Being a huge market India offers every type of opportunity for businesses that originated elsewhere. From car manufacturers to consultancy organizations and so many others India offers ways to grow their companies and make more profits.
Advantages of an operational base in India
An operational base in India can offer the following advantages:
A fresh new market that has potential for significant volumes
Elimination of duties: If its products are already being imported and sold in India; for a manufacturer, elimination of custom levies can lead to significant cost reduction thereby making the product more competitive and so to greater volumes. But this is subject to manufacturing in India
For service businesses such as consultancy the issue of time zones can be paramount. Isn’t it preferable to discuss with a client during working hours, rather than in the middle of the night? Especially if it is a prospective client - demanding great focus because the deal is yet to be won.
Low Cost of Payroll, Rentals and Land: Whether it is manual or skilled labour, technicians or post-graduates and doctorates, India offers workers at wages that may be at a fraction of the cost for similar personnel elsewhere. And subject to a little exploration, India also throws up bargain rate locations.
Infrastructure: Basically all the requirements for a business operation are available in India, such as:
Human Resources of every category
Adequacy of Transportation and related connections
Adequacy of communication
Every kind of Vendor: For example, a car manufacturing company can tap into the products of local tire, battery and several auto parts makers.
Banking and a relatively stable and not appreciating currency
Having examined these issues, preferably with the help of an expert local consultant the decision may be taken to incorporate a company as a joint venture or wholly owned subsidiary.
Assuming the parent desires to retain control the wholly owned subsidiary is the best option. This is governed by the Companies Act, 2013.
Wholly Owned Indian Subsidiary of Foreign Company
This implies a 100% FDI (Foreign Direct Investment) in India as capital infusion for complete ownership of the Indian entity. Prior approval may be required from the Reserve Bank of India.
A Wholly Owned Subsidiary Company can be formed as a private, limited by share, limited by guarantee or an unlimited liability company. Since many exemptions are permitted to a “limited” private company under the Companies Act, 2013 this is the best way to go.
Treated as a Domestic Company under Tax Law, these are eligible for every benefit as applicable to any other Indian Company. They can be funded by both share capital and borrowing.
A Private limited company must have minimum of two directors and as many as a maximum of fifteen directors. The Companies Act, 2013 puts no restrictions on NRIs, PIOs, Foreign Nationals, and Foreign Residents to act as a director of an Indian Company. However, it helps if at least one director is an Indian Citizen and Indian Resident.
To function as a director one must first obtain a Director Identification Number (DIN) and then a Digital Signature Certificate. This is a fairly simple process involving submissions of passport size photo, self attested and notarized copy of passport and address proof (Drivers License, Utility Bill and Residency Card).
The minimum shareholding capital has to be Rs. 1 lakh and the shares can be held by foreign nationals or a foreign entity, subject to the FDI rules - the process being fairly simple. But Private Limited Companies must have a minimum number of two shareholders and a maximum of two hundred shareholders.
The steps to be taken after obtaining Director Identification Number (DIN) and Digital Signature Certificate (DSC) are:
This begins with a check – that the proposed name has not already been allotted. Then an application has to be made per for allotment of the proposed name (Form 1A), along with alternate proposed names in order of preference if the originally proposed one is unavailable. Principal activities and objectives of the company have to also be provided to the ROC. All names should end with the words: “Private Limited”
These matters are under the purview of Ministry of Company Affairs, India and include:
by the parent company (or each subscriber to the proposed entity) indicating its intention to incorporate a subsidiary in India and authorizing a director to issue specific power of attorney.
(separately from each subscriber to the proposed entity) authorizing an officer to represent the subscriber before the concerned authorities and officials in the matter of incorporation.
from the parent company if its name is part of that of that of the subsidiary
of the parent company such as its own Certificate of Incorporation. All these documents are to be notarized by a Notary Public in the home country where the registered office of the parent is situated and further Apostilled and endorsed at the Indian Consulate in that country.
MOA and AOA should be drafted in compliance with the provisions of the Act. Then, stamp duty is to be paid and its amount is based on the authorized capital of the company. This is paid along with the filing fee payable at the time of filing incorporation related documents.
With MOA & AOA approved; Forms digitally signed by any of the proposed directors have to be e-filed with the ROC. These are: Form 1: Declaration of compliance of all the requirements of the Act along with the memorandum of the association of the company. Form 18: Situation of the registered office of the company. Form 32: Particulars of the Directors of the company along with the consent of the directors. Together making up the set of incorporation documents, they are to be submitted with the ROC as attachments to the E form1 along with: I.The original copies of the MOA and AOA with the subscriber pages duly executed on by or on behalf of the subscribers and witnessed. II.Power of the Attorneys (duly notarized and attested by the connected Indian embassy) from the subscribers to the MOA and AOA appointing representatives to incorporate the company and empowering them to make corrections in the MOA and AOA. The ROC will then scrutinize these and give directions for any corrections. Once satisfied, the ROC will then issue the Certificate of Incorporation of the Company in India.
A wholly-owned Indian Subsidiary of a Foreign Company is an entity registered in India, and so, considered as TAX RESIDENT in India. Thus the Tax it has to pay is subject to the provisions of Income Tax Act 1961 like any other Indian Company. Wholly-owned subsidiaries with a gross turnover of Rs. 250 crores in a Financial Year are taxed at 25% of their income while those with higher turnovers are taxed at 30%. However, for the vital Double Taxation Avoidance Agreement (DTAA) to come into play it is necessary to qualify on matters such as establishment, arms-length pricing of transactions between Subsidiary and its holding Company and such. Consultants are available for assistance.
An Apostille is a single document of verification used for dealings between organizations of different countries. Only countries that are party to the Hague Apostille Convention of 1961 may issue them. Doing away with cumbersome, laborious procedures that involve copious paperwork for authenticating documents, an apostille is issued in the U.S. for a small fee by the Secretary of State is office or Notary commissioning agency. It is the only certification needed. Notaries are not allowed to issue them.