If you wish to set up a business in India, here is an overview of the procedures to follow as a foreign investor.
Being one of Asia's and the world's most powerful economies, India has been attracting foreign investment worldwide since many years. Indeed, the Indian market is deemed to be very promising for various reasons. Some of these are sustainable economic growth rate, as well as tax incentives. In fact, the Indian government has introduced a series of new tax incentives so as to encourage more foreign investment and, thus, further boost economic growth. Hence, India represents a real investment opportunity for foreigners.
As a foreign investor, you should not have much trouble in setting up a business there, provided you comply with criteria that have been established by local authorities. In all cases, it is highly recommended that you hire a tax adviser or a corporate lawyer to help you out with related procedures.
Most of India's economic activities take place in its major cities, namely Mumbai, New Delhi, Bangalore, Kolkata, Chennai, Hyderabad and Pune, etc. Note that, to date, the country hosts thousands of US and European companies that are involved in different fields: information and communication technologies, trade, services, export, biotechnology, pharmaceuticals, industry, petrochemicals, metallurgy, textiles, automotive construction, etc. Tourism is also a very promising field.
Good to know:
If you have chosen to set up your business in India, you will be eligible to tax incentives, as well as special economic zones (SEZ). You will thus be entitled to tax exemption during the first five years of activity. Thereafter, you will be eligible to a 50% tax reduction for following years.
First of all, you are advised to inquire about procedures and formalities with people who are already acquainted with these. This will be of great help, especially during administrative formalities. Consider contacting foreign businessmen in the country, or even your home country's Chamber of Commerce in India and other diplomatic representatives. You are also advised to inquire on the local market and on its requirements. Finally, it is best to travel to India a couple of times so as to get a better insight of the Indian business climate.
To move to India as an investor, you will need an employment visa and not a business visa. In fact, the business visa only allows foreigners to travel to India for short periods considered as business trips.
Once you have found your landmarks, you will have to determine which type of company will best suit your activities in India. You can choose from the following:
- the Limited Liability Company
- the Limited Company
- the Partnership
- the Cooperative
- the Multi-State Cooperative.
Once you have decided which type of company you are going to set up according to your activities, you will have to register it with the Ministry of Corporate Affairs. Hence, you are required to apply for a Director Identification Number (DIN) on the Ministry's website. A temporary number will be issued, which will be valid for 60 days. You then have to print the form and produce it to the Ministry along with your identity documents (passport, identity cards, driver's license), as well as two passport-size identity photos and proof of address. Note that your identity documents and proof of address have to be authenticated by a public notary. Once your documents have been approved, you will receive a permanent DIN within the following three to five days.
Obtain a digital signature
To perform online application you must have a Class-II Digital Signature Certificate which is delivered by six private agencies that have been approved by the Ministry of Corporate Affairs. The request has to be made by the company's director by producing his identity documents and a proof of address. Fees of INR 400 to INR 2,650 apply.
Booking your company's name
Thereafter, you have to book your company's name on the Registrar of Companies' website. You can send a maximum of six company names. These will be verified by the Registrar of Companies. If the chosen name has been approved, complying with the Company Act, it will be published on the Registrar of Companies' website within the two following days.
Stamp duties, which are compulsory since January 2010, also have to be settled online. You then have to fill in the 1, 5 and 44 forms which will be stamped automatically. You will also have to fill in the forms 1, 18 and 32 by enclosing requested documents, that is the initial directors' agreement, the company's memorandum and articles of association (that you have to scan). Note that registration fees can either be settled online via your credit card or via an approved bank. The incorporation certificate will then be sent to you by e-mail or by post-mail.
Registration fees to be paid to the Registrar of Companies generally vary according to the company's approved capital (as stipulated by the memorandum). For instance, you will pay less than INR 4,000 for a capital of INR 100,000. However, additional fees apply when the capital exceeds INR 100,000.
Make a stamp
Making a company stamp is not compulsory when undertaking the procedures. However, it is recommended, especially to stamp some documents.
Apply for a PAN and a TAN
According to Indian tax regulations, all residents in India, including foreigners, have to be in possession of a Permanent Account Number (PAN) as mentioned in the article Tax in India. This number will be requested to you by local tax authorities during procedures. Once you have received your PAN, you also have to apply for a Tax Account Number (TAN) on the Income Tax India website. Fees apply. You also have to call at the tax office in person with all your documents following the online request and payment.
Once these formalities have been accomplished, you have to register for value added tax (VAT) at the nearest tax office to the company's address. In some cities, registration can be performed online. In general, the following documents have to be produced:
- a verified copy of the company's memorandum and articles
- proof of permanent address and your identity document (passport or driver's license)
- proof of the company's location, such as a property title or a lease document)
- a passport size identity photo
- a copy of your PAN card
- a Chalan no.210 form (original) proving that fees applied have been settled.
Thereafter, you have to register for professional tax at the nearest tax office to the company's address. Documents to be produced are, namely, proof of address, the company's registration details, information on the company's head office if any, the company's status and securities and any other relative certificate. Note that required documents can vary according to the type of company chosen.
Registering with the EPFO
You also have to register the company with the nearest Labor Inspectorate Office to the company's address by producing a letter mentioning its name, as well as the manager and employees names, the company's address and its activities. Fees apply according to the number of employees, that is INR 300 for a maximum of 5 employees and INR 4,500 for more than 100 employees.
Company's having more than 20 employees also have to register with the Employees’ Provident Fund Organization (EPFO). You have to perform this step in person. You will then receive a social security number. Note, however, that this step is not compulsory for company's having less than 20 employees, but bear in mind that all employees who are eligible to social security have to be registered. Each one of them will then receive an account number.
Finally, all employees who have been registered with the EPFO are eligible to a health insurance. A duly filled and signed application form by the employee has to be sent by the employer to the Employee's State Insurance (General). In general, procedures last less than a week. The employee then receives a temporary insurance card pending the issuance of the permanent insurance card.
Good to know:
All companies having more than 20 employes each receiving a monthly salary of a maximum of INR 10,000 have to register them to the insurance fund. As regards the employee, he is eligible to coverage in case of illness, handicap, maternity, as well as a compensation in case of serious accident or accidents related to work, etc.
Ministry of Corporate Affairs www.mca.gov.in
Government of India – Setting up a business www.archive.india.gov.in/business
Government of India – Registering your business www.archive.india.gov.in/business/starting_business
Start Biz India www.startbizindia.in
Tax Department tin.tin.nsdl.com
Income Tax India www.incometaxindia.gov.in