REGISTERING OR SETTING UP BUSINESS IN INDIA (INDIAN's, or BY FOREIGN COMPANIES)


A foreign company planning to set up business operations in India has the following TWO options:

 

1. AS AN INDIAN COMPANY
 
A foreign company can commence operations in India by incorporating a company under the Companies Act, 1956 through:
  1. Joint Ventures; or
  2. Wholly Owned Subsidiaries
Foreign equity in such Indian companies can be up to 100% depending on the requirements of the investor, subject to equity caps in respect of the area of activities under the Foreign Direct Investment (FDI) policy. Details of the FDI policy, sectoral equity caps & procedures can be obtained on a specific request. .
1. a) Joint Venture With An Indian Partner
Foreign Companies can set up their operations in India by forging strategic alliances with Indian partners.
Joint Venture may entail the following advantages for a foreign investor:
  • Established distribution/ marketing set up of the Indian partner
  • Available financial resource of the Indian partners
  • Established contacts of the Indian partners which help smoothen the process of setting up of operations
1. b) Wholly Owned Subsidiary Company
Foreign companies can also set up wholly owned subsidiary in sectors where 100% foreign direct investment is permitted under the FDI policy.
Incorporation of Company
For registration and incorporation, set of applications have to be filed with Registrar of Companies (ROC). Once a company has been duly registered and incorporated as an Indian company, it is subject to Indian laws and regulations as applicable to other domestic Indian companies.
2. AS A FOREIGN COMPANY
 
Foreign Companies can set up their operations in India through:
  • Liaison Office/Representative Office
  • Project Office
  • Branch Office
Such offices can undertake any permitted activities. Companies have to register themselves with Registrar of Companies (ROC) within 30 days of setting up a place of business in India.
2. a) Liaison Office/ Representative Office
Liaison office acts as a channel of communication between the principal place of business or head office and entities in India. Liaison office cannot undertake any commercial activity directly or indirectly and cannot, therefore, earn any income in India. Its role is limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers. It can promote export/import from/to India and also facilitate technical/financial collaboration between parent company and companies in India.
Approval for establishing a liaison office in India is granted by Reserve Bank of India (RBI).
2. b)  Project Office
Foreign Companies planning to execute specific projects in India can set up temporary project/site offices in India. RBI has now granted general permission to foreign entities to establish Project Offices subject to specified conditions. Such offices cannot undertake or carry on any activity other than the activity relating and incidental to execution of the project. Project Offices may remit outside India the surplus of the project on its completion, general permission for which has been granted by the RBI.
2. c) Branch Office
Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up Branch Offices in India for the following purposes:
  1. Export/Import of goods
  2. Rendering professional or consultancy services
  3. Carrying out research work, in which the parent company is engaged.
  4. Promoting technical or financial collaborations between Indian companies and parent or overseas group company.
  5. Representing the parent company in India and acting as buying/selling agents in India.
  6. Rendering services in Information Technology and development of software in India.
  7. Rendering technical support to the products supplied by the parent/ group companies.
  8. Foreign airline/shipping company.
A branch office is not allowed to carry out manufacturing activities on its own but is permitted to subcontract these to an Indian manufacturer. Branch Offices established with the approval of RBI, may remit outside India profit of the branch, net of applicable Indian taxes and subject to RBI guidelines Permission for setting up branch offices is granted by the Reserve Bank of India (RBI).

 

Once the entity is set-up in India:

We provide complete, online back office operations. From recruitment of personnel, to general office maintenance, to pay roll and other legal & statutory formalities.

Bank account opening

Assistance and signatory services for opening and operating Bank account in India with all major international banks are also provided. Tell us the preference of Bank you want to have bank account with and we will get back to you with complete information.

Growing Successfully

India limited companies are required by law to place on public record their statutory annual accounts, which must often be audited. These must comply with a range of detailed disclosure requirements set out in the Indian Companies Act. D. Batra & Co. , Chartered Accountants ensure that all disclosure requirements are met, and are authorised to carry out independent statutory audits. Our approach to audit concentrates effort where it’s most needed, keeping costs to a minimum and providing a useful management tool. Our advice isn’t just an annual event – clients rely on our experience all year round. As your profits grow, we advise on corporate tax planning and compliance, and will negotiate with the Inland Revenue on your behalf. For more about our Legal & Tax compliance service click here. Whenever cross border intra group transactions arise, the difficult issue of transfer pricing is never far behind. We can help you to determine fair prices and ensure that the documentation required by the tax authorities is in place. Financial and tax planning for business owners and key employees is just as important to us – our personal tax, financial planning and trust departments aim to maximise your financial growth and minimise tax bills. Our administrators can perform credit checks on potential customers, assist with customs and shipping documentation and arrange all the appropriate insurance. As you establish a India presence, we can follow up on our initial market strategy with regular marketing reviews.

