India’s vast and diversified economy has always been attracting foreign investments from all corners of the world. Sustained economic growth and favorable foreign investment policies have further boosted the morales of the foreign investors. In fact, in recent times the government of India has introduced a series of new tax incentives so as to encourage more foreign investment.
If you are looking forward to setting up a business in India, there are ample investment opportunities waiting for you. As a foreign investor, you will need to follow certain regulations and fulfil required criteria. In all cases, it is highly recommended that you hire a professional tax adviser or a corporate lawyer to help you out with related procedures.
Business prospects in India
You can choose any city of your choice to set up your business. The major cities that enjoy several economic facilities and benefits, like Mumbai, Delhi, Bangalore, Kolkata, Chennai and Hyderabad are good options for setting up a new business.
Note that, to date, the country hosts several 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.
If you have chosen to set up your business in India, you must know that you will be eligible for tax incentives, as well as special economic zones (SEZ). According to the sunset clause, SEZs will also be entitled to a tax exemption during the first five years of activity. Thereafter, you will be eligible for a 50% tax reduction for the following years. Initially set to expire on 31st March 2020, the Commerce Ministry is considering a 5-year extension plan.
Getting started
Before you start the real process of setting up a business, make sure to enquire about procedures and formalities, either online or by seeking the advice of professionals. You can contact foreign businessmen already operating in the country, or even your home country's Chamber of Commerce in India and other diplomatic representatives.
For investing and setting up a business in India you will need an employment visa. A business visa will not be valid in this case because a business visa is allowed only for short time stays which are considered as business trips.
Registering your company
Decide the company type that best suits the nature of your business. You can choose from the following:
- the Limited Liability Company
- the Limited Company
- the Partnership
- the Cooperative
- the Multi-State Cooperative.
Next, you need to get the registration done. You will have to register it with the Ministry of Corporate Affairs. For this, you will have to apply for a Director Identification Number (DIN) on the Ministry's website. Initially, you will receive a temporary number that will be valid for a period of 60 days. Next, you will have to submit the physical copy of of the registration form along with the identity documents (passport, identity cards, driver's license), two passport-size photos and address proof to the concerned ministry. Make sure your identity documents and proof of address are authenticated by a public notary.
Once the documents are approved you will get your permanent DIN within few days.
In order to perform online application, you will be required to have a Class-II Digital Signature Certificate which is provided by six private agencies, 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.
In order to register your company name, book your company's name on the Registrar of Companies' website. You can give a maximum of six company names. The names will be verified by Registrar of Companies and, if the chosen name is approved (complying with the Company Act), it will be published on the Registrar of Companies' website within the two following days.
Stamp duties
Stamp duties have been made compulsory since January 2010. You can get it done online. You 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). The required registration fees can be paid 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.
Important:
Registration fees to be paid to the Registrar of Companies varies according to the company's approved capital (as stipulated by the memorandum).
Good to know:
Although it is not compulsory to obtain the company's stamp during the undertaking procedures, it is recommended, as it may be needed later to stamp some documents.
Taxation requirements
According to Indian tax regulations, all residents in India, including foreigners should have a Permanent Account Number (PAN). This number will be requested to you by local tax authorities during procedures. Once you get your PAN, you will have to apply for a Tax Account Number (TAN) on the Income Tax India website. You also have to call at the tax office in person with all your documents following the online request and payment.
Once you are done with the above formalities, you will have to register for value-added tax (VAT) at the nearest tax office to the company's address. In some cities, online registration can be done. You will need the following documents for the process:
- 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 Challan no.210 form (original) proving that fees applied have been settled.
Thereafter, you must register for professional tax with documents 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 related certificates/documents. Note that required documents can vary according to the type of company chosen.
Register with EPFO
You will have to undergo certain procedures as per the labour law. You must register the company with the nearest Labor Inspectorate Office to the company's address. For this, you need to produce a letter mentioning the company's name, the manager and employees names, the company's address and its activities. Fees apply according to the number of employees.
If your company is having more than 20 employees then you will also have to register with the Employees' Provident Fund Organization (EPFO). It is important that all employees who are eligible for social security are registered. Each one of them will then receive an account number.
Health insurance
Finally, all employees registered with the EPFO are eligible for health insurance. A duly filled and signed application form by the employees has to be sent by the employer to the Employees State Insurance (General). Within a few days, the employee will receive a temporary insurance card pending the issuance of the permanent insurance card.
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