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Starting of a business in India by Foreign Company

CS Shaffy Mehta

Can a Foreigner Start a Business in India?

 Yes, a foreigner can start a business in India. India welcomes citizens of almost all countries to invest in India. However, with effect from 17th April 2020 vide Press Note No. 03 (2020 Series), citizens / companies of all countries that share land border with India (Pakistan, Bangladesh, China, Nepal, Bhutan, and Myanmar) require government approval even when investing in sectors that are under automatic route. Notably, entities from other countries with beneficiary / beneficiaries/Directors from any of these countries will also need government approval with effect from 1st June 2022 vide Notification No. G.S.R. 410(E).

To start a business India, a Non Resident Indian and Business Incorporated outside India have different options such as:

 As per FEMA guidelines, FDI is not allowed for a proprietorship firm. Thus, the NRIs and foreign nationals cannot start a proprietorship firm in India. 

 Documentation Requirement

  1.   Identity Proof- Passport of the foreign National. This is the most Important proof of identity of the foreigner to survive in India. The Passport must be notarized or apostilled in the country where it was issued. In any case, if the document is in a foreign language, then it first should be translated in English and then notarized or apostilled.

If the foreign residents residing in India, then the additional following documents required

  1.   Address Proof- Following documents can be accepted as an Address Proof (these proofs should not be older than 2 months):

 In addition to the notarized Identity Proof, a notarized or apostilled address proof is also required to be submitted. In any case, if the document is in a foreign language, then it first should be translated in English and then notarized or apostilled.

  1.   Registered Office Address Proof– Following are the documents that can be submitted as the proof of the registered office during the company registration in India (these proofs should not be older than 2 months):

Setup A Company (whether Private/Public/Wholly Owned Subsidiary/ One Person Company)

Foreign nationals can incorporate a company under the Companies Act, 2013. They can start a private limited, public limited as a wholly-owned subsidiary or joint venture.

Foreign direct investments are permitted in limited companies. Non-residents can make investments in shares or convertible debentures or preference shares which are issued by Indian companies via two routes-

 Limited Liability Partnership (LLP)

Limited liability partnership can be incorporated under Limited Liability Partnership, 2008. This partnership has the qualities of both partnership and company. LLP is mostly recommended due to its simplicity, ease, and tax advantages as compared to other companies.

Liaison Office

A liaison office can only indulge in liaison activities. It acts as a channel between the foreign office outside India and parties in India. They cannot do business in India and therefore don’t earn any income in India. The expenses of these offices are taken care of through inward remittances of the foreign exchanges from the foreign office.

 Branch Office

A branch office is engaged in the activities in which the parent company is engaged. But it cannot do retail activities, or manufacturing or processing activities. The profits which are earned by the branch offices are freely remittable subject to payment of taxes.

Project Office

Project Office (PO) means a location of the business to constitute the interests of a foreign company, executing a project in India but excludes a Liaison Office. A project office in India is prohibited from undertaking or carrying on any activity other than the activity in relation to the execution of the project for which such office is established. Also, the PO may undertake commercial activities related to the particular project.

Important Points to be taken care of by Foreign Nationals/Companies

  1. Before investing, the foreign National/Company shall be well versed with the FDI guidelines and other requirements under the various Indian Acts, Rules and Regulations, etc
  2. While filing an application through SPICe+ all the documents need to be self-attested by the applicant and all the documents should be notarized/apostilled in case of a foreign applicant as per the requirements under the Companies Act, 2013.
  3. Even after the establishment of business in India in any of the legal form of structure, post-incorporation compliances relating to filing of forms or otherwise shall be done timely as per the requirements of various Indian Acts, Rules, and Regulations, otherwise, heavy penalties may be imposed

Conclusion

The Indian government has taken several efforts to increase foreign investments in India. These efforts have been a success as FDI in India is increasing every year. If you are an NRI/Foreign National looking to start a business in India, choose any of the above state way but most commonly way adopted by the foreign entities are LLPs and limited companies.

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided. Neither Author nor Yes GST (collectively referred as we) assume no responsibility thereof. The user of the information agrees that the information is not a professional advice and is subject to change without notice. We shall not be liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information in any circumstances. Neither Author nor Yes GST assume no responsibility thereof.

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