India being one of the most accelerating countries in the world due to fast growing economy, availability of skilled manpower, pool of diversified potential customers and ease of doing business. Sighting this huge market, foreign direct investments (FDIs) are lured to set up business in India, resulting in a substantial amount of FDI coming in the country every year.
One such source of FDI is foreign companies setting up their business operations in India. Contemplating this to be the fuel in the process of moving India to a more developed nation, government of India has removed lots of restriction to a greater extent and provide ease of doing business, thus, enabling the infusion of more foreign investments in the economy.
Setting up a Joint venture company with an Indian partner to undertaking a commercial enterprise jointly by two or more parties with the view of carrying out a particular project, which otherwise retain their distinct identities, it is suitable when purpose is to carry out business activities of manufacturing, marketing, selling, etc. in Indian market on behalf of foreign entity.
Forming a Wholly-Owned Subsidiary i.e., establishing a company whose 100% equity share are owned by a parent company, in sectors which permit 100% FDI through the FDI policy formulated by Department for Promotion of Industry and Internal Trade (DPIIT). Subject to equity caps provided in the FDI policy concerning the various areas of activity and depending on the investor’s decision, 100% foreign equity in such Indian companies is permissible under automatic route.
Apart from incorporating a company, one can also choose to incorporate a limited liability partnership to establish a business in India: A Limited Liability Partnership (LLP) is a form of business structure in India that integrates the benefits of a company with the advantages of organizational flexibility associated with a partnership. The FDI policy for Limited Liability Partnership (LLPs) has been notified lately to feasible entity to form for foreign investors to establish their business operations in India.
Prior approval required from RBI and / or government for setting a business venture in India by virtue of a Liaison Office / Project Office / Branch Office. Also, the condition to open a branch office / project office / liaison office is that only a body corporate incorporated outside India can incorporate any of these offices.
Following activities are allowed to liaison office in India:
It is to be noted that a liaison office is not permitted to earn any income; to 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; or charge any fee or commission or otherwise on earning any income, in respect of liaison activities carried on in India.
A branch office of a foreign company can carry out manufacturing and trading activities abroad and are established in the region / market of manufacture for the following purposes:
It is to be noted that manufacturing activities have certain restrictions as a branch office is not permitted to carry out manufacturing activities by itself but is prescribed to sub-contract these to an Indian manufacturer. The profit of the branch may be remitted outside India for branch offices subject to the approval from RBI. The remittance is net of applicable Indian taxes and subject to RBI guidelines.
RBI has granted certain permissions to foreign companies for setting up of project offices, subject to certain conditions:
It is to be noted that, these offices cannot deviate and take steps or perform activities other than those related to the project for the purpose of which such office was set up.
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