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| Business Structure |
A foreign company may set up business operations in India using the following options: |
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Setting up an unincorporated entity through: |
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Liaison Office/Representative Office |
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Project Office; or |
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Branch Office |
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Or |
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By incorporating an Indian company under the Companies Act, through: |
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Joint Ventures; or |
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Wholly Owned Subsidiaries |
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Unincorporated entities, although not Indian entities, are required to follow some provisions of the Indian Companies Act. They are also limited in the nature of activities they can undertake in India.
In case of an incorporated presence, the extent of permissible foreign shareholding depends on the sector-level caps in the foreign investment guidelines (www.dipp.gov.in). As a result, foreign investments can either be in 100% wholly owned subsidiaries, or in joint venture companies that have some Indian shareholding. |
| Setting up Liaison Office/Project Office/ Branch Office |
| A foreign company can set up a Liaison Office/Project Office/Branch Office in India after obtaining approval from the Reserve Bank of India (RBI). |
Liaison Office |
A Liaison office can carry on only liaison activities, i.e. it can act as a channel of communication between Head Office abroad and parties in India. The role of such an office is limited to collecting information about possible market opportunities and providing information about the company and its products to the prospective Indian customers. It is not allowed to undertake any business activity in India and cannot earn any income in India. Expenses of such offices are to be met entirely through inward remittances of foreign exchange from the Head Office abroad.
Applications are to be made in Form FNC 1 with required documents mentioned therein, to the Foreign Investment Division, Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai. This form can be downloaded at www.rbi.gov.in. Permission is initially granted for a period of 3 years and this may be extended from time to time. Liaison/representative offices have to file an Activity Certificate on annual basis from a Chartered Accountant to the concerned Regional Office of the RBI, stating that the Liaison Office has undertaken only those activities permitted by RBI. |
| Project Office |
Foreign companies can set up Project Office/s in India provided they have secured from an Indian company, a contract to execute a project in India, and |
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the project is funded directly by inward remittance from abroad; or |
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the project is funded by a bilateral or multilateral International Financing Agency; or |
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the project has been cleared by an appropriate authority; or |
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a company or entity in India awarding the contract has been granted Term Loan by a Public Financial Institution or a bank in India for the project. |
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| In such cases, no prior approval of the RBI is required. However, if the above criteria are not met, or if the parent entity is established in Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran or China, such applications have to be forwarded to Central Office of the Foreign Exchange Department of the Reserve Bank of India at Mumbai for approval. |
| Branch office |
| The Reserve Bank permits companies engaged in manufacturing and trading activities outside India to set up Branch Offices in India for the following purposes: |
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To represent the parent company/other foreign companies in various matters in India e.g. acting as buying/selling agents in India |
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To conduct research work in the area in which the parent company is engaged |
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To undertake export and import activities and trading on wholesale basis |
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To promote possible technical and financial collaborations between the Indian companies and overseas companies. |
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Rendering professional or consultancy services |
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Rendering services in Information technology and development of software in India |
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Rendering technical support to the products supplied by the parent/Group companies. |
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Permission for setting up branch offices is granted by the Reserve Bank of India, considering the track record of the Applicant Company, existing trade relations with India and financial position of the company while scrutinising the application.
A branch office is not allowed to carry out manufacturing, processing activities directly or indirectly. A Branch Office is also not allowed to undertake Retail Trading activities of any nature in India. Branch Offices have to submit Activity Certificate from a Chartered Accountant on an annual basis to the Central Office of FED. For annual remittance of profit Branch Office may submit required documents to an authorised dealer. |
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ICREON