top of page

Foreign Company Setup in India

India, a South Asian nation, is the seventh-largest country by area, the second-most populous country with over 1.38 billion people, and the most populous democracy in the world. India boasts of an immensely rich cultural heritage including numerous languages, traditions, and people. The country holds its uniqueness in its diversity, and hence has adapted itself to international changes with poise and comfort. While the economy has welcomed international companies to invest in it with open arms since liberalization in the 1990s, Indians have been prudent and pro-active in adopting global approach and skills. Indian villagers have proudly taken up farming, advanced agriculture and unique handicrafts as their profession on one hand, while modern industries and professional services sectors are coming up in a big way on the other.

India’s Economic Performance in 2020-21

  • India has remained a preferred investment destination in FY 2020-21 with FDI pouring in amidst global asset shifts towards equities and prospects of quicker recovery in emerging economies:

    • Net FPI inflows recorded an all-time monthly high of US$ 9.8 billion in November 2020, as investors’ risk appetite returned.

    • India was the only country among emerging markets to receive equity FII inflows in 2020.

  • V-shaped recovery is underway, as demonstrated by a sustained resurgence in high frequency indicators such as power demand, e-way bills, GST collection, steel consumption, etc.

  • India has became the fastest country to roll-out 10 lakh vaccines in 6 days and also emerged as a leading supplier of the vaccine to neighboring countries and Brazil.

  • India has adopted a four-pillar strategy of containment, fiscal, financial, and long-term structural reforms:

    • Calibrated fiscal and monetary support was provided, cushioning the vulnerable in the lockdown and boosting consumption and investment while unlocking.

    • A favorable monetary policy ensured abundant liquidity and immediate relief to debtors while unclogging monetary policy transmission.

  • India has entered the top-50 innovating countries for the first time in 2020 since the inception of the Global Innovation Index in 2007, ranking first in Central and South Asia, and third amongst lower middle-income group economies.

  • India’s forex reserves were at an all-time high of US$ 586.1 billion as on January 08, 2021.

  • India is experiencing a Current Account Surplus along with robust capital inflows leading to a BoP (Balance of Payment) surplus since Q4 of FY2019-20.

  • Balance on the capital account is buttressed by robust FDI and FPI inflows:

    • Net FDI inflows of US$ 27.5 billion in April-October 2020: 14.8% higher as compared to first seven months of FY2019-20.

    • Net FPI inflows of US$ 28.5 billion in April-December 2020 as against US$ 12.3 billion in corresponding period of last year.

  • Net services receipts amounting to US$ 41.7 billion remained stable in April-September 2020 as compared with US$ 40.5 billion in corresponding period a year ago.

  • Resilience of the services sector was primarily driven by software services, which accounted for 49% of total services exports.

  • Net private transfer receipts, mainly representing remittances by Indians employed overseas, totalling US$ 35.8 billion in H1: FY21.

  • RBI’s interventions in forex markets ensured financial stability and orderly conditions, controlling the volatility and one-sided appreciation of the Rupee.

  • Initiatives undertaken to promote exports:

    • Production Linked Incentive (PLI) Scheme

    • Remission of Duties and Taxes on Exported Products (RoDTEP)

    • Improvement in logistics infrastructure and digital initiatives

Thus, the country is attracting many global majors for strategic investments owing to the presence of vast range of industries, investment avenues and a supportive Government. Huge population, mostly comprising the youth, is a strong driver for demand and an ample source of manpower. Every business house from around the globe looks for the opportunity to penetrate the Indian Marketplace due to the extensive demand with diversity of the product/ service consumption. Any company/ corporate house that is looking to initiate operations in the Indian marketplace can enter, either by opening a branch/ liaison office in India or be setting up a wholly owned/ partially owned subsidiary company, in India. The most basic features and differences are enlisted below:

A. Branch Office/ Liaison Office in India by foreign entity:

a) Branch office refers to an establishment setup by the parent company in different location to expand its business.

b) Approval of Reserve Bank of India and Ministry of Corporate Affairs is required for setup of branch office in India.

c) Foreign company is required to have net worth above $1,00,000 and it should have a profitable track record of 5 years for obtaining registration from reserve bank of India.

d) The branch office reports to the Head Office/ parent Company.

e) Liabilities of branch office are extended to the parent company.

f) Branch office is mandatorily required to conduct same business as parent company.

g) The 100% ownership of branch office lies with parent company.

h) For the purpose of taxation and compliances the branch office is considered as foreign entity.

i) Taxable at higher rates of Income Tax, like at present the rate of income tax is 40% plus cess and surcharge.

j) Can remit profits to parent company after payment of taxes.

B. Subsidiary Company in India by foreign entity:

a) A foreign subsidiary company is any company, where 50% or more of its equity shares are owned by a company that is incorporated in another foreign nation.

b) Registration with registrar of companies under Companies Act 2013 is required.

c) There is no need for approval from Reserve Bank of India for incorporating a subsidiary company in India.

d) Minimum 2 numbers of directors are required in case of private company and 3 numbers of directors are required in case of public company.

e) Minimum 2 numbers of shareholders are required in case of private company and 7 numbers of shareholders are required in case of public company

f) The name of the Subsidiary Company may or may not be same as of its Holding Company and registered office need to be situated in any state within India.

g) The liability of the subsidiary company if limited to the subsidiary company itself.

h) It is not mandatory for subsidiary company to carry on same business as its parent entity.

i) The parent entity has more than 50% ownership interest in the subsidiary company.

j) The outflow to parent company is allowed in form of dividends, royalties, services or technical fees and so on.

k) The foreign company can invest in subsidiary through equity shares, preference shares or as loan.

l) The subsidiary company of foreign company is treated as domestic entity and taxed at domestic rates of tax which is 26% plus cess and surcharge presently.

Large population, comprehensive tax system, low operational cost, business friendly laws, single stage registrations, vast trade network, strong base of English speaking population, government's initiatives, startup India movement are some of the factors which pulls and attract the major global players to enter the Indian market whether it be any end user product or research for the probable product, be it services rendered to corporates or consumers, be it solution for government projects or any ease of living solutions. The potential that vests in Indian market, opportunities available in every sector and pace at which it is growing, is the driving force by virtue of which every business house dreams to mark its presence in India.

130 views1 comment

Recent Posts

See All
bottom of page