Procedure of Foreign Company Registration in India and Its Compliance By CS Annu Sharma



Dear Folks

Hope you are doing well!

During this Worldwide Epidemic Situation where every country is cursing China for being the source of COVID-19 simultaneously countries are avoiding further business affairs with China as well,This Scenario brings the shift of overseas industries to India being a rapidly developing country with bulk resources, this creates a need of an hour for forming foreign companies in India as Overseas countries require the option to invest in a country other than China.

Companies are the most preferred vehicle for starting a business in India and the other is LLP (Limited Liability Partnership) whereas other options like Proprietorship/Partnership/trust etc. are not advisable not permitted as well.

Now, the question arises on how to manage all this either the registration or compliance post-registration, by the end of this write-up reader would be able to understand the Registration and Compliance of foreign entities to Invest in the Indian market.

Definition of Foreign Company as per Companies Act, 2013:

In the previous act, 1956 it wasn’t defined but 2013 has introduced and specified it as a Company incorporated outside India

(a) has a place of business in India whether by itself or through an agent, physically or through electronic mode; and

(b) conducts any business activity in India in any other manner.

Governing Laws for Foreign Entities

Foreign Entities in India are to abide by the Companies Act, 2013 & Foreign Exchange Management Act (FEMA), 1999 along with FDI (Foreign Direct Investment).

Apart from the above ESI, EPF and other allied laws as applicable.

Best Possible ways that a foreign company can run business in India.

By Wholly-owned 100 % Indian Subsidiary.
Through Liaison Office
Project Office or representatives.
As a Joint Venture in Partnership with any Indian Entity.
Branch Office

Presently in India aforementioned choices can be opted by an overseas entity to invest in India for Commercial purposes, below we have classified detailed description regarding the modes available.

1. By forming an Indian Company if 100% investment is allowed through automatic route:

A Subsidiary of Existing entity incorporated outside India can be registered in India as a Foreign if their business is covered under the list of automatic approval mode.

2. Joint Ventures if 100% FDI is not allowed:

A Foreign Entity Can Select its Indian business partner where nature of business activity doesn’t allow 100% FDI the same can be done through forming a Joint Venture.

3. Creating a Liaison office if Foreign entity doesn't wish to operate commercially:

This option is available to operate via liaison activities in India and all payments of liaison office shall be borne by Holding company outside India.

4. Project Office or Representative Office (PO/RO):

An approval from RBI shall be required to execute projects by foreign Companies through India based representative for a specific purpose.

5. Branch Office with RBI Approval:

Instead of Incorporating a new company in India a Foreign entity with a large business setup may launch a branch office but a prior license from RBI is necessary to commence branch office operations.

The process to Register Foreign companies or businesses in India.

As already discussed before a foreign entity can operate in India in various ways to generate income by investing in India but those ways are subject to some procedural requirements and conditions.

Will move forward to understand Incorporation procedure and approvals for business operations:

FOREIGN COMPANY REGISTRATION:

S.No.

Documents Required

1.

Address proof of Proposed Foreign Company (In case of a rented property -Agreement, the latest electricity bill and NOC)

 

2.

For Proposed Resident Director we need:

1.      PAN

2.      Aadhar

3.      Passport /DL/Voter ID any.

4.      Latest Bank Statement

3.

For Proposed Director/Shareholder Foreign National:

1.      Apostilled Passport.

2.      Apostilled Copy of any other Address Proof and Identity proof as available.


Incorporation of Foreign Company shall be done through by a normal procedure as opted by companies incorporated in India via MCA within 15-20 days.

JOINT VENTURE (JV):

S.No.

A well-drafted JV business agreement must include all these points:

1.

Laws Applicable according to the nature of business.

2.

Settlement of Disputes between parties.

3.

Holding and Transfer of Shares between Companies.

4.

Non-Disclosure of Information.

5.

Currency for Making transactions.

6.

Profit Sharing.


LIAISON OFFICE:

A liaison office is generally operated in India to research the Indian market, environment, economy, resources etc. these offices are not allowed to generate any income in India as they are aided by their parent companies.

Multinational Companies who are looking forward to investing in India on long term basis they generally opt for the Liaison office first to analyze growth rate and returns.

The following are some expected activities carried by Liaison offices in India.

1

Represent their Country of origin in India.

2

Improve Export-Import Relationship

3

Business collaboration between India and other countries.

4

Creation of Market Opportunities.


To operate a Liaison office in India the foreign entity must follow the prescribed guideline as an issue by RBI under FEMA, 1999.

1.

A profit-making background in the immediately the preceding 3 financial years in the country of origin, and a Net worth more than USD 50,000.

2.

A letter of comfort is to be submitted by the parent company which satisfies the above condition in case company is not eligible.

3.

Specific approval of RBI under FEMA 1999 and Insurance Regulatory and Development Authority (IRDA) is required for Foreign based Insurance Company.

4.

A designated Authorized Dealer Category–I Bank needs to forward an application for establishing an office to the RBI.

Application will move in Form FNC-Annexure 1.

