ENTRY STRATEGIES FOR A FOREIGN ENTITY
A foreign entity may enter India in the following manner:
(I) As a foreign company in the form of (a) Liaison office (b) Branch Office (c) Project Office;
(II) As a limited liability partnership;
(III) As an Indian Company;
Foreign Companies may set up a liaison office (LO) in India which acts as a channel of communication between the head office abroad and the parties in India, with the objective of promoting and exploring the opportunities for the parent company in India.
(I) Permitted Activities for LO are:
i. Representing the parent company / group companies in India.
ii. Promoting export / import from / to India.
iii. Promoting technical/ financial collaborations between parent / group companies and companies in India.
iv. Acting as a communication channel between the parent company and Indian companies.
Note: LOs are not allowed to undertake any business activity in India and its expenses are met entirely by the parent company through inward remittances.
(II) Eligibility Criteria of the foreign entity considering to set up LO:
The foreign entity needs to satisfy the following conditions for setting up the LO:
a) A profit making track record during the immediately preceding three financial years in the home country and net worth of not less than USD 50,000 or its equivalent.
b) An applicant that is not financially sound and is a subsidiary of another company may submit a Letter of Comfort (LOC) from its parent/ group company, subject to the condition that the parent/ group company satisfies the prescribed criteria for net worth and profit.
(III) Repatriation of Profits:
As LO cannot undertake any business activity there is no question of remittance of profits.
(IV) Process To Set Up LO:
a) At First prior Approval of AD Bank to set up liaison office(LO) is required (in certain cases approval of Reserve Bank) followed by registration with Register of Companies (ROC).
b) LO shall be opened within 6 months of the approval. However, one time extension for further 6 months may be considered by the AD. Any further extension of time shall require prior approval of RBI.
c) Then the AD Bank forwards letter with recommendation & copy of FNC to RBI for allotting UIN. Before allotting UIN, RBI reviews Form FNC from AD Bank and other parameters of Not. 22(R).
(V) ADDITIONAL OFFICES & UNDERTAKING ADDITIONAL ACTIVITIES
a) An Additional LO may be set by Submitting Form FNC to AD Bank.
Note: However, in case the Additional office exceeds 4 RBI approval shall be required i.e. one LO/BO in each zone viz. East, West, North and South.
b) One of the Office shall be identified as Nodal Office to coordinate activities of all other Offices shall be set up.
c) The existing LO may be shifted to another city in India, with prior approval from the AD Category-I bank.
a) A LO in case of NBFC/ Construction & Development Sector shall be valid only for a period of 2 years.
b) LO in case of other than NBFC/ Construction & Development Sector shall be established only for a period of 3 years.
LO in case of NBFC / Construction & Development Sector shall not be allowed to be extended, however upon expiry of the validity period, the offices shall have to either close down or be converted into a Joint Venture / Wholly Owned Subsidiary in conformity with the extant Foreign Direct Investment policy. LO in case of other than NBFC/ Construction & Development Sector shall be allowed to be extended for a period of 3 years, subject to certain conditions.
(VIII) POST FORMATION FORMALITIES FOR LO
a) Opening a Bank Account-
(i) In case where LO wants to open more than one bank account, prior permission of RBI justifying the reason for additional account shall be taken;
(ii) LO may have more than one bank account with another AD bank, only for making statutory payments to the various authorities;
b) ROC Formalities
(i) The Section 380 to 383 under Chapter XXII of Companies Act, 2013, gives detailed procedure for dealing with the Foreign Companies, under which:
• At first we shall Register documents with ROC in Form FC -1 within 30 days of establishment of the LO.
• Then, apply for PAN based Digital Signature Certificate (DSC) of Authorized signatory /Chief representative for the LO established in India.
(IX) REGISTRATION REQUIREMENTS FOR SETTING-UP LO
The LO shall be obtain following registrations:
i. Register itself with ROC;
ii. Obtain a PAN (Permanent Account Number);
iii. Obtain a TAN (Tax Deduction and collection account number);
iv. Register under the PF & Other Labour Laws;
v. Register for FRRO for Expats;
(X) ANNUAL COMPLIANCE FOR LO
Following annual filings and compliances shall be done by established LO in India:
i. Annual Statement under section 285 of the IT Act, under FORM 49C, shall be filed on or before 30th May every year to the Income tax authorities;
ii. Annual return of foreign company, under FORM FC-4 , shall be filed on or before 30th May of every year to the Registrar of companies;
iii. Annual accounts with list of principal places in India by foreign companies, under FORM FC-3, shall be filed on or before 30th September of every year to the AD Bank, DGIT, DGP;
iv. Income tax return, under FORM ITR-6, shall be filed on or before 30th September/30th November of every year to the Income Tax authorities;