The Advantages

Our service list allows you to pick and choose to specifically match your needs. Our outsourcing capability allows you to achieve India fiscal compliance cost-effectively. We look after the peripheral issues leaving your company time to concentrate on what’s really important: succeeding in the India.

 

SETTING UP BUSINESS IN INDIA

The following text gives a detailed analysis of the bureaucratic and legal obstacles a company / business faces when incorporating and registering a new firm / company in India. It outlines the necessary steps involved in establishing a commercial or industrial firm with up to 50 employees and start-up capital of 10 times the economy’s per-capita gross national income (GNI).

The following text gives a detailed analysis of the bureaucratic and legal obstacles a company / business faces when incorporating and registering a new firm / company in India. It outlines the necessary steps involved in establishing a commercial or industrial firm with up to 50 employees and start-up capital of 10 times the economy’s per-capita gross national income (GNI).

1. Obtain director identification number (DIN) on-line
The procedure to receive the Director Identification Number (DIN) includes the following 2 steps:

1) Filing the application Form DIN-1 online, in order to obtain the provisional DIN. The DIN-1 form can be found on the Ministry of Corporate Affairs 21st Century (MCA 21) website www.mca.gov.in. The provisional DIN is issued instantaneously and it is valid for sixty days. The application form needs to be printed and signed and submitted for authorization to the ministry by courier. Proof of identity and address also needs to be sent:

A. Identity Proof (Any one)

  • AN Card
  • Driving License
  • Passport
  • Voter Id Card

A photograph is required and needs to be submitted with the DIN application. The documents regarding proof of identity and address must be authenticated by a Public Notary or Gazette Officer of the Government or by a practicing professional. This could include a practicing Chartered Accountant, Company Secretary or a Cost Accountant or Company Secretary of the firm who is in full time employment, and whose director the applicant is intending to be nominated.

B. Residence Proof (Any one)

  • Driving License
  • Passport
  • Telephone Bill
  • Voter Id Card
  • Ration Card
  • Electricity Bill
  • Bank Statement

2) The relevant organization checks all the documents and, once approved, grants a permanent DIN, which takes between three to five days to issue.

2. Obtain digital signature certificate on-line
In order to use the new electronic filing system under MCA 21, the applicant must receive a Class-II Digital Signature Certificate, which they can obtain from one of 6 private agencies who are approved by MCA 21 such as Tata Consultancy Services. Company directors send the recommended application form, as well as proof of identity and address. Every agency has its own payment system, which can range from INR 400 to INR 2650.

In total there are 7 Certification Agencies approved by the Controller of Certification Agencies to grant the Digital Signature Certificates. The criteria of these Certification Agencies can be found on the website of the Ministry of Corporate Affairs (www.mca.gov.in).

3. Reserve the company name with the Registrar of Companies (ROC) on-line
Company name needs to be approved electronically. This is done under e-filing for name approval. An inquiry regarding the availability of the intended company name can be made by the applicant on the MCA 21 website.

Uusually three staff members for the RoC in Mumbai work full time on name reservations but extra can be put in place if the demand requires it. Up to six intended names can be sent. They are then verified and checked from the database for any likeness with any other Indian names.

Every day, around 50-60 applications are sent to the MCA. The name requests are submitted to the senior officer for authorization, once they have being cleared by the junior officer. The chosen name will appear on the website after approval, therefore, applicants are required to check the website to see if one of their intended names was authorized.

Generally, it takes 2 days to receive approval of the name once the intended name is available and meets the naming standards criteria set by the Company Act (one day for the name to be sent in and one day for it to show on the MCA website).

