuring

Given the complexity of these obligations, Japanese companies often benefit from dedicated oversight. VJM Global’s Risk & Assurance Advisory steps in precisely here, ensuring your filings stay on track, audits remain watertight, and governance frameworks are future-ready. Our proactive support equips you to scale in India with confidence and full control.

To make your India entry smooth, it’s just as important to know what not to do.

Common Setup Mistakes Japanese Companies Must Avoid

Even well-planned entries can face roadblocks if India-specific rules are misread or skipped. Here are five frequent mistakes and how to stay clear of them.

Challenge 1: Choosing the wrong legal vehicle

Setting up a liaison office for business activities is a compliance red flag. Liaison offices aren’t allowed to generate revenue in India.

How to prevent it: Choose a structure aligned with your operations—Private Limited or Branch Office for revenue-based activity, not Liaison or Project Office.

Challenge 2: Delayed RBI filings after capital infusion

Missing the 30-day FCGPR deadline after receiving foreign investment can lead to penalties and future remittance issues.

How to prevent it: Mark this deadline in your compliance calendar and prepare all documents ahead of the fund transfer.

Challenge 3: Ignoring state-level labor laws

Labor rules vary across Indian states. Skipping registration for the Shops & Establishment Act, PF, or ESI can halt local operations.

How to prevent it: Check labor compliance for each state where you operate. Register early to avoid worker disputes or fines.

Challenge 4: Skipping or misclassifying GST, PAN, TAN

Starting operations without a valid PAN, TAN, or correct GST category can create downstream compliance headaches.

How to prevent it: Apply for PAN first, then TAN and GST. Make sure your GST type matches your turnover and export/import activity.

Challenge 5: Overlooking DTAA and transfer pricing

Japan-India cross-border transactions require proper pricing and tax treatment. Ignoring this can trigger audits and tax disputes.

How to prevent it: Document related-party transactions using arm’s length pricing and apply DTAA benefits where eligible. Keep all records audit-ready.

Don't miss: Registering a Company in India: Common Pitfalls and How to Avoid Them

Final Note

Setting up a business in India as a Japanese company involves more than ticking regulatory boxes; it demands clarity at every stage. From identifying eligible sectors and choosing the right legal entity to ensuring FEMA compliance, accurate tax setup, and workforce management, each decision shapes long-term success.

VJM Global brings everything under one roof: FDI advisory, incorporation, RBI filings, tax registration, accounting, and expatriate payroll, ensuring nothing falls through the cracks. If you're seeking a compliant, efficient, and risk-proof entry into India, partner with experts who understand both Japanese precision and Indian regulations.

Start your India journey with confidence. Connect with us for end-to-end business setup support.

Next read: Understanding Business Setup Costs in India

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