The basic business registrations include Permanent Account Number (PAN), Tax Deduction and Collection Account Number (TAN), Licenses under Shops and Establishment Act, Goods and Service Tax (GST), and Professional Tax (PT). In case a company intends to import / export materials, goods or services, an Import-Export Code (IEC) is mandatorily required.

Here are the key considerations to keep in mind while forming a company

• Ensure that the investment is not coming from any restricted countries.
• Check the proposed sector to confirm if prior approval from the Government of India is required as per FEMA guidelines.
• A minimum of two Directors are required to form an Indian entity, out of which one shall be Resident in India.
• The Indian company needs to have a Registered Office in India.
• A minimum of two shareholders are required to form an Indian entity.
• Consider state-specific employment regulations and other registration requirements as they vary across the country.
• Decide person(s) who will be acting as the authorized signatory (signatories) for signing various documents on behalf of the foreign company

Yes, a physical postal address is required to register a company. The company may either have a correspondence address or the address of its registered office. The commercial/business address can be different from the correspondence/registered office address. There is no requirement of any minimum area, location, etc.

No, the physical presence of promoters or Directors is not required during the process of company formation.

An Indian company may receive FDI either under the Automatic route or the Government route (Approval route), subject to the conditions laid down.

FDI is allowed under the automatic route without prior approval of the Government or of the Reserve Bank of India (RBI). However, in certain activities/sectors, prior approval is required as specified in the Foreign Exchange Management (Non-debt Instruments) Rules.

FDI in activities not covered under the automatic route requires prior approval of the Government of India.

To view the most recent FDI Rules, click here

An Authorized Representative is one who is responsible for the correspondence between the foreign parent company and the Indian parties including regulatory authorities.

A person who holds a valid PAN (Permanent Account Number) and has a present address in India can be appointed as an Authorized Representative of the LO.

Therefore, a person can be appointed as an Authorized Representative after he has been delegated the Power of Attorney (POA) by passing a Board Resolution or executing a POA by the parent company.

Indian regulations allow you to retain 100% ownership by subscribing to all the shares of an Indian Company and, it is referred to as a Wholly Owned Subsidiary.

With this background, for a company to be a 100% subsidiary, the investor company can arrange to have a nominee (either an individual or an entity) subscribe to 1 share of the Indian Company and transfer the beneficial interest of such share in the name of the 99.99% shareholder.

There are four typical funding options available for a holding company to provide funds to its Indian Subsidiary. They are:

• Equity
• Preference Shares
• Convertible Instruments
• Debt (commonly known as External Commercial Borrowings (ECB))

It is important to note that each of these instruments would have certain regulatory conditions as well as compliance conditions under the Indian Exchange Control Regulations (ICER) and other regulations. Furthermore, tax and transfer pricing implications also vary depending on the type of instrument.

Yes, a foreign citizen can be appointed as a Director in an Indian PLC.

A foreign citizen holding a valid DIN (Director Identification Number), who has given his/her consent to hold the Directorship and who is not disqualified can be appointed as an Executive or a Non-Executive Director by passing a Board Resolution.

However, there is still a common requirement necessitating that every company shall have at least one Resident Director (i.e. one Director who stays in India for a total period of 182 days in the financial year).

The tax structure in India is briefly divided into two types: Direct and Indirect Taxes.

Direct Taxes
Direct taxes are levied on the profits of an entity. The general corporate tax rate in India is 34.944 % (including maximum surcharge and cess). However, the Government has provided a concessional tax regime for Corporates, where on fulfilling certain basic conditions, the rate can be reduced to 25.17% (including surcharge and cess). It should be noted that almost all Indian entities would be eligible for the concessional tax regime.

A foreign company doing business in India (through a Branch Office or other presence), would be liable for corporate tax at the rate of 43.68% (including maximum surcharge and cess).

Further, a concessional tax rate of 17.16% (including surcharge and cess) is applicable to new manufacturing companies set-up on or before 31 March 2023 subject to certain conditions.

Indirect Taxes
Indirect taxes mainly comprise of Goods and Services Tax (GST) and Customs Duty. Customs duty is mainly applicable on imports into India or supplies from Special Economic Zones (SEZs) set up in India. GST is applicable on any supplies of goods and services (except certain excluded categories) within / into / from India.

These taxes are payable on the value of goods and services at the prescribed rate based on Harmonized System Nomenclature (HSN) established by the World Trade Organization and adapted/modified by the Government of India for goods. For services, classification is developed by Government of India. Thus, classification of goods and services is critical for determining the applicable rate of tax along with any partial or complete exemption.

India has adopted a very stringent compliance mechanism for GST credit which requires reporting of every B2B transaction on the Government portal on a monthly/quarterly basis.

Employment regulations largely depend on which State your entity is/will be located in and the number of employees. A few examples of employment regulations include the Shops and Establishments Act, Factories Act, etc. If the entity falls under the applicability of any of these registrations, there has to be timely registration or renewal and mandatory filings under such Acts.

The Ministry of Labor and Employment aims to simplify, rationalize, and amalgamate 44 labor laws into four Labor Codesin the near future, namely:

• Code on Wages,
• Code on Industrial Relations,
• Code on Social Security, and
• Code on Occupational Safety, Health, and Working Condition

The codes were supposed to be implemented by 1 April 2021. However, as the country faces more pressing issues in the form of the pandemic, the effective dates for the implementation of these codes have been deferred.

The requirement of regulatory approvals largely depends on the business activity/sector in which the entity operates. Foreign Direct Investment (FDI) regulations enumerate various business sectors that can accept FDI under the automatic route as well as those which may require prior Government approval. Sectors like insurance, banking, NBFC, print media, etc., are required to obtain regulatory approvals under the governing law.

In terms of the recent updates from the Reserve Bank of India (RBI), a non-resident entity can invest in India, subject to the current FDI Policy, except in those sectors/activities which are prohibited. However, an entity of a country that shares a land border with India, including China, Pakistan, Bhutan, Myanmar, Afghanistan, Nepal and Bangladesh, or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the Government route (i.e. seeking prior approval from the government).

Investors may extract profits from Indian Companies by way of dividends, subject to compliance under the applicable laws. In the case of a Limited Liability Partnership, the profits may be credited to the partners’ capital account, as per their profit-sharing ratios. Partners can withdraw these accumulated capital accounts as a return on their investment. Additionally, investors can also be paid by way of technical fees, management fees, service payments, royalties, etc. subject to the applicable laws in India.

Disclaimer
This page contains general information existing at the time of its preparation (up to 31 March 2021). It is intended as a point of reference and is not intended to be comprehensive or provide specific accounting, business, financial, investment, legal, tax or other professional advice or opinion or services. This is not a substitute for such professional advice or services, and it should not be acted on or relied upon or used as a base for any decision or action that may affect you or your business. Before making any decision or taking any action that may affect you or your business, you should consult a qualified professional adviser.

Whilst every effort has been made to ensure the accuracy of this information, this cannot be guaranteed, and neither Nexdigm Private Limited nor any related entity shall have any liability to any person or entity that relies on this information. Any such reliance is solely at the user’s risk.