Options for Foreign Companies to Set Up Business Operations in India
Foreign companies planning to set up business operations in India have two primary options: establishing themselves as an Indian Company or as a Foreign Company. Each option has distinct taxation implications that must be considered.
Structuring as an Indian Company
A foreign company can begin operations in India by incorporating a company under the Companies Act, 1956. This can be done in two ways:
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Joint Venture:
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Foreign companies can forge strategic alliances with Indian partners to set up operations.
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Allows for foreign equity participation, subject to sectoral caps under the Foreign Direct Investment (FDI) policy.
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Wholly Owned Subsidiary:
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Foreign companies can set up a wholly owned subsidiary in sectors where 100% FDI is permitted.
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This provides complete control over business operations in India.
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Structuring as a Foreign Company
Foreign companies can also set up their operations in India without forming an Indian company. This can be done through:
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Liaison Office/Representative Office:
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Acts as a channel of communication between the foreign parent company and Indian entities.
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Cannot undertake commercial activities directly and must operate within specified guidelines.
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Project Office:
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Set up for executing specific projects in India.
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Limited to the duration and scope of the project.
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Branch Office:
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Can conduct business activities such as export/import of goods, consultancy services, and research.
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Branch offices are considered extensions of the foreign company and are subject to Indian regulations and taxes.
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Registration Requirements:
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Companies must register with the Registrar of Companies (ROC) within 30 days of setting up a place of business in India.
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Such operations will be considered an extension of the foreign company in India, and Permanent Establishment (PE) rules of international taxation will apply.