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Investment Routes
Entry Strategies for Foreign
Investors
A foreign company planning
to set up business operations in India has the
following options:
1)
As an Indian Company
A foreign company can commence
operations in India by incorporating a company
under the Companies Act, 1956 through
- Joint Ventures; or
- Wholly Owned Subsidiaries
Foreign equity in such Indian
companies can be up to 100% depending on the requirements
of the investor, subject to equity caps in respect
of the area of activities under the Foreign Direct
Investment (FDI) policy. Details of the FDI policy,
sectoral equity caps & procedures can be obtained
from Department of Industrial Policy & Promotion,
Government of India (http://www.dipp.nic.in ).
Joint Venture With An Indian
Partner
Foreign Companies can set up
their operations in India by forging strategic
alliances with Indian partners.
Joint Venture
may entail the following advantages for a foreign
investor:
- Established distribution/
marketing set up of the Indian partner
- Available financial resource
of the Indian partners
- Established contacts of
the Indian partners which help smoothen the
process of setting up of operations
Wholly Owned Subsidiary Company
Foreign companies can also
to set up wholly owned subsidiary in sectors where
100% foreign direct investment is permitted under
the FDI policy.
Incorporation of Company
For registration and incorporation,
an application has to be filed with Registrar
of Companies (ROC). Once a company has been duly
registered and incorporated as an Indian company,
it is subject to Indian laws and regulations as
applicable to other domestic Indian companies.
For further information, contact:
Department of Company Affairs under Ministry of
Finance: http://dca.nic.in
2) As a Foreign Company
Foreign Companies
can set up their operations in India through
- Liaison Office/Representative
Office
- Project Office
- Branch Office
Such offices can undertake
any permitted activities. Companies have to register
themselves with Registrar of Companies (ROC) within
30 days of setting up a place of business in India.
Liaison office/ Representative
office
Liaison office acts as a channel
of communication between the principal place of
business or head office and entities in India.
Liaison office cannot undertake any commercial
activity directly or indirectly and cannot, therefore,
earn any income in India. Its role is limited
to collecting information about possible market
opportunities and providing information about
the company and its products to prospective Indian
customers. It can promote export/import from/to
India and also facilitate technical/financial
collaboration between parent company and companies
in India.
The approval for establishing
a liaison office in India is granted by the Reserve
Bank of India (RBI).
Project Office
Foreign Companies planning
to execute specific projects in India can set
up temporary project/site offices in India. RBI
has now granted general permission to foreign
entities to establish Project Offices subject
to specified conditions. Such offices cannot undertake
or carry on any activity other than the activity
relating and incidental to execution of the project.
Project Offices may remit outside India the surplus
of the project on its completion, general permission
for which has been granted by the RBI.
Branch Office
Foreign companies
engaged in manufacturing and trading activities
abroad are allowed to set up Branch Offices in
India for the following purposes:
- Export/Import of goods
- Rendering professional or
consultancy services
- Carrying out research work,
in which the parent company is engaged.
- Promoting technical or financial
collaborations between Indian companies and
parent or overseas group company.
- Representing the parent
company in India and acting as buying/selling
agents in India.
- Rendering services in Information
Technology and development of software in India.
- Rendering technical support
to the products supplied by the parent/ group
companies.
- Foreign Airline/shipping
Company.
A branch office is not allowed
to carry out manufacturing activities on its own
but is permitted to subcontract these to an Indian
manufacturer. Branch Offices established with
the approval of RBI, may remit outside India profit
of the branch, net of applicable Indian taxes
and subject to RBI guidelines Permission for setting
up branch offices is granted by the Reserve Bank
of India (RBI).
Branch Office on "Stand Alone Basis"
Such Branch Offices would be
isolated and restricted to the Special Economic
zone (SEZ) alone and no business activity/transaction
will be allowed outside the SEZs in India, which
include branches/subsidiaries of its parent office
in India. No approval shall be necessary from
RBI for a company to establish a branch/unit in
SEZs to undertake manufacturing and service activities
subject to specified conditions.
Application for setting up
Liaison Office/ Project Office/ Branch Office
may be submitted in form FNC 1 (available at RBI
website at www.rbi.org.in)
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