Consultancy Services to Foreign Companies
 
Entry Options for Foreign Investors
A foreign company planning to commence business operations in India has the option of setting-up the following type of companies:
 
Liaison / Representative Office
Project Office
Branch Office
By Forming a Company in India
 
Liaison Office
A liaison office is the most basic form of business presence that a foreign company can have in India. Permission to open a liaison office in India is granted by RBI, the apex exchange control authority. Liaison offices are normally established by foreign companies to promote their business interests by spreading awareness of their product(s) and exploring opportunities for business and investment in India. Foreign insurance companies have a general permission to establish a liaison office in India provided they have obtained permission from the Insurance Regulatory Development Authority of India and they comply with certain prescribed conditions.
 
Scope of Activities
Under the current exchange control regulations, a liaison office is permitted to :
  • Represent the parent/group companies in India
  • Promote exports and imports from/to India
  • Promote technical /financial collaborations between parent/group companies and companies in India
  • Act as a communication channel between parent/group companies and companies in India.
Typically, a liaison office is not permitted to :
  • Earn any income;
  • Undertake any industrial, trading or commercial activity;
  • Enter into any agreement on behalf of the head office;
  • Borrow or lend money for any commercial activity;
  • Charge any fee or commission or otherwise earn any income, in respect of liaison activities carried on in India.
Approval Process
An application in the prescribed form has to be submitted to RBI for establishing a liaison office in India. The lead time for processing a liaison office approval typically ranges from three to four weeks, unless the application is referred to the administrative ministry concerned within the Government of India for its comments, which may lead to an increase in the processing time.

Remittance facilities
As stated above, a liaison office cannot earn any income in India (except for interest on surplus funds lying in its local bank account subject to certain conditions). Therefore, all expenses of the liaison office have to be met out of inward remittances from the head office. Any balance in the liaison office account can typically be repatriated, only at the time of closure of the liaison office.

Taxation
As stated above, liaison offices are not permitted to carry on any industrial, trading or commercial activities, nor to earn any income in India. However, sec 139(1) requires all companies to furnish a return of income. Hence, liaison offices would also be required to file their return of income in India.

Exit Options
Closure of a liaison office normally involves a time frame of five to six weeks. An application enclosing the prescribed documentation is required to be made to the requisite regional office of RBI.
 
Project Office
In case a foreign company wishes to establish a business presence in India for the limited purpose of executing a project, it may establish a project office for its Indian operations. The objective behind establishment of a project office is to enable a foreign company to establish a temporary base in India for executing specific projects/contracts.
 
A foreign company may open a project office in India for executing a contract secured by an Indian company without the prior permission of RBI provided the following conditions are satisfied :
  • The project is funded directly by inward remittance from abroad;
  • The project is funded by a bilateral or multilateral international Financing Agency;
  • The project has been cleared by an appropriate authority;
  • 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.
In all other cases, prior approval of the RBI is required to establish a project office in India.
 
Remittance facilities
A project office is permitted to open and operate a bank account including a foreign currency account in India. Typically, expenses of the project office in India can be met only out of inward remittances from the head office, or rupee amounts received locally under the approved contract(s).
Outward remittances from the bank account are permitted subject to certain compliance requirements.

Taxation
A project office is considered as an extension of a foreign company in India. Therefore, income earned by the project office is taxable in India in accordance with the taxation provisions applicable to foreign companies under the Income-tax Act, 1961 ("Act").

Exit options
Being a restricted business presence in India, the process for closure of a project office is straightforward, and normally involves a time frame of five to six weeks. An application enclosing the prescribed documentation has to be made to the regional office of RBI in case the project office was established under the approval route and to the Authorized Dealer in case the project office was established under the general permission.
 
Branch office
In the case where a foreign company wishes to undertake trading or commercial activities in India without establishing/investing into an Indian company, it may establish a branch office in India, with the prior approval of RBI, for undertaking certain specified activities.
 
Scope of activities
Branch offices are permitted to undertake only those activities, as approved by RBI, that typically enable them to :
  • Undertake the export and import of goods
  • Render professional or consultancy services
  • Carry out research work in which the parent company is engaged
  • Promote technical and financial collaborations between Indian companies and parent/overseas group companies
  • Represent the parent company in India and act as buying and selling agents
  • Render services in information technology and development of software in India;
  • Render technical support to the products supplied by the parent/group companies;
  • Operate as a foreign airline/shipping company.
100% FDI is allowed in setting up a stand - lone branch in a SEZ. A branch has to be set up on a stand-alone basis, i.e. such branch office will be isolated and restricted to the SEZ alone and no business activity / transaction will be allowed outside the SEZ (this includes branches/subsidiaries of its parent office in India).
 
