India Entry Strategies for Foreign Investors

India is perceived as an ideal investment destination for foreign investors. As a matter of fact, entering India has become easier than ever before. It is primarily because of 3 reasons:

  • FDI policies have become more favourable for foreign investors
  • The ceilings on foreign investments have been removed or raised higher
  • There has been a growing emphasis on simplification of the procedure
  • With investor friendly policies, FDI is now more transparent and more predictable

There are two ways of making Foreign Direct Investments in India, automatic route and government route:

  • Under automatic route – No prior approval is required for making the investment. All one needs to do is inform the RBI within 30 days of inward remittances/ issuance of shares to non-residents. This route is applicable for most of the sectors. But it is not valid in certain cases such as any entity incorporated in Bangladesh/Pakistan cannot invest under automatic route.
  • Under government route – Prior approval is required for making the investment. The approval is granted by Foreign Investment Promotion Board (FIPB), after a thorough consideration. It covers those sectors which are not covered under the automatic route.

Entry Strategies

A foreign company planning to set up its business operation in India may choose either of the following two options:

  • Incorporate an Indian company under the Companies Act, 1956 as a wholly owned subsidiary or joint venture.
  • Enter as a foreign company, setting up a liaison office, a project office or a branch office.

Entry as an Indian Company (Direct Presence)

  1. Joint Venture: A joint venture is a smart move for any foreign investor because by entering into a strategic partnership with an Indian partner, the company gets to enjoy a well-established set up with the required infrastructure, distribution channels and marketing network. This gives the foreign company just the right take-off for its business operations in India.
  2. Wholly Owned Subsidiaries: Wholly Owned Subsidiary is wherein a foreign company gets incorporated as an Indian company, holding up to 100% equity. For some sectors, FDI policy prescribes equity caps. The company needs to register with Registrar of Companies (ROC) within 30 days of the establishment. Such a company is governed by the same rules and regulations as a domestic company.

Entry as a Foreign Company (Indirect Presence)

1.  Liaison Office

Liaison office is also termed as representative office and is established specifically for the representation/promotion of the company’s business in India. A liaison office is not intended for carrying out any business activity that generates revenue and hence is not subjected to taxation (except in cases of contravention of specified rules and regulations). Rather, it targets at understanding business environment, identifying opportunities and threats and communicating the data so collected to the head office. The permission to set up a liaison office is granted by RBI. The company needs to register the approved liaison office with Registrar of Companies within 30 days of the establishment. Foreign Exchange Management Regulations, 2000 governs the operations of a liaison office.

The following set of activities is performed by Liaison Office:

  • Representing the parent company in India
  • Promoting exports and imports
  • Promoting technical /financial collaborations between parent company and Indian company
  • Acting as a communication channel between parent company and Indian company

2.  Branch Office

As the name suggests, a branch office is established to carry on the same set of activities, as the head office. The permission to set up a branch office is granted by RBI. The company needs to register the approved branch office with Registrar of Companies within 30 days of the establishment. Foreign Exchange Management Regulations, 2000 governs the operations of a branch office. A branch office is subject to Transfer Pricing regulations when it comes to making transactions with parent company as well as other companies outside India.
There is a wider scope of activities that can be performed by the branch office. It includes the following:

  • Import and export of goods
  • Parent company’s research work
  • Professional and consultancy services
  • Representing the parent company in India
  • Acting as buying/selling agents of the parent company
  • Promoting technical /financial collaborations between parent company and Indian company
  • Rendering services in IT and software development in India
  • Operating as a foreign airline/shipping company

3.  Project Office

Project Offices are established when a foreign investor intends to set up an office specifically for execution of a specific project/contract. Apparently, Project Offices cannot be utilized for performing any function/activity unless it is directly or indirectly related to the project. Just like a branch office, the permission to set up a project office is granted by RBI. Foreign Exchange Management Regulations, 2000 governs the operations of a project office.

Choose Us

For an investor, the decision to choose one entry strategy over the other depends on the nature of business and organizational goals. AT AKM Global, we provide a single window service for facilitating investment negotiations, handling and managing the taxability, transaction advisory services and much more. If you are looking for investment avenues in India, we can help you. Let us know your service requirements.

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