4. Pay stamp duties online, file all incorporation forms and documents online and receive the certificate of incorporation
As of 1st of January 2010 it has been made mandatory to pay all stamp duties on incorporation documents online via the Ministry of Corporate Affairs (MCA) website, due to MCA’s wish to further the e-governance’s initiatives. Consequently, the method of payment of stamp duty by affixation of adhesive stamps on Articles of Association and Memorandum of Association has been changed to e-payment of applicable stamp duty on Articles and Memorandum of association via the MCA website. Also, some forms: Form 1 (a primary form used in the incorporation process), Form 5 & Form 44 will be stamped electronically via the MCA website. These changes mean that the documents that have been e-stamped don’t require physical filing. Electronic filing of the same would be enough.

The listed forms need to be electronically filed for registration on the website of the Ministry of Company Affairs:

  • (a) e-form 1;
  • (b) e-form 18;
  • (c) e-form 32

Additionally, scanned copies of the approval of the initial directors, and of the signed Memorandum and Articles of Association, need to be sent with Form 1.

  • The charges for registering a company / firm may be paid in cash at some approved banks, or online using a credit card;
  • The certificate of incorporation is mailed automatically to the registered office of the company by registered or speed post.
  • The registration charges paid to the Registrar are adjusted in accordance with the company’s approved capital (as stated in its memorandum):
  • INR 100,000 or less: INR 4,000.

If the nominal share capital is more than INR 100,000, extra charges based on the amount of nominal capital are applicable to the base registration charge of INR 4,000:

  • For each INR 10,000 of nominal share capital or part of INR 10,000 after the 1st INR 100,000, up to INR 500,000: INR 300.
  • For each INR 10,000 of nominal share capital or part of INR 10,000 after the 1st INR 500,000, up to INR 5,000,000: INR 200.
  • For each INR 10,000 of nominal share capital or part of INR 10,000 after the 1st INR 5,000,000, up to INR 1 10,000,000: INR 100.
  • For each INR 10,000 of nominal share capital or part of INR 10,000 after the 1st INR 10,000,000: INR 50.

The payment of charges may be done (1) offline; all incorporation documents can be uploaded to produce the payment Chalan. The applicant needs to get a demand draft for filing fees amount in favor of “Pay & Accounts Office, Ministry of Corporate Affairs, New Delhi”, against this Chalan. This demand draft is payable at Mumbai. To make the payments, the applicant is required to visit the necessary branches of particular banks. Once payments receipt has been received, the payment will be cleared within 1 week. The RoC will accept the documents which need to be verified and approved once the payment has been cleared (2) online; the applicant pays using credit cards and the system accepts the documents straight away. In Mumbai, before the documents are uploaded, RoC requests for per-scrutiny of documents for any mistakes, so that when the documents are uploaded, it can be authorized without any additional amendment. The online filing section needs only 1 copy of scanned documents to be filed (including stamped MOA, AOA, and POA).

Schedule of Registrar filing charges for the articles and for the other forms (l, 18, and 32):

  • INR 200 for a company / firm with approved share capital of more than INR 100,000 but less than INR 500,000.
  • INR 300 for a company / firm with nominal share capital of INR 500,000 or more but less than INR 2,500,000.
  • INR 500 for a company / firm with nominal share capital of INR 2,500,000 or more.

In accordance with Article 10 and Article 39 of the Indian Stamp Act (1899), the stamp duty which needs to be paid on the memorandum and articles of association for company / firm incorporation in Mumbai, Maharashtra, includes the following:

  • Articles of association: INR 1000/- for each INR 500,000/- of share capital (or part thereof), subject to a maximum of INR 5,000,000.
  • Memorandum of association: INR 200.
  • Form-1 (declaration of compliance): INR 100.

5. Make a seal
Even though making a seal is not a legal obligation for the company / firm to be incorporated, companies need a company seal for the issuance of share certificates and other documents.

6. Visit an approved franchise or agent appointed by National Securities Depository Services Limited (NSDL) or Unit Trust of India (UTI) Investors Services Ltd to receive a Permanent Account Number (PAN)
As of the Income Tax Act, 1961, every person needs to give his or her permanent account number (PAN) for tax payment reasons and the tax deduction and collection account number (TAN) for depositing tax deducted at source. The Central Board of Direct Taxes (CBDT) has informed banks not to take any form for tax payment (Chalan) unless it includes the PAN or TAN, as appropriate.

The PAN is a ten digit alphanumeric number printed on a laminated card by an assessing officer of the Income Tax Department. As of July 2003, the Income Tax Department outsourced their activities regarding the allotment of PAN and granting of PAN cards to UTI Investor Services Ltd, which was approved to establish and manage IT PAN Service Centers in all cities where there is an Income Tax office. This was done to improve PAN related services.

