India Business Set Up offers many forms of corporate entity to foreign investors.The following is a description of features of the different entities, incorporation requirements and their benefits and disadvantages:

Abiding by the India Companies Act 1956, each company is required to fulfill the following requirements:

i) appoint at least two directors. Thereafter, an unlimited number of directors may be appointed. However, only individual directors are allowed - corporate directors are not allowed. To enhance corporate transparency, there is an online public register of directors and shareholders;

ii) appoint at least two shareholders. Both local and international, corporate and individual shareholders are allowed;

iii) appoint a local, resident company secretary and registered office. Only individual company secretaries are allowed;

iv) inject a minimum paid up capital of US$2,250 into the corporate bank account prior to India business set up; and

v) submit audited financial statements and annual corporate tax return to the Income Tax Department.

Some foreign companies choose to set up an India Branch Office as part of their plans. Established through the Reserve Bank of India, an India Branch Office retains the legal identity of its foreign parent. The India branch adopts the same name as its parent, and is required to file audited financial statements annually with the Indian government. The Branch Office is required to maintain a registered office in India. An India Branch Office is taxed as a limited liability company in India.

Because of the restrictions on business activities of a Representative Office, this entity is the least preferred India business set up option for foreign investors. An India Representative Office is, however, useful for entrepreneurs wishing to conduct preliminary market surveys and feasibility studies before making a long-term investment commitment to India. Because it cannot conduct business in India and because is not permitted to issue invoices, a Representative Office does not generate profits, thus is not subject to Indian corporation tax. Like a Branch Office, a Representative Office must be registered through the Reserve Bank of India.

A Branch Office cannot undertake manufacturing activities – it must subcontract this activity to a local Indian manufacturer. Examples of Branch Office activities include consultancy services, acting as a sales agent for the foreign parent company and providing technical support for products supplied by the parent company.

Some foreign investors choose an Indian Special Economic Zone (SEZ) entity. SEZs are manufacturing clusters developed by local governments across India to provide employment to local citizens. An  SEZ Enterprise is an attractive entity for foreign investors because it can i) be 100% foreign owned ii) obtain 100% tax exemption on export income for the first 10 years of manufacturing and iii) because it benefits from a large pool of low cost local labour.

To receive a manufacturing license, a SEZ enterprise is required to i) lease land on which to build a manufacturing facility ii) export at least 50% of its output to international countries (the remainder can be supplied to the Indian domestic market) and iii) submit annual performance reports to the SEZ authorities. Applications to set up an SEZ Enterprise are lodged through the Ministry of Commerce and Industry. Application details include i) location of the SEZ ii) the size of plant and production capacity iii) the amount of foreign investment and iv) the means of financing (e g equity capital, term loans or external commercial borrowing).

Registered through the Reserve Bank of India, a foreign company opens a Project Office in India to execute a specific project in the country, but cannot undertake work on any other project. The advantage of this entity is that it requires less capital input than other types of India business set up. For example, a Project Office is not obliged to rent an office or even hire local staff. Foreign workers can obtain work permits for the duration of the project.   

Finally, a Sole Proprietorship is the most simple, flexible and cost-effective corporate entity available in India. It has a single owner, who can be either an individual or a company of any nationality. The sole proprietor is personally liable for all debts, and is liable to personal income tax, but not corporation tax. The application to set up this type of entity is filed with the local VAT office in the Indian city where the sole proprietor is based.

For additional information on a India business set up, purchase our Asia Business Setup book, contact email@healyconsultants.com or call us in Singapore at (+65) 6735 0120.

For more information on how establishing a company in India, email email@healyconsultants.com or call us in Singapore at (+65) 6735 0120.

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