Business set up in India: NRIs / Foreign Nationals

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CA SANDEEP KHANDELWAL
  • +91-9810902950
  • skhandelwal@mnrsindia.com
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India is one of the fastest-growing economies in the world, with a population of approximately 1.4 billion. India serves as a favorable destination to start a business due to its business-friendly policies. In the last few years, India has opened multiple avenues and provided schemes for foreigners to invest in the Indian economy. Such avenues have attracted large foreign direct investments (FDI), and this inflow is increasing every year. India has emerged as a promising business and investment destination for NRIs and foreign nationals due to several reasons, including:

  • Strong economic growth: India has been one of the fastest-growing major economies in the world in recent years, offering attractive investment opportunities for NRIs.
  • Demographic dividend: India has a young and growing population, which is expected to drive consumption and economic growth in the coming years.
  • Government initiatives: The Indian government has launched several initiatives and policies to attract foreign investment, including NRIs. These initiatives include Make in India, Start-up India, Digital India, and Smart Cities.
  • Competitive advantages: India has several competitive advantages, including a large domestic market, a skilled workforce, a stable political environment, and a strong technology sector.

The government has also extended the ease of doing business for foreign nationals and NRIs by simplifying their business in India through FEMA, FDI, and RBI policies.

NRIs and foreign nationals can invest in India by: –

  • Registering a new business in India either singly or together with other promoters by subscribing to capital of a new company
  • investing in the fresh capital of an existing company
  • Acquiring shares of an Indian company in secondary sale,

A Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) investor planning to set up business in India can do business in the form of a Sole Proprietorship concern, Partnership Firm, Limited Liability Partnership (LLP), or a Company (public limited or private limited). However, investment in sole proprietorship concerns / partnership firms with repatriation option can be made only with the prior approval of RBI. Further, NRIs are not allowed to invest in a firm or a proprietorship concern engaged in any agricultural / plantation activity or real estate business or print media.

There are different ways in which foreigners can start a business in India.

There are various business structures that a foreign company can use to establish a presence in India. Foreign companies can decide, depending on the nature of their business and other affecting factors, which type of business structure would be beneficial for them. Here are a few options for setting up a business in India:

Company registered under the provisions of the Companies Act, 2013

 

A company incorporated under the Companies Act, 2013 is the most preferred route for doing business in India. The other option available is a Limited Liability Partnership (LLP) firm. Depending on the amount of capital the Foreign National intends to invest, the intended nature of the business, and the resources available in India to manage the business; a foreign national may either opt for incorporating a company or forming an LLP. While the LLP structure is simple to form and maintain in terms of compliance, a company would be more advantageous when it comes to accessing funding and allocating shares to investors.

 

 

If the company has a foreign shareholding, the foreign citizens should bring their contribution to the share capital by transferring from their foreign bank account through normal banking channels. Through the same banking channels, the foreign nationals may also receive their annual dividends/profits, if any. A foreign national can act as Director / Managing Director / Whole-time Director / Manager of an Indian company.

 

For detailed Analysis you can check out Business set up India Section

Other Permissible Structures
 
  • Joint Venture: For a foreign company to form a joint venture in India, it will have to connect with a local partner, in the respective location where the business is to be established. The foreign company and the local partner will sign a Memorandum of Understanding (MOU), which outlines the basis for the joint venture agreement.
  • Wholly-owned Subsidiary: An Indian company will become a wholly-owned subsidiary of the foreign business when it makes a 100% FDI investment in it. A foreign company can make a 100% FDI to register its business in India.
  • Liaison office: A foreign company has the option of setting up a liaison office (also known as Representative Office) for all liaison activities in India. A foreign company will bear all the expenses of a liaison office. A Liaison Office can undertake only liaison activities in India, i.e. it can act as a channel of communication between the Head Office (established abroad) and parties in India. The Liaison Office is not allowed to undertake any business activities in India and cannot earn any income or profits in India.
  • Branch office: Branch offices are allowed to be set up in India with specific approval from the Reserve Bank of India (RBI) for companies that are incorporated outside India and are engaged in manufacturing or trading activities.
  • Project Office: A foreign company can set up a project office in India to execute projects given to it by Indian companies. However, to establish such a project office, a foreign company is required to obtain approval from the Reserve Bank of India (RBI).
  • Sole Proprietorship Concern / Partnership Firm: Investment in sole proprietorship concern / partnership firm by a Non-Resident (including Foreign National) other than NRIs can be done only with the prior approval of RBI. Further, Non-Residents are not allowed to invest in a firm or a proprietorship concern engaged in any agricultural / plantation activity or real estate business or print media.

Apart from a liaison office, all other structures mentioned herein are permitted to remit to the foreign investors any profits earned through the proper banking channels in accordance with the laws in India pertaining to foreign exchange. It is to be noted that while remitting funds, subject to the aforementioned laws pertaining to foreign exchange, the amounts to be remitted must be remitted through the authorized bank (AD) by making an application in the prescribed form (Form A-2) by the applicant/remitter. It is to be ensured that applicable taxes on amount to be remitted outside India has been duly discharged or an arrangement has been made before effecting remittance outside India.

How Can MNRS Help?

MNRS offers complete business set up and management services in India including: –

  • Help in choosing the right business structure for their business in India, such as a Private Limited Company, Limited Liability Partnership (LLP), Branch Office, Liaison Office or Project Office.
  • Securing prior approval for setting up Liaison office, Branch Office and/or Project Office
  • Securing prior approval of RBI or Government where investment is falling under approval (government) route, as the case may be, or where transaction is in violation of laid down guidelines.
  • Formation of LLP or Company and drafting of Partnership deed and Registration of Partnership Firm with Registrar of Partnership
  • Obtaining the necessary approvals, permits, licenses, and registrations required to start a business in India including registrations with various authorities like RBI, Income tax/ Goods and Services Tax/ Excise/ Custom/ labour laws/ IEC code etc.
  • Compliance with various regulations including filing of necessary returns and forms relating to investment, disinvestment, Foreign Liabilities and Assets (FLA) etc. e.g. FC-GPR, FC-TRS, FLA Return, Annual Returns, Return of Allotment, Change in directorship, Annual Tax filing with respective authorities
  • Help understand the Indian taxation system and provide guidance on tax planning and compliance. We can also help in structuring the business operations in a tax-efficient manner.
  • Business advisory services, such as financial planning, risk management, and performance improvement.
  • Management consultancy services including Staff outsourcing, process outsourcing and financing from banks and financial institutions
  • Assistance in maintaining proper accounting records and complying with accounting standards in India.
  • Audit and assurance services to ensure that the business operations comply with Indian laws and regulations.
  • Virtual office facility (Space for meetings, Fax, Internet, reception, file storage etc.) in various cities of India.
  • Merger, Acquisition and other associated advisory and execution services and sale of existing business. (Liaison, due diligence, business valuation etc.).
  • Liquidation, Strike-off of the name of the Company from the Register of RoC.

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