5.

The office will be given a Unique Identification Number by RBI.

6.

Along with the Application, English version of the Certificate of Incorporation/Registration or MOA & AOA (attested by the Indian Embassy/Notary Public), required documents should also be filed.

7.

Latest Audited Balance Sheet of the applicant entity should also be filed in the Country of Registration.


PROJECT OFFICE:

To operate a Project office in India is one of the ideal methods, for thisa foreign entity must have a secured agreement with an Indian entity for project implementation and RBI approval shall not required if the below-mentioned criteria is fulfilled.

1.

Funded directly by inward remittance from abroad or

2.

Funded by a bilateral or multilateral International Financing Agency or

3.

Cleared by an appropriate authority or

4.

A company or entity in India provided that anagreement has been granted Term Loan by a bank in India or a Public Financial Institution for the project.


BRANCH OFFICE:

The best option to commercially operate in India on a temporary basis is to open a branch office in India where prior approval from RBI is necessary along with below-mentioned criteria:

1.

The applicant must be company incorporated outside India.

2.

The company should be engaged in manufacturing or trading activities,

3.

Name of branch office must be same as applicant incorporated outside India.

2.

Profit in the immediately preceding five financial years is necessary,

3.

The net worth of not less than USD 100,000 in its home country.


There could be some instances where branch office applicant may not fulfil the aforementioned criteria in those cases parent company may issue a letter of comfort (LOC).

To coverup the financial criteria for net worth and profit by using LOC to operate a branch office in India.

Compliance Desk of Foreign Company:

Though the compliances are dependable upon the nature of business operated by foreign companies in India still Major compliances as applicable on all foreign company.

1.

Compliances required under the Companies Act, 2013.

2.

FEMA Compliances as per FEMA Act,1999.

3.

DGFT (Director General of Foreign Trade) compliances.

4.

Annual Compliances under GST Act.

5.

Tax filing under the Income Tax Act, 1961


CORE COMPLIANCE UNDER COMPANIES ACT, 2013

FC-1

A Foreign Company within 30 days of its Establishment in India is required to report MCA in e-Form FC-1 about its existence and license received from RBI under FEMA guidelines.

 

If company has taken FIPB (Foreign Investment Promotional Board) Approval such copy is also required to be attached in this Form.

 

Applicability of FC-1 is governed under Section 380(1) of The Companies Act, 2013 where e-stamp duty shall be paid electronically.

 

FC-2

This e-Form is Event-based compliance like Change in the constitution, management, address, representative etc.

 

Where any above alteration take place in foreign company then e-Form FC-2 is required to be filed with ROC within 30 days of such change in a company.

 

FC-3

Reporting to ROC regarding Financial Statementand List of Business places in India as governed under section 381 of the Act.

 

Form FC-3 is required to be filed within 6 months from the closure of financial year post-approval of accounts in duly conducted (AGM)annual general meeting.

 

This Period can be extended just like leverage give to Indian companies for 3 more months by filing an application to ROC on valid grounds.

 

FC-4

Annual Return of Foreign companies shall be filed within 60 days from the closure of the financial year.

 

Unlike Indian Companies, Annual return is filed before Annual accounts in case of Foreign Companies in e-Form FC-4.


Along with the aforementioned compliance, a Foreign company registered in India is required to conduct Audit of accounts from firm/LLP of Practicing Chartered Accountant to file FC-3 in a Timely Manner.

The Audit of Foreign Company is governed under section 381(1)(a) and Chapter X (Audit and Auditors) and rules shall be applicable on foreign company similarly like Indian Companies. 

Statutory Auditor Shall Prepare Accounts of Foreign Company in accordance with schedule III of the said act and below mentioned annexures are required to be reported along with Financials.

Statement of Related Party Transaction.

Statement of Repatriation of Profits.

Statement of transfer of funds including Dividend.

COMPLIANCES BY BRANCH/LIAISON/PROJECT OFFICE:

1. Annual Activity Certificates (AAC) and Annual return on Foreign Liabilities and Assets is required to be reported under FEMA guidelines to regulator RBI by Branch/Liaison or Project office of Foreign Company in India.

2. Form 49C also be filed with the Directorate General of Income Tax within 60 days from the end of financial year.

3. Though Branch office or any other offices operated via company registered outside India do not have separate legal entity, in such cases taxability of them is treated like a foreign company and taxed @ 40 % on income generated in India or deemed to be generated in India.

4. GST Returns and IEC compliance by other tax authorities are similarly applicable as on Indian entity.

END Notes:

If any person or persons trade or carry-on business in any manner under any name or title or description as a foreign company registered under the Act or the rules made thereunder, that person or each of those persons shall, unless duly registered as foreign company under the Act and rules made thereunder, shall be liable for investigation under section 210 of the Act and action consequent upon that investigation shall be taken against that person.

Advertise With Us

Click here to read the disclaimer


Write a Comment

  • Thank you for sharing. I really like this post. And spades online is my favorite game, you can try to play 

    13-06-2022 / 12:11:18 PM
    Reply