India has been one of the fastest growing economy in the world in last few years and has seen a surge in international investors setting up their operations in India. Budding relations with other nations, ease of doing business along with liberalized foreign exchange policies has made India a lucrative destination for international investors.
Foreign investors and companies, typically face certain challenges while setting up a company in India with respect to the regulation and processes. Some of the key points of consideration are enumerated in following paras.
Foreign investments in India are governed by Foreign Direct Investment (FDI) Policy and is governed by its central bank “RBI”. FDI policy defines the sectors allowed to be invested by foreign investors and percentage of shareholding which could be owned with or without any permission of Government. It is very important for foreign investors to understand these requirements before setting up a company in India. Though, India has liberalized most of the sectors which are allowed to be invested by foreign investors without seeking any prior permission, however, a thorough review and advice on FDI policy is recommended before setting up of a company in India.
Selection of Right Format of Entity
As an international investor looking to endow, there are few options to choose from while setting up a type of entity in India:
Wholly owned Indian subsidiary Company:
Corporate format which could be 100% owned by international investor is treated as Indian resident for taxation and regulatory purposes. This entity format is ideal for multiple objectives and flexibility of operations. While setting up a company in India various process are involved which needs attention and advisory by experts.
Limited Liability Partnership (LLP):
Indian government has permitted foreign investment in LLPs in the sectors where 100% FDI is allowed via automatic route and there are no performance conditions linked to such FDI. Provisions in relation to board meetings, distribution of profits and CSR are also liberal for such LLPs thus making it one of the best format for an international investor setting up a company in India.
Branch, Liaison or Project office in India:
These options are suitable only if the investor is having limited activities or a short-term projects or specific objective in India. Any of these setups typically have restrictions on certain activities and chosen only for a specific purpose or term.
Even after simplifications year by year, Indian direct tax regime is still bit complex with number of adjustments. Further, the annual finance act brings up amendments in various provisions based on industry demands etc. While setting up a company in India, it becomes relevant to understand the direct as well as indirect tax implications on business, tax incentives in the form of deductions, tax holidays, subsidies, special provisions under SEZ schemes and so on to take appropriate judgement.
Further, India has signed Double Tax Avoidance Agreements (DTAA) with various countries. Such DTAAs and tax benefits could be availed by structuring the investments right before setting up a company in India
Registrations and compliances
Setting up a company in India, has been made very simple by the Government, however this still requires necessary documentation. The registration process may be simple to look at from outside though it still needs a systematic approach to complete the procedural aspects.
GM Corporate Solutions
We at GMC have been practicing the incorporation processes of various forms of entities for years. Our experts come with abundant knowledge to deal with situations with various Government departments and depending upon the requirements of international investors, have successfully found desired solutions while setting up a company in India.