As of June 2004, the National Securities Depository Limited (NSDL) has also set up PAN operations, TIN Facilitation Centers. The PAN application is completed via the above mentioned service centers on Form 49A, with a verified copy of the certificate of registration, granted by the Registrar of Companies, as well as proof of company / firm address and personal identity. A charge of INR 94 (plus an additional taxes which apply) to process the PAN application is applicable.

IT PAN Service Centers or TIN Facilitation Centers will send PAN application forms (Form 49A), help the applicant to complete the form, collect completed form and give receipt  of acknowledgment. Once PAN from the Income Tax department is received, UTIISL or NSDL depending on the case, will issue the PAN card and send it to the applicant.

PAN application can also be completed online. In this case the documents are still required to be physically given in to be verified with the authorized agent. For more details (www.incometaxindia.gov.in, www.utiisl.co.in, www.tin-nsdl.com)

7. Obtain a tax account number for income taxes deducted at source from the Assessing Office in the Mumbai Income Tax Department
The tax deduction and collection account number (TAN) is a ten digit alphanumeric number needed by all people who are responsible for deducting or collecting tax at the source, and it is a requirement of the provisions of Section 203A of the Income Tax Act that they need to apply for a TAN. This provision also makes it compulsory for the TAN to be given in all tax-deducted-at-source (TDS) and tax-collected-at-source (TCS) returns, all TDS/TCS payment Chalans, and all TDS/TCS certificates that are issued. A fine of INR 10,000/- is applicable if the relevant people fail to apply for a TAN or to adhere with the other provisions outlined in this section.

Using Form 49B, application for allotment of a TAN needs to be filed and sent to any TIN Facilitation Center approved to get e-TDS returns. TIN Facilitation Centers locations can be found on www.incometaxindia.gov.in and http://tin.nsdl.com. The charge to process both applications (a new TAN or a change request) is INR 60 (plus extra taxes if applicable).

Once the application is verified, the same is submitted to Income Tax Department, and once satisfied, TAN is granted to the applicant by the department. The national government levies the income tax. Any approved franchise or agent elected by National Securities Depository Services Limited (NSDL) can accept and process the TAN application, as a result of outsourcing.

The application for TAN can be made both online (via the NSDL website www.tin-nsdl.com) or offline. Once payment of the charge has been received by credit card, the hard copy of the application needs to be physically filed with NSDL.

8. Register with Office of Inspector, Mumbai Shops and Establishment Act
A statement including the employer’s and manager’s name and the company’s name (if any), postal address, and category type needs to be submitted to the local shop inspector with the appropriate charges.

In accordance with Section 7 of the Bombay Shops and Establishments Act, 1948, it is required that the company be registered as follows:

  • Within thirty days of the date on which the establishment begins its operations, under Section 7(4), the employer is required to register the establishment in the prescribed manner.
  • Under Section 7(1), the establishment needs to send Form A and the relevant charges for registering the establishment the local shop inspector.
  • Under Section 7(2), upon receipt of Form A and the relevant charges and the the statement is satisfactorily approved, the registration certificate for the establishment is granted in Form D, in accordance with the provisions of Rule 6 of the Maharashtra Shops and Establishments Rules of 1961.

The Schedule for charges for registration & renewal of registration (refer to Rule 5), since the changes in the Maharashtra Shops & Establishment (Amendment) Rules, 2003 as of 15th December 2003, includes the following:

  • 0 employees: INR 100
  • 1 to 5 employees: NR 300
  • 6 to 10 employees : INR 600
  • 11 to 20 employees: INR 1000
  • 21 to 50 employees : INR 2000
  • 51 to 100 employees : INR 3500
  • 101 or more:- INR 4500

Therefore, in this case the registration charge would be INR 2000, because there are 50 employees

Also, under the Mumbai Municipal Corporation Act, 1888, a yearly charge (3 times the registration and renewal charges) is charged as trade refuse charges (TRC).

