How Foreign Investors Can Set Up a Company in India: Legal and Tax Guide

India is a fast-growing country that understands the true potential of manpower. With lower labor costs, a trained workforce, and an understanding of business operations, foreign investors are eager to set up a company and create global brands with Indian youth. Government initiatives and schemes have also provided opportunities for growing their business and investing more in conquering Indian markets.

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Every business starts with planning and understanding of market demands. As a foreign investor with zero experience in the Indian Market, you need information through market research. While you set up a company and execute a business plan, you need to find the competitive edge to tackle other similar businesses. 

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Foreign companies follow rules and regulations based on the Companies Act 2013. They need to keep the Registration of foreign companies, RBI guidelines, and FEMA regulations in mind to set up a company. This article will provide you with insights on how to register a company in India as a foreign investor. You can also learn about the requirements to establish a company through Foreign Direct Investments. 

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How do I Set Up a Company?

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A foreign investor can set up certain types of companies in India. set up a company is the fastest way to establish a business as a foreign investor. They can also start a joint venture or a wholly owned subsidiary company. With high returns on investments and affordable workforces, businesses can streamline their operations once they set up a company in India.

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1. Wholly Owned Subsidiary (WOS)

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A Wholly Owned Subsidiary (WOS) is a company incorporated in India with 100% foreign investment. It is a separate legal entity from its parent company. You can register a company in India as WOS as it has no minority shareholders and stocks are not traded publicly. 

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Process:

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• The parent company (foreign entity) must incorporate the subsidiary as an Indian company under the Companies Act 2013.
• It can operate in any sector allowed by Indian laws (subject to restrictions or guidelines for foreign investment).
• The foreign parent company holds 100% of the equity in the subsidiary.

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Key Requirements:

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• The subsidiary must comply with the Foreign Exchange Management Act (FEMA) guidelines.
• It must file necessary documents such as the certificate of incorporation, board resolution, and a copy of the parent company’s registration.

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2. Branch Office (BO)

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A Branch Office (BO) is an extension of the foreign parent company. It can undertake limited activities such as marketing, trading, and rendering services, but it cannot undertake manufacturing or production in India unless specified by regulations.

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Process:

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• A foreign company wishing to set up a branch office must obtain approval from the Reserve Bank of India (RBI)and the Ministry of Corporate Affairs (MCA).
• A branch office can be set up only in specific sectors, such as information technology, financial services, and consulting.

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Key Requirements:

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• The foreign company must provide financial statements for the last 5 years.
• The branch office needs to have a registered office in India.
• It must meet specific capital requirements set by the RBI, depending on the type of business.

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3. Liaison Office (LO)

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A Liaison Office is a representative office that helps a foreign company to promote its business in India. It cannot engage in any income-generating activities or sign contracts directly. It serves as a communication link between the parent company and potential customers or partners in India. 

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Process:

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• The Reserve Bank of India (RBI) must approve a Liaison Office.
• It is primarily used for market research, promoting the business, and establishing contacts in India.

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Key Requirements:

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• The liaison office must be funded through inward remittances from the foreign parent company.
• It can only undertake liaison, promoting business, and representing the parent company.

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4. Project Office (PO)

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A Project Office is set up for a specific project in India. It is typically used by foreign companies that are executing projects in India and need to set up a company or a office for the project's duration.

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Process:

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• A project office can be set up with the approval of the Reserve Bank of India (RBI).
• This office can function only for the specific project it has been established for, and once the project is completed, the office must be closed.

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Key Requirements:

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• The foreign company must have a contract for the project with an Indian company or government.
• The project office will be allowed to conduct business activities only related to the project.

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5. Joint Venture (JV)

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A Joint Venture (JV) is a partnership between a foreign company and an Indian company where both parties contribute equity and share profits, losses, and control. A JV is common when a foreign company wants to enter the Indian market but requires local expertise or resources. You can set up a company as a JV to boost consumer reach in India and adapt to Indian market standards. 

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Process:

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• The foreign company partners with an Indian entity to form a joint venture, typically as a private limited company or a limited liability partnership (LLP).
• Both parties must adhere to FEMA regulations for foreign investment.

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Key Requirements:

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• Foreign and Indian parties contribute capital, and foreign investment can vary (subject to sectoral caps).
• The joint venture must be registered as a company with the Ministry of Corporate Affairs (MCA). 

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Do you need an LLC to Set Up a Company?

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No, you cannot form a Limited Liability Company in India. Instead, you can form a limited liability partnership or LLP or private limited company with some features similar to an LLC. You need to register a company in India with MCA or the Ministry of Corporate Affairs and submit all essential documents. You also need to pay a registration fee between rs 7K and rs 15K based on your authorized capital. 

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Set up a Company with No Money

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Most foreign investors find India an attractive spot to multiply their funds. With various opportunities available, companies can serve different clients and boost their revenue. India provides talented, fluent English-speaking, and passionate workers at minimal costs who can add value to your business. Investors can set up a company in India and create huge turnovers with small investments and hundreds of available opportunities.

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Not all businesses require hundreds of crores to dominate the market. Investors with small funds and experience in Indian markets can start small by choosing a budget-friendly investment option. Most service-based companies, drop-shipping companies, and bootstrapped companies can provide better ROI (return on investment).

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Foreign investors can conduct market research in their initial phase to gain a deeper understanding of market demands. This research is crucial when planning to set up a company, as it ensures they have all the required information to create a solid business plan. You will also need a clear vision to scale your business and reach the maximum targeted audience.

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How much money does it take to start a company?

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Every business model has different financial requirements based on its target market. Some small businesses require an initial investment below Rs. 50K, while private limited companies need around Rs. 20K for registration purposes. When you set up a company, the specific needs of your business will depend on the target audience it aims to reach.

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Most foreign investors new to Indian markets might not deeply understand the culture and market demands. Unlike in the UK or the USA, affordability is paramount for Indian consumers, while foreigners often prioritize quality over quantity. These basic cultural differences can significantly impact the business strategies of foreign brands.

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Foreign investors can set up a company in India and create impactful brands that cater to four times the audience of their home countries, offering better returns. However, they must invest in businesses with lower upfront costs and minimal investment requirements. Even small or medium-scale businesses require investments of up to 5 lakhs to register and manage day-to-day operations effectively.

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Final Thoughts

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India provides foreign investors with a global platform to represent their products and grow their businesses. Most investors looking to invest in small funds in dollars can set up a company in India. Most investors want to register a company in India to take advantage of the enormous market size. 

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With VJM Global, you quickly tap into the world of opportunities and register a company in India. You can get in touch with our experts and strategize effective business plans to help your business grow exponentially. With experience in Transfer Pricing, FEMA Advisory, and Taxation, foreign investors can adapt to Indian markets with the guidance of VJM Global.