Vehicles for doing business in India

Several options are available to Foreign Entrepreneurs and they may choose the best option according to their need and requirements:

• Project/Site Office
• Liaison Office/Representative Office
• Branch Office
• Wholly Owned Subsidiary
• Joint Venture with Indian Partner
• Existing Companies
• Technology Transfer

Project/Site Office

Foreign companies planning to execute specific projects in India can set up temporary Project/Site offices in India. Specific approval from the RBI is required for setting up a project office. Such approval is generally accorded in respect of projects approved by appropriate authorities or where the projects are financed by Indian bank/Financial Institution or multilateral/ bilateral international financial institutions.

Liaison Office / Representative Office

A person resident outside India (including companies) may open a Liaison Office only with the approval of the Reserve Bank of India. Prior approval from the Reserve Bank of India is required before opening a Liaison Office in India.

The list of permitted activities with respect to which a Liaison Office may be opened include: -

• Representing in India the parent company/ group companies.
• Promoting export import from/ to India
• Promoting technical/ financial collaboration between parent/ group companies and companies in India.
• Acting as communication channel between the parent company and Indian companies.

Branch Office

A person resident outside India (which includes companies) may open a Branch Office with the approval of the Reserve Bank of India. Prior approval from the Reserve Bank of India is required before opening a Branch Office in India.

The list of permitted activities with respect to which a Branch Office may be opened include: -

• 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.
  

Wholly Owned Subsidiary

A Foreign company can commence operations in India through incorporation of a company under the provisions of the Indian Companies Act, 1956.

Foreign equity in such Indian companies can be up to 100% depending on a business plan of the foreign investor, prevailing investment policies of the Government and receipt of requisite approvals (ante).

For registration as an Indian company and its incorporation, an Application has to be filed with Registrar of Companies. Once a company has been duly registered and incorporated as an Indian company, it will be subject to same Indian laws and regulations as applicable to other domestic Indian Companies.

The Companies Act, 1956, provides for incorporating of both Private and Public Companies with or without limited liability. The liability maybe limited by shares or by guarantee.

In the case of a company limited by shares, the personal liability of the members is limited up to the amount unpaid on their shares. In a company limited by guarantee the members undertake to meet their liabilities up to an amount already agreed upon at the time of winding up of the company.

A private limited company is required to have a minimum paid up share capital of Rs.100,000 and a public company has a minimum paid up share capital of Rs.500,000.

Joint Venture with Indian Partner

Foreign companies can set up the operations in India by forging strategic alliances with Indian partners.

Setting up of operations through a joint venture may entail the following advantages for foreign investors.

• Established distribution/marketing set up of the Indian partner.
• Available financial resource of the Indian partner.
• Established contracts of the Indian partner, which help smoothen the process of setting up   of operations.
  

Existing Companies

Besides new companies, automatic route for FDI/NRI/OCB investment is also available to the existing companies to induct foreign equity.

For existing companies with an expansion programme, the additional requirements are that

• the increase in equity level must result from the expansion of the equity base of the existing company without acquisition of existing shares by NRI/OCB/Foreign Investors,
• the money to be remitted should be in foreign currency and
• proposed expansion programme should be in the sector(s) under automatic route. Otherwise, the proposal would need Government approval through the FIPB.

For existing companies without an expansion programme, the additional requirements for eligibility for automatic route are

• that they are engaged in the industries under automatic route (including additional activities covered under the automatic route regardless of whether the original activities were undertaken with Government approval or by accessing the automatic route),
• the increase in equity level must be from expansion of the equity base and
• the foreign equity must be in foreign currency.
  

Technology Transfer

With a view of injecting the desired level of technological dynamism in Indian Industry and for promoting an industrial environment where the acquisition of technological capability receives priority, foreign technology induction is encouraged both through FDI and through Foreign Technology Collaboration Agreements.

The Reserve Bank of India through its regional offices accords automatic approval to all industries for foreign technology collaboration agreements subject to: -

• the lump sum payments not exceeding USD 2 Million;
• royalty payable being limited to 5% for domestic sales and 8% for exports, subject to total    payment of 8% on sales over a 10 year period;
• the period for payment of royalty not exceeding 7 years from the date of commencement of commercial production, or 10 years from the date of agreement, whichever is earlier (the royalty limits are net of taxes and are calculated according to standard conditions)

Payment of royalty upto 2% for exports and 1% for domestic sales is allowed under the automatic route on use of trademarks and brand name of the foreign collaborator without technology transfer.

Furthermore, the payment of royalty upto 8% on exports and 5% on domestic sales by wholly owned subsidiaries to offshore parent companies is allowed under the automatic route without any restriction on the duration of royalty payments.