Approval process
An application in the prescribed form has to be submitted to RBI for establishing a branch office in India. The lead time for processing a branch office approval typically ranges from four to five weeks, unless the application is referred to the administrative ministry concerned (such as in the case of banking entities) within the Government of India for comments which may lead to an increase in processing time.
As per the provisions of the SEZ Act, no prior approval of RBI is required to set up a branch in a SEZ.

Remittance facilities
The RBI approval for establishing a branch office permits the opening of a bank account for meeting expenses related to Indian activities, as well as crediting proceeds/income generated in India. Branches are permitted to repatriate profits generated in India on an ongoing basis, after complying with certain procedural requirements.

Taxation
A branch office is considered as an extension of a foreign company in India. Therefore, income earned by the branch office is taxed in India in accordance with the taxation provisions applicable to foreign companies under the Act.
In case the provisions of a tax treaty between India and the country of which the foreign company is resident, are more beneficial than the Act, then it is open to the foreign company to elect being taxed under the provisions of the relevant tax treaty.

Exit options
Closure of a branch office normally involves a time frame of six to eight weeks. An application enclosing the prescribed documentation has to be made to the Central office of RBI.
Apart from obtaining RBI approval for establishing a liaison office, project office/branch office, the foreign company is also required to register with the Registrar of Companies ("ROC"). An application has to be filed in the prescribed form within 30 days of the establishment of the office in India with ROC, pursuant to which ROC would issue a certificate of establishment of place of business in India to the foreign company.
Entry requirements for doing business in India
 
Public Limited Company
  • It should have at least seven shareholders.
  • A public company is allowed to start its activities only after procuring the ‘Certificate of Commencement of Business’. The ‘Certificate of Incorporation’ alone will not suffice the purpose.
  • The company should release a prospectus or issue a statement to sell its securities.
  • It must have at least three directors in its board.
  • The company should conduct statutory meeting from time to time.
Private Limited Company
A private limited company is not owned by any governmental body, and it does not offer public shares. The number of shareholders for a private limited company is restricted to a maximum 50, whereas the minimum required is 2. The shareholders, however, do not have the power to transfer or trade their shares publicly.
 
Statutory Accounts
A foreign company must file its balance sheet and profit and loss account in the same form, and containing the same particulars (particularly with respect to documents relating to every subsidiary of the foreign company) exactly as it would if it had been a company within the meaning of the Companies Act (sec 594).
The Central Government may direct that these accounting requirements do not apply or apply with modification to a particular foreign company, or any class of foreign companies.

Local Agents
A foreign company having a place of business in India is required, within 30 days of the establishment of a place of business in India, to deliver to the Registrar the names of the persons in India authorized to accept service of process on the company and the full address of the office of the company in India.

Documents to be filed
A foreign company which establishes a place of business in India is statutorily obliged to deliver the following documents to the Registrar at the time of registration :
  • A certified copy of the charter, memorandum an articles, or other instrument defining the constitution of the company and if the instrument is not in English language a certified translation thereof;
  • Full address of the registered, or principal, office of the company;
  • List of particulars of its directors and secretary;
  • Particulars of persons resident in India authorized to accept service of documents on behalf of the company; and
  • Full address of the company’s principal place of business in India.
Any alteration to the aforesaid particulars furnished to the Registrar shall be communicated to him by filing a return in the prescribed form.

Registration of charges executed outside India
Foreign companies must register, with the Registrar, the particulars and the instrument of all charges on property, wherever situate (Companies Act, sec 127 and 600). The fees for registration vary from time to time and are set out in Sch X of the companies Act.

Bodies with jurisdiction
The statutory bodies, which mainly exercise jurisdiction over foreign companies, are :
  • the Central Excise Department;
  • the Commercial Taxes Department;
  • the Income Tax Department;
  • the Reserve Bank of India;
  • the Department of Industries; and
  • the Registrar of Companies.
 
Liquidation of a foreign company
A foreign company may be wound up as an unregistered company, only by NCLT/court, not Voluntarily or under the supervision of the court.
When a foreign company ceases to carry on business in India, it may be wound up in India as an unregistered company even though the foreign company has been dissolved or otherwise ceased to exist under the laws under which it was incorporated. A foreign company may be wound up if :
  • the foreign company is dissolved, or has ceased to carry on business, or is carrying on business only for the purpose of winding up its affairs;
  • the foreign company is unable to pay its debts; and
  • NCLT is of the opinion that it is just and equitable that the foreign company should be wound up.
A company is deemed to be unable to pay its debts when :
  • a creditor, to whom the foreign company is indebted in a sum exceeding INR 100,000 then due, has served on the foreign company a demand in writing, and the foreign company has, for three weeks after such demand, failed to pay the sum or to secure or compound for it to the satisfaction of the creditor;
  • execution or other process issued on a decree or order of any court or NCLT in favour of a creditor against the foreign company (or any member thereof as such) is returned unsatisfied in whole or in part; or
  • it is otherwise proved to the satisfaction of NCLT that the foreign company is unable to pay its debts.
 