9. Register for VAT online
The Commissioner of Sales Tax, Maharashtra State, Mumbai, Trade Circular No. 4T of 2009, as of January 23, 2009, introduced online VAT registration. In accordance with Notification No. VAT/AMD-1009/ IB/Adm-6, as of 26th August 2009, VAT registration application by the founders who need to get registration or those who voluntarily wish to obtain registration can be filed electronically, since 1st October 2009, on the website www.mahavat.gov.in

Once the filled application form is uploaded online, a receipt of acknowledgment which includes the date and time for attendance with the registering authority, as well as the code / designation and address of registering authority, is issued. The company is recommended to keep a copy of the filled e-application and send it to the registration authority to be verified , with photo attestation, on a given date and time along with relevant documents, as well as the acknowledgment receipt. The registering authority will issue TIN once the documents have been verified, the application is filled correctly and fully completed and includes the documents applicable. The certificate of registration shall be generated and sent to the company / firm on the relevant date. The appointment date is normally scheduled within the following ten days.

Additional documents to be sent include the following:

  • Verified true copy of the memorandum and articles of association of the company / firm.
  • Permanent residential address proof. A minimum of two of the listed documents are required to be sent: copy of passport, copy of driving license, copy of election photo identity card, copy of property card or most recent receipt of property tax of Municipal Corporation, copy of most recent paid electricity bill in the name of the applicant.
  • Proof of place of company / business (for an owner, the case of doing business): Proof of ownership of the building, with copy of property card or ownership deed or agreement with the builder or any other appropriate documents
  • 1 recent passport size photograph of the applicant
  • Copy of Income Tax Assessment Order having PAN or copy of PAN card
  • Chalan in Form No. 210 (original) showing payment of registration charge at INR 5000 / in the case of voluntary RC and INR 500 / in other cases

10. Register for profession tax
In accordance with section five of the Profession Tax Act, each employer (not being an officer of the government is subject to pay tax and needs to get a registration certificate from the relevant authority. The business needs to apply to the registering authority in Form I. Mumbai Area registration authority is based at Vikarikar Bhavan, Mazgaon in Mumbai. Documents such as proof of address, company registration number details under Indian Companies Act (1956), head office information (if the business / company is a branch of a business / company registered outside the state), company deed, certificates under any other act, and so on, should accompany the application where needed. This is dependent on the nature of the company / business.

11. Register with Employees’ Provident Fund Organization

12. For any establishment who employ 20 or more employees and engage in any of the 183 Industries and Classes of business establishments, throughout India (but excluding the State of Jammu and Kashmir), The Employees Provident Funds & Miscellaneous Provisions Act, 1952, is applicable.

The applicant is granted a social security number once they complete the application. The Provident Fund registration looks at delinquent reporting, under-reporting, or non-reporting of workforce size, and it is optional if workforce size is less than 20.

The employer needs to give all appropriate information to the relevant regional Provident Fund Organization (EPFO) in prescribed manner for issance of Establishment Code Number. There is no independent registration needed for the employees. However, all eligible employees must become members of the Fund. Iindividual account number is given by the employer in prescribed manner.

The code number is to be issued within three days from the date application is submitted, once it is fully filled in, as per an internal circular. But, in a lot of instances, the intimation letter with the code number is received by applicants in twelve to fifteen days. At present, no online application facility is available.

13. Register for medical insurance (ESIC)
Through registration, each employer / factory and each employee employed for wages  can be identified for the medical insurance scheme and their individual records are established for them.

Form 01 is the form which needs to be sent by the Employer for registration, as per the Employees’ State Insurance (General). It can take three days up to a week for the issuance of the Employer Code Number. The “intimation letter” is posted to the employer and includes the Code Number. This process can take an extra couple of days.

After Employer’s registration, the Employee’s individual insurance is a separate procedure which takes place. Responsibility for sending the necessary Declaration Form is with the employer and employees are responsible for giving the correct information to the employer. Temporary  employee cards (ESI Cards) are issued straight away through the local offices in most ares. These temporary cards have validity for thirteen weeks from the start date of the employees. It takes approximately four / five weeks to receive a permanent ESI card. The identity cards shall be sent directly to the insured persons by the ESI Corporation instead of via the employers. This process occurs to guarantee that all the insured persons get their identity cards so that they are able to get cash and medical benefit.

The ESI Act is applicable to all businesses / establishments that employ 20 or more employees. The ESI Act covers sickness benefits, medical relief, maternity benefits for female employees, compensation for fatal, other employment accidents / injuries, and more. Employees who receive wages up to Rs. 10,000 each month is provided for by this Act.