Entering the Indian market can offer plenty of possibilities for foreign firms. It is a lucrative choice to access one of the world’s largest consumer markets and a fast-developing business environment.
However, selecting the wrong legal entity can lead to taxation, compliance, or operational hurdles. Most foreign companies neglect the role that entities play.
It is important to assess various entities and their regulatory obligations before setting up business operations in India.
Reasons Why Foreign Companies are Moving into India
India has continued attracting investment from other countries in sectors such as technology, manufacturing, finance, health care, professional services, and e-commerce. India has managed to become one of the most attractive countries for foreign companies through factors such as:
- Large internal markets
- Growing digitization
- Skilled labor
- Lenient FDI rules in India for foreign companies
The choice of a particular business entity becomes significant for companies that want to start business operations in India.
Business Entities Available to Foreign Companies
Several options are available to foreign businesses when forming their companies in India. These business entities serve different purposes for various reasons. Here is a snapshot:
Type | Suitable For | Revenue Generation | Ownership Structure |
Wholly Owned Subsidiary | Long-term operations | Yes | Up to 100% foreign ownership in many sectors |
Joint Venture | Strategic local partnerships | Yes | Shared ownership |
Branch Office | Limited operational activities | Yes, subject to regulations | Foreign parent company |
Liaison Office | Market research and representation | No | Foreign parent company |
1. Wholly Owned Subsidiary
Wholly owned subsidiaries are best for foreign companies looking to invest in India in the long run. The entity functions as an independent legal business company, registered under Indian law. It is completely controlled by the foreign parent company, as permitted by the relevant FDI norms.
Advantages of operating a wholly owned subsidiary in India are:
- Independence in functioning – A wholly owned subsidiary is fully controlled by the parent company. It can make decisions, build strategies, and manage operations, without any interference from local partners.
- Capacity to recruit personnel and make deals – The subsidiary can hire employees and can enter into agreements and contracts on its own.
- Earn money and establish itself in the domestic market – The subsidiary can generate profits directly from working in India. It can build its own market presence and enjoy a competetive position in the business environment.
- It is considered appropriate for those businesses that plan to operate significantly in India – It is highly suitable for businesses that plan long-term investments or large-scale operations in India. It allows the company to implement global strategies and benefit from working in the Indian market.
2. Joint Venture in India for Foreign Companies
The joint venture structure ensures working with a company from India to establish a new business venture. Such structures could give foreign companies the necessary local market expertise, established business connections, and operational infrastructure.
The joint venture in India for foreign companies could offer great advantages in industries where:
- There is a need for local expertise and connections to achieve the desired results.
- Industry relationships or regulatory familiarity play an important role.
3. Branch Office
The branch office, as part of the parent organization, enables the foreign company to carry out certain activities in India. With proper clearance, activities undertaken in a branch office include:
- Export-import activities
- Consultancy activities
- Research activities
- Representation for the parent company.
The difference between a subsidiary and a branch office is that the latter is not a distinct legal entity. This is an important point to consider when evaluating liability, taxation, and compliance requirements.
4. Liaison Office
The Liaison Office acts as a bridge between the foreign entity and the Indian stakeholders. The Liaison Office may work on:
- Marketing research
- Promotion of company interests
- Facilitation of business relations.
But the Liaison Office is not entitled to carry out any business or make any profit in India. When comparing the liaison office vs branch office India, the former cannot indulge in any business activity and remains restricted to representation services.
How to Choose the Right Foreign Company Structure in India
Consider the following factors before making the choice:
- Nature of business
- Legal scenario
- Growth considerations (whether short-term or long-term)
- Tax rules
- Industry-specific restrictions
- Ownership conditions
- Operational needs
Opt for:
Process for a Foreign Company Registration in India
Foreign company registration in India varies based on the chosen business structure and industry-specific FDI regulations, but typically involves selecting the appropriate entity type, obtaining any required approvals, registering the company name, completing incorporation formalities, securing PAN/TAN, opening a business bank account, and acquiring any additional licenses or registrations necessary for the proposed activities.
Costs and Timeframes
The costs and time involved in setting up a business in India for foreigners depend on business entity type, industry norms, and the professional assistance required.
Activities | Cost Range | Timeframe |
Wholly Owned Subsidiary Establishment | ₹50,000–₹2,00,000+ | 2 to 6 weeks |
Setting up Joint Venture Structure | Depends upon the form, terms, and conditions of the agreement | 4 to 8 weeks |
Approval for Branch Office Establishment | Depends upon the approvals needed | 6 to 12 weeks |
Approval for Liaison Office Establishment | Depends upon the approvals needed | 6 to 12 weeks |
Important Compliance Standards
Setting up your business is just the first step. Compliance continues to be an essential element of conducting your operations within India.
A foreign-owned business entity operating in India may need to comply with:
- Mandatory annual corporate filings
- Income tax filing requirements
- Compliance with Goods and Services Tax laws, if relevant
- Abiding by laws related to the Foreign Exchange Management Act
- Mandatory statutory audit
- Transfer Pricing rules if qualifying conditions exist
- Employment and payroll compliance rules
Challenges Common to Foreign Company Registration in India
Although India provides great possibilities for growth, foreign businesses face certain challenges in the process of setting up and running their operations:
- Determining the changing regulations
- Clarifying the rules of investment within the particular industry
- Ensuring proper cross-border taxation rules
- Establishing financial and banking relationships
- Ensuring legal compliance
- Working within local labor laws
Conclusion
India offers exciting possibilities for foreign businesses; it is important to plan well and make informed decisions. Consider compliance and tax requirements, whether to adopt a wholly owned subsidiary, a joint venture, a branch office, or a liaison office.
SBS Global is here to assist all foreign companies in their process of entering the Indian market. We offer services covering entity formation, compliance, advisory services, accounting and taxation, and more.
Feel free to talk to SBS Global about how best to enter the Indian market and manage operations with confidence.