Laws & Compliances for Incorporating a Company in India by a Foreign National: India Business Entry
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Introduction to Setting up Business in India or Business Setup in India: India Business Entry
Foreign nationals may choose to establish a company in India for various reasons. To acquire access to a growing market and a bigger consumer base, setting up a business in India enables overseas citizens to exploit this market and reap the rewards of its potential for business growth and expansion. The money which is directly invested by a foreign national or an NRI in India is termed Foreign Direct Investment India has implemented several economic reforms, such as foreign direct investment (FDI) and various initiatives, such as “Make in India” and “Ease of Doing Business ” to provide favorable business conditions for foreign nationals. The Indian government also offers various support programs for foreign investors, such as tax benefits, subsidies, and grants for specific sectors or regions. To form a company in India or to incorporate a corporation in India the foreign national has to abide by the business laws of India and duly comply with the corporate laws of India respectively.
Statutory Requirements for a Foreign National to Incorporate a Company in India for Indian Business Entry
• Obtaining a Digital Signature Certificate (DSC) for the electronic filing of documents with government authorities
• Reservation of Company Name: The foreign national must ensure that the desired company name is available and can be reserved through the online portal of the MCA.
• Obtaining Director Identification Number (DIN)- The foreign national intending to be a director of the company should obtain this number
• Drafting of Memorandum of Association (MOA) and Articles of Association (AOA): For the objectives of Capital structure, Internal Governance
• Filing of Incorporation Documents: The foreign national must all the forms of incorporation, such as MOA, AOA, and other relevant forms.
• Appointment of Resident Director: At least one director of the company must be a resident of India. A resident director is an individual who has stayed in India for a total of not less than 182 days in the previous calendar year.
• Obtaining a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN): These can be obtained from the income tax department.
• Compliance with all Foreign Exchange Management Act (FEMA) of 1999 ongoing compliance requirements: such as board meetings, maintaining statutory registries, filing annual financial statements
Non-Statutory Requirements for a Foreign National to Incorporate a company in India for India Business Entry
• Obtaining necessary Permits and Licenses: foreign nationals may need to obtain specific permits and licenses from relevant authorities or regulatory bodies, such as import-export activities and importer-exporter codes.
• Tax Compliance: Tax requirements, tax laws, and tax return filing all fall under the category of tax compliance.
• Opening Bank Accounts: When starting a business in India, foreign nationals must create bank accounts under the company’s name. This entails picking the right banks and adhering to the Know Your Customer (KYC) guidelines established by the banks.
• Employment compliance: If the company plans to hire employees in India, it must comply with applicable employment laws, such as providing proper employment contracts, adhering to minimum wage requirements, and complying with employee tax and social security obligations.
• Compliance with Industry: Industry specific requirements: The Directors of the company have to comply with the industry-specific requirements as per the laws and legislations which are made for that particular specific industry.
Key Policies and Regulations to Establish the Company in India for Setting up Business in India
The incorporation of companies by foreign nationals or Non-Resident Indians (NRIs) in India is subject to various policies and regulations.
• Foreign Direct Investment (FDI) Policy: To promote foreign investment in domestic capital and technology for economic growth.
• Reserve Bank of India Regulations: The RBI, also known as the Central Bank of India, issues regulations and guidelines related to foreign investments, approval processes, compliance with foreign exchange management regulations, and remittance of funds.
• Foreign Exchange Management Act (FEMA): FEMA is the primary legislation governing foreign exchange transactions in India. It covers various aspects of foreign investment, remittance of funds, repatriation of profits, and compliance with foreign exchange regulations.
• The Companies Act 2013: Sets the legal framework for the incorporation, management, and operation of the business
Laws applicable upon Foreign Nationals for establishing their Company in India
• Companies Act, 2013: The Companies Act is the primary legislation governing companies in India. It provides regulations and guidelines for the incorporation, management, and operations of companies in the country.
• Foreign Exchange Management Act (FEMA) of 1999: FEMA regulates foreign exchange transactions in India. It governs the inflow and outflow of foreign currency and sets guidelines for investments, repatriation of funds, and compliance with foreign exchange regulations.
• Reserve Bank of India (RBI) Regulations: The RBI issues regulations and guidelines for foreign investments, including the approval process for foreign direct investment (FDI) in various sectors. Foreign nationals must comply with RBI regulations while investing in and operating a company in India.
• Income Tax Act, 1961: The Income Tax Act lays down provisions for the tax-related matters of individuals and entities in India. Foreign nationals establishing a company in India must comply with the income tax regulations and fulfil their tax obligations, including filing tax returns and paying tax
• Goods and Services Tax (GST) Act of 2017: The GST Act is a comprehensive indirect tax law that applies to the supply of goods and services in India. Foreign nationals operating a company in India may need to register for GST and comply with GST regulations based on their business activities and turnover.
• Employment Laws: Foreign nationals hiring employees in India must comply with various employment laws, including the payment of wages, employee benefits, social security contributions, and compliance with labor laws.
FEMA Rules for Setting a Company by NRI in India for FDI in India
The Foreign Exchange Management Act (FEMA) deals with foreign exchange transactions and regulates the entry and exit of foreign companies. The following are the rules:
• Investment in most sectors is permissible under the automatic route, with certain restrictions, and pre-approval is not required. The approval route requires prior approval from the Foreign Investment Promotion Board (FIPB) or the concerned government department.
• Capital Instruments: Allows foreign companies to issue equity shares, debentures, and capital instruments with the guidelines specified by the Reserve Bank of India.
• Documentation and reporting: They must file the forms such as Foreign remittance certificate.
• Authorized Dealer: Foreign companies must engage with authorized dealers for transactions.
• FEMA holds specific limits on international investment and ownership in various industries, such as telecom and broadcasting.
Conclusion
By understanding and adhering to the applicable laws, NRIs can establish and run their companies in India while ensuring transparency, legality, and success in their business endeavours. The entire process of business setup in India is a bit complex and requires fulfilment of statutory and non- statutory compliances as above.
Authored By: Adv. Anant Sharma & Chandana Surthi
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