Requirements for establishment of subsidiaries
Joint venture company or a wholly-owned subsidiary in India of a person resident outside India A person resident outside India may establish its presence in India by either setting up wholly-owned subsidiary (WOS) or joint venture company (JVC) with any other Indian entity.

The foreign direct investment (FDI) in a WOS in India or a JVC in India will be subject to the exchange control regulations and the FDI policy of the Government of India. There are certain sectors/activities listed out in the exchange control regulations where automatic approval of RBI for investment is not available. In such cases, an application is required to be made to the Foreign Investment Promotion Board (FIPB)/Secretariat for Industrial Assistance (SIA) for its approval for such investment. The exchange control regulations also list out other activities where automatic approval of RBI is available for investment, subject to certain limits specified therein. Any proposed investment in excess of the limits specified therein will again require approval of FIPB/SIA. The list of industries in respect of which the automatic route of RBI is available and in respect of which approval of FIPB/SIA is required is set out in greater detail subsequently.

A subsidiary once incorporated under the provisions of the Companies Act is treated exactly like a domestic company.

Fees and duties
A WOS or JVC in India will be required to pay the same registration fees as any other company in India. The fees vary according to the amount of the nominal share capital of the company. The fees vary according to the amount of the nominal share capital of the company. The table of fees is set out in Sch X of the Companies Act.
Companies which increase share capital after registration must pay a fee when submitting notice of the increase to the Registrar. The fee in this case is the difference between that payable.

Approvals Procedure
Procedure for getting approval for FDI
Getting an automatic approval for procuring 100% FDI is easy for most of the sectors / activities. Thanks to the investment-friendly policies offered by the government that allow a flexible and transparent investment environment in the country. The investment in such sectors can be made without getting prior approval from the central government.

However, the following special sectors or activities require prior approval from the government. They have to approach the government through the Foreign Investment Promotion Board (FIPB) in order to get approval.
  • Sectors/activities that are not eligible for procuring FDI.
  • Sectors/activities that require an industrial license.
  • A proposal from a foreign investor who has already got collaboration with any other business in India in the same field.
  • A proposal from a foreign investor for acquiring the shares from an existing financial services company in India. These proposals are restricted by certain policies adopted by the Securities and Exchange Board of India (SEBI) in 1997.
  • Investment proposals for categories/items that do not fall under the Sectoral Policy/CAPS category.
Procedure for getting automatic approval
The only procedure in procuring automatic approval is to inform the Reserve Bank of India (RBI) through bank in which share application money has been received in the prescribed Form FC-GPR within 30 days after making the inward transfer of funds required for the business and submit all the necessary documents within a period of 30 days of issuing the shares to the investors.

Procedure for getting FIPB approval
Approval for proposals that are not covered under the automatic category, such as the composite proposals that involve foreign investment/technical collaboration, is made through FIPB route. There are two types of proposals under this procedure.
  • All FDI applications except the Non-Resident Indian (NRI) and 100% Export Oriented Units (EOU) have to be submitted to the FIPB, Department of Economic Affairs, Ministry of Finance.
  • Applications under the NRI and 100% EOU category have to be submitted to the SIA under the Department of Industrial Policy and Promotion.
Applications can be made either in the Form FC-IL (Composite form for Foreign Collaboration and Industrial License) or in a plain paper with all the details mentioned in it.
Those proposals approved by the FIPB do not require any further approval from the RBI for any kind of inward transfer of funds and issue of shares to foreign investors. However, they are supposed to intimate the Regional Office of the RBI about the inward transfer of funds or the issue of the shares to the investors within a period of 30 days.
 
Getting approval for External Commercial Borrowing (ECB)
There are two ways in which ECB approval can be procured – automatic route and approval route.
Industrial sectors, including the infrastructure, are approved through automatic route that does not require RBI/government approval. ECB up to US$20 million with a minimum three-year maturity or ECB up to US$500 million with a minimum five-year maturity is allowed under this category. The maximum ECB that can be raised through automatic route during a financial year is US$500 million.

To get the automatic approval, the following procedures have to be followed.
  • Apply in the prescribed format in Form 83, along with a duplicate, to the concerned Authorized Dealer (AD). The form has to be certified by a Company Secretary or a Chartered Accountant. The AD will forward one copy of the application to the Director, Balance of Payments Statistics Division, Department of Statistical Analysis and Computer Services (DESACS), Reserve Bank of India, for allotting the loan registration number.
  • After receiving the loan registration number, the borrower will be eligible to use the loan.
  • The borrower will have to submit the ECB-2 Return every month to the DESACS. It has to be certified by the concerned AD and should reach the DESACS within seven working days from the last day of the closing month.
The approval for all proposals other than those fall under the automatic route, are decided by an Empowered Committee under the RBI.
 
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