How Foreign Companies can enter the Indian Market?

by EzyBiz India Tax & Accounting Consulting Firm

In last decade or so, the Indian economy has witnessed significant growth specially in Information technology and Pharmaceutical sectors. Further, the government of India has introduced policies for stimulating growth in Indian economy like “Make in India” scheme, “Ease of Doing Businees”, Profit Linked Incentive Scheme” which has resulted in increase in FDI in India as well as resulting in more and more foreign company registration in India.

Over the years, India has become one of the most popular destinations for business setup owing to following factors:

1.      Skilled workforce

2.      Huge Consumer base with good purchasing power

3.      Relaxation in taxes

4.      Simplification of investment related procedures

5.      Cheaper labor costs

6.      Simplified procedures for Company Registration in India. 

What are various routes of making investment in India?

Any foreign company/ investor can make investments in India in any of the below mentioned routes

1.      FDIs through Automatic Route

2.      FDIs through Government Approval Route

3.      FDIs through Partial Automatic and Partial Government Approval Route

What are the various options of entering Indian Market

Any foreign company intending to set up business in India have following options:

1.      Branch Office: A foreign company involved in any sort of trading and service business can open a branch office in India. For the same, prior permissions from the Reserve Bank of India is required to be taken. It is to be noted that a Branch Office is permitted to do only those activities that are undertaken by its parent holding. 

Eligibility: The foreign company must have track records of good profit making in the last five immediate preceding financial years. It should have a net worth of about 100,000 USD to be eligible to open a branch office. 

2.      Project Office: For the purpose of executing a project, a foreign company can open up a project office in India. It is usually established for shorter time period and is temporary until the project ends. 

Eligibility: A project office can be set up in India only under the following conditions- 

a.       The project secured by the foreign company must be from an Indian Company.

b.      The project should be funded by a financing agency i.e. either bilateral or multilateral.

3.      Liaison Office: It is established for the purpose of communicating and co-operating with the company’s head office. It is also called as a representative office. However, any activities related to commercial, industrial and trading are not permissible to be commenced by a Project Office.  

Eligibility: A good profit making record of the parent entity in its home country. Net worth of about 50,000 USD in a particular financial year of the entity makes it eligible to open a Liaison office in India. The permission to open it is to be taken from the Reserve Bank of India (RBI) for a period of 3 years that can be extended further if the entity fulfills the eligibility conditions. 

4.      Limited Liability Partnership (LLP): Another option is to register a LLP. It is to be noted that 100% FDI under automatic route is allowed for investing in the LLP by the RBI. 

Eligibility: To open an LLP in India, the following criteria are to be met: 

a.       Minimum 2 partners are required who shall be individuals. Atleast one partner shall be Indian Resident and Indian citizen

b.      Any FDI in LLP shall be subject to government approval 

5.      Wholly-Owned Subsidiary (WOS):  Wholly owned subsidiary is considered as one of the best possible format of business for foreign entities to enter the Indian market. RBI permits 100% FDI under automatic route. It should be registered with the competent Registrar of Companies (ROC). Also, the shares of the WOS must be held by the parent company entirely. 

6.      Joint Venture (JV): A foreign entity can also commence business in India by entering into a joint venture with local businesses or individuals by forming an agreement or strategic association. It can also form a JV by investing directly in a company and subscribing its shares.


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Created on Nov 23rd 2021 01:52. Viewed 157 times.


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