FOREIGN COMPANY REGISTRATION IN INDIA – WHAT OPTIONS ARE AVAILABLE
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Mr. John is running a company in the USA which is engaged in the business of software development. Since the cost of skilled manpower in the USA is quite high, He is interested in outsourcing his software development work to India.
Now, He wants to know what are the various options available for foreign company registration in India.
In this write-up, we will provide a brief overview of various options available to Mr. John for foreign company registration in India.
Since Mr. John is already running a business in the USA through LLC, He can enter into India either in form of a foreign company or in the form of the Indian company.
If He decides to enter India in the form of a foreign company, he may either register a liaison office or branch office.
If He decides to enter into India in the form of an Indian entity, He may either register a private limited company or public limited company or limited liability partnership.
Further, in case, the foreign company holds shares of an Indian private limited or public limited company, then in that case, the Indian company becomes a subsidiary company of the parent company.
It may further be noted that the Indian subsidiary may become a wholly-owned subsidiary of the parent company in India, in case, 100% shares of an Indian company are held by the parent company.
Let us explore all the options one by one.
- The liaison office cannot do any commercial activities in India. They can act as an only communication channel between a parent company and Indian customers. Further, they cannot earn any profits from India. Accordingly, the Liaison office is not desirable.
- Branch office can provide professional service. Since the parent company is providing software development services in USA, a similar service can also be provided by Indian branch office. However, one of the drawbacks of the branch office is that it has a highest Income tax rate of 40% plus surcharge and education cess. Due to high tax rates, this option is also not very viable.
- Another option available to Mr. John is to register a limited liability partnership in India. Here, the liability of partners is limited to the amount of capital introduced. This is a good option for business setup in India. Tax rate on LLPs in India is 30% plus surcharge and education cess. Further, in case, the foreign company becomes partner in Indian LLP, any capital contribution by foreign company would require approval of RBI/FIFP.
- Now, we will discuss about another option i.e subsidiary company registration in India. One of the most popular and tax efficient structure of foreign company registration in India is in the form of a subsidiary company in India.
Subsidiary companies in India are taxed at 22% or 25% plus surcharge and education cess and provide an advantage to the parent company to use its own brand or trade name in India. However, the annual compliance costs of subsidiary companies in India are slightly higher than another form of entities but owing to its advantages, it is preferable over another form of entities in India.
What is the Procedure of Subsidiary Company Registration in India?
The process of subsidiary company registration in India involves the following steps:
- It will be registered as a normal Indian private limited company or public limited company.
Accordingly, digital signatures of directors need to be prepared, approval for reservation of name of the company need to be taken from ROC, Charter documents like MOA, AOA need to be drafted and finally, company incorporation docs need to be filed with ROC.
- Since software development service to be provided by Indian subsidiary company falls under the automatic route, hence once the parent company has subscribe to the shares of Indian subsidiary company and deposited share subscription money into Indian company’s bank account, such FDI need to be reported/intimated to RBI by filing necessary forms like FCGPR etc.
We, at EzyBiz India, provide complete handholding to foreign companies which want to enter into India and suggest the best options for entity registration. Further, we also assist them in all post incorporation compliance like Taxation, Regulatory, Legal, Accounting, Payroll, Audit etc.