1. Choosing the Right Business Structure
The first step is selecting the appropriate legal structure. Common options for foreign investors include:
Wholly Owned Subsidiary
Joint Venture with an Indian Partner
Branch Office, Liaison Office, or Project Office
Each has its regulatory framework, with different levels of control, tax treatment, and compliance requirements.
2. Foreign Direct Investment (FDI) Policy
Foreign investment in India is governed by the Foreign Exchange Management Act (FEMA) and administered by the Reserve Bank of India (RBI). Investments can be made via:
Automatic Route: No prior government approval needed
Government Route: Requires approval from concerned ministry
FDI caps vary by sector. For instance, retail, telecom, and defence have limits and conditional approvals, whereas IT and manufacturing often allow 100% FDI under the automatic route.
3. Company Incorporation
Foreign investors must register their business with the Registrar of Companies (RoC) under the Ministry of Corporate Affairs (MCA). Key steps include:
Name reservation
Filing incorporation documents (MOA, AOA)
Obtaining the Certificate of Incorporation
Acquiring PAN, TAN, and GST registration
This process can be completed online through the MCA21 portal.
4. RBI and FEMA Compliance
Post-incorporation, companies must report foreign investments to the RBI through the Single Master Form (SMF) on the FIRMS portal. Timely filings are crucial to avoid penalties.
Key compliance includes:
Reporting of Foreign Currency Inflows
Allotment of shares within 60 days
Annual return on foreign liabilities and assets (FLA return)
5. Tax Registration and Compliance
Foreign companies are taxed on income sourced from India. Legal requirements include:
Corporate Tax Registration
GST Registration, if applicable
TDS (Tax Deducted at Source) compliance
Filing Income Tax Returns and TDS returns
Transfer pricing laws apply if transactions occur with related foreign entities, requiring additional documentation and audit.
6. Labour and Employment Law
If the business hires employees, it must comply with Indian labour laws. Registrations may include:
Employees' Provident Fund (EPF)
Employees' State Insurance (ESI)
Professional tax registration in some states
Adherence to minimum wage, working hours, and contract laws