Options/Entry Strategy for Investment in India by a Forign Company/Individual/NRI

Foreign direct investment (FDI) is a direct investment in a country by an individual or company of another country for production or business, either by buying a company in the target country or by expanding operations of an existing business in that country.

India Provides Best Options and Plans for Foreign Investment, it includes "mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intra company.

The fast and steadily growing economy of India in majority of its sectors, has made India one of the most famous and popular destinations in the whole world, for Foreign Direct Investment. India's ever-expanding markets, liberalization of trade policies, development in technology and telecommunication, All This Factors made India to Attract Foreign Investors, for most productive, profitable, and secure foreign investment.

Entry strategy for the Indian market

The foreign company looking to enter the Indian market may consider any of the following option for entry strategy depending upon the purpose and tenure in the Indian market.

·        Liaison Office (LO)

·        Branch Office (BO)

·        Company (may be Wholly Owned Subsidiary)

Apart from the above, if the foreign company is looking to enter India only for the execution of projects awarded; then, it may consider to set up Project Office (PO) specifically for executing the project in India. Recently, the Exchange Control Regulations of India has also permitted the Foreign Direct Investment (FDI) in Limited Liability Partnership (LLP). However, this is in the initial stages and hence, the same is not included in the table below.

Liaison Office (LO)	Branch Office (BO)	Company (WOS)
Approvals / Permission / Submission of Annual Return
·        Reserve Bank of India (RBI) approval is required. ·        Registration with Registrar of Companies (ROC) is required by filing an application alongwith prescribed documents within 30 days of the opening of the liaison office. ·        Profit making track record during immediately preceding 3 financial years in the home country. ·        Net worth not less than USD 50,000 or its equivalent. ·        Applicant not satisfying eligibility and which are subsidiaries of other companies may furnish a letter of comfort from parent company that satisfies eligible criteria. ·        Unique Identification Number (UIN) is allotted by RBI. ·        UIN to be quoted on all future reference with RBI and AD. ·        With effect from 1 February 2010, LO shall furnish two copies of Annual Activity Certificate (AAC) on or before 30 September every year for the year ended 31 March to the AD bank and to DGIT (International Taxation).	·        RBI permission needs to be obtained by filing an application in Form FNC with Authorised Dealer (AD). ·        Registration with ROC is required by filing an application alongwith prescribed documents within 30 days of the opening of the branch office. ·        Profit making track record during immediately preceding 5 financial years in the home country. ·        Net worth  not less than USD 100,000 or its  equivalent. ·        Applicant not satisfying eligibility criteria and which are subsidiaries of other companies may furnish a letter of comfort from parent company that satisfies eligible criteria. ·        Unique Identification Number (UIN) is allotted by RBI. ·        UIN to be quoted on all future reference with RBI and AD. ·        With effect from 1 February 2010, BO shall furnish two copies of Annual Activity Certificate (AAC) on or before 30 September every year for the year ended 31 March to the AD bank and to DGIT (International Taxation).	·        Foreign direct investment (FDI) is permitted in various sector subject to sectoral caps and approvals. ·        The investment in sector will be permitted either under automatic route or under approval route. If the sector falls into approval route, the approval from Foreign Investment Promotion Board (FIPB) will be required. ·        Application for incorporating company to be submitted to RoC, in accordance with the provisions of the Indian Companies Act, 1956. ·        UIN is allotted by RBI on filing intimation for receipt of funds. ·        UIN to be quoted on all future reference with RBI and AD. ·        Required to submit Annual return of Foreign Liabilities and Asset in specified format by 31 July every year.
Permitted Activities
·        Representing in India the parent company / group companies. ·        Promoting export import from / to India. ·        Promoting technical / financial collaborations between parent /group companies and companies in India. ·        Acting as a communication channel between the parent company and Indian Companies.	·        Export / Import of goods. ·        Rendering professional or consultancy services. ·        Carrying out research work, in areas 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 agent in India. ·        Rendering services in Information Technology and development of software in India. ·        Rendering technical support to the products supplied by parent/group companies.	·        Activities are not restricted. ·        However, foreign direct investment in certain sensitive activities / sector is not permitted.
Repatriation of Dividend / Profit
·        N. A.	·        Repatriation of the profits is permissible subject to payment of income tax.	·        Repatriation of the dividend is permissible subject to payment of dividend distribution tax @ 15% (plus applicable surcharge and education cess).
Repatriation of capital
·        Repatriation of capital invested in a liaison office requires RBI approval.	·        Repatriation of capital invested in a branch office requires RBI approval.	·        Repatriation of capital invested in a Company is possible by way of sale of shares, buyback, capital reduction or liquidation.
Taxation of Profits
·        Carrying out revenue activities is not permitted. ·        As there will be no income generation, LO will not have to pay tax in India. ·        However, the nature of activities needs to be examined in detail to check whether any tax liability would arise.	·        BO in respect of its profits attributable to the Indian branch is taxable at the rate of 40% (plus applicable surcharge and education cess). ·        Further, BO except in certain instances is normally considered as a permanent establishment in India of the parent company and the world income of the parent company attributable to the BO in India could be subject to tax in India. ·        Furthermore, the transactions between the BO and its parent/associate companies would have to be in accordance with the prevalent transfer pricing guidelines in India.	·        The wholly owned subsidiary being an Indian company would be subject to income tax at the rate of 30% (plus applicable surcharge and education cess). ·        It may also be noted that remittance of profits by an Indian company to its shareholders in the form of dividends would be subject to dividend distribution tax at the rate of 15% (plus applicable surcharge and education cess) in hands of the Indian company. ·        The transactions between the wholly owned subsidiary and its parent/associate companies would have to be in accordance with the prevalent transfer pricing guidelines in India.

Disclaimer:

No assurance is given that the revenue authorities/courts will concur with the views expressed herein. My views are based on the existing provisions of law and its interpretation, which are subject to change from time to time. I do not assume responsibility to update the views consequent to such changes. The views are for the general use by public at large and the author does not undertake any responsibility for the use / misuse of the same or any damage that may be caused because of such use / misuse. It is strongly recommended that before implementing any of the above options, the subject matter expert be consulted.