JOINT VENTURE REGISTRATION IN INDIA

by EzyBiz India Tax & Accounting Consulting Firm

When a foreign company wants to set up business in India in the form of incorporated entity, one of the options available for doing so is in the form of Joint Venture Registration in India. Other options available for foreign company registration in Indiaare:

a) Subsidiary company registration in India and

b) Limited liability partnership.

Foreign companies can establish a Joint Venture with Indian companies and make investment in same. Foreign companies can also contribute capital, infrastructure, knowledge, technology etc. It can be set up as an entirely new company in India with an Indian partner or it may involve investing in a company which is already existing in India. Joint venture registration can be in the form of Private limited company registration or public limited company registration.

Permissible activities for Joint Ventures in India

a) Subject to FDI guidelines, Joint Ventures (JVs) can do all the business activities mentioned in itsMemorandum of Association. However, there is some prohibited list of business in FDI guidelines which cannot be done by JVs in India.

b) Normally, JVs are a temporary partnership, established for a definite purpose and for a stipulated period, to fulfill a specific purpose such as accomplishing a task, activity or project.

c) FDI in JVs are allowed only in those sectors where 100% foreign investment is permitted under automatic route with no FDI-linked performance conditions. There are certain other conditions also, as specified by Government, which needs to be fulfilled.

d) There are some prohibited lists of business in FDI guidelines. It means JVs cannot be engaged in prohibited business activities.

Therefore, this is an important aspect to be kept in mind before setting up of JVs in India.

Conditions required for setting up JVs

JVs in India can be formed in 2 ways.

a) First in form of new company where both Indian company and foreign company has fixed percentage shareholding or ownership right in new company. This is similar to opening wholly owned subsidiary in India.

b) Second way of forming JVs in India is that foreign company can invest in shares of existing Indian company by way of allotment or transfer of shares already allotted.

What is the Legal Status of JVs in India?

a) Legal status of JVs is Indian Companies.

b) A Joint Venture company can be set up as a separate legal entity, distinct from both, the foreign entity & Indian entity.

What approvals are required for setting up business in form of JVs

a) For setting up JVsin India, prior approval of ROC/MCA is required. Also, approval of RBI, AD Banker and FIFP may be required in case of government approval route.

b) Further, if the activities of the JVs fall under Government approval route, then the approval from the Government has to be obtained. Government approval can be taken by filing online application with Foreign Investment Facilitation Portal (FIFP)

Tax Applicability in case of JVs

JVs are similar to Indian companies and therefore is liable to tax on global income at different tax rates like 15%, 22%, 25% and 30% depending upon case to case. Also, Subject to MAT @ 15% of book profits.

Repatriation of Profits of JVs

Profits of JVs can be freely repatriable. For repatriation of profits out of India, there are no restrictions. No approvals required. However, necessary taxes need to be paid in India, also subject to filing of form 15CA and 15CB and fulfillment of some other procedural compliance.

Winding up or closure of JVs

It is a complex procedure. Also, time consuming. Depend upon exit strategy adopted. Exit can be either by sale of shares or by liquidation.

Thus JVs are very good option for foreign company registration in India where foreign partner and Indian partners collaborate for a common purpose and bring their own expertise, resource, technical knowledge, experience, technology and capital.