[ESTABLISHING A BUSINESS ENTITY IN INDIA]
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ESTABLISHING A BUSINESS ENTITY IN INDIA 1. Types of Business Entities
from 25% to 30% plus applicable surcharge and cess). Applications for establishment of a liaison or branch office in India are considered by designated authorized dealer banks (“ AD Bank ”) in accordance with guidelines issued by Reserve Bank of India (“ RBI ”). However, prior approval of RBI may also be required in certain cases such as where the applicant is a citizen or registered/incorporated in certain notified countries or where the principal business of the applicant falls in certain notified sectors such as defence, telecom, private security and information and broadcasting. In view of restrictions on the activities and tax implications for liaison, branch and project offices, the establishment of a wholly owned subsidiary or strategic alliances through joint ventures, technical collaborations or distributorship arrangements with existing Indian companies by and large remain the preferred options for foreign entities to establish a long-term presence in India. 2. Steps and Timing to Establish 2.1 Brief overview of steps to incorporate/constitute each: Companies incorporated outside India, desirous of opening a Liaison/Branch office in India are required to submit an application to the RBI in prescribed form through the AD Bank, along with prescribed documents including the English version of the certificate of incorporation/registration or Memorandum & Articles of Association attested by Indian Embassy/Notary Public in the country of registration and audited balance sheet of the applicant entity for the last three/five years in case of branch office/liaison office respectively.
1.1 Description of the types of entities available in India through which to conduct business: A foreign entity may establish a business presence in India by: • opening a liaison office, branch office or project office; • appointing a distributor or franchisee; • commencing its own operations in India by incorporating a legal entity under Indian law; • forming a joint venture with an Indian entity to establish a new entity in India; or • acquiring an existing business in India. 1.2 Matters to be considered when choosing a particular business entity type: A liaison office acts as a representative office for the foreign parent company and can only be established to primarily explore and understand business opportunities and climate in India for the foreign parent entity. A liaison office is not permitted to earn any income in India by conducting any business or commercial activities in India. A branch office can carry on business activities while a project office can be established to execute a specific project. However, since a branch office or a project office is an extension of the foreign parent company and would not be considered a legal entity separate from its parent company, the business income generated by them would be taxable at the rate of tax applicable to foreign companies (40% plus surcharge and cess) which is higher than the rate of tax applicable to companies incorporated in India (ranging
ILN Corporate Group – Establishing a Business Entity Series
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