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Doing Business in India for Foreign Enterprises
As one of the largest economies in the world, India offers a favorable business landscape to foreign investors seeking to expand their business in the lucrative Asian markets. As a developing country, it seeks to continuously reform its policies to create a more business-friendly environment and attract more foreign direct investments.
With reduced processes for business registration, fast-growing tech startup ecosystem, young, tech-savvy workforce, and low-cost labor, food, electricity, and infrastructure, India is an ideal launchpad for foreign enterprises on their business expansion plans in Asia.
Company Incorporation in India
Foreign investors looking to establish a company in India can choose among four business entities, namely:
- Private Limited Company
- Public Limited Company
- Branch Office
- Representative Office
The most common business entity in India is the Private Limited Company. It requires a minimum of two shareholders who can be natural persons or legal entities headquartered in India or overseas. It can have a minimum of two and a maximum of 15 directors, where at least one must be an Indian citizen.
There is no minimum capital requirement for setting up a Private Limited Company in India. After incorporation, ownership of shares can be transferable to a maximum of 200 shareholders. However, this type of entity cannot publicly trade its shares.
Another common option for foreign investors is the Public Limited Company. This entity is ideal for those who want to be listed on the Indian Stock Exchange. But unlike Private Limited Companies, it cannot offer shares directly to the public and accept foreign direct investments. It also does not have a minimum capital requirement for incorporation.
Those with existing operations overseas can set up either of the following: (a) Branch Office or (b) Representative Office. Those seeking to generate income in India by carrying out their business activities in India can set up a Branch Office. Those seeking to conduct non-income generating activities or test their business potential in the Indian market before making any significant investment can establish a Representative Office.
Corporate Taxation in India
Corporate income tax (CIT) rates in India largely depend on the sources of income of registered companies. A resident company will be taxed on income generated within and outside India. A non-resident company will only be taxed on income received in India in India.
As of this writing, the corporate income tax (CIT) rate applicable to both domestic and foreign companies are as follows:
|Income*||CIT rate (%)|
|Turnover does not increase INR 4 billion in FY 2018/19||For other domestic companies||Foreign companies|
|Less than INR 10 million||25||26.00||30||31.20||40||41.60|
|More than INR 10 million but less than INR 100 million||25||27.82||30||33.38||40||42.43|
|More than INR 100 million||25||29.12||30||34.94||40||43.68|
*Surcharge of 10% is payable only where total taxable income exceeds INR 10 million.
**Effective tax rates include surcharge and “health and education cess” (a fixed percentage of levy on the total tax and surcharge liability of a taxpayer with the main objective to meet the expenditure towards fulfilling the government’s commitment of providing quality education and basic health amenities to the poor).
Work Visas and Immigration in India
Foreign nationals seeking to come to India to work or do business must obtain a valid visa to legally enter the country. Those seeking to gain employment must apply for an Employment Visa (E visa), while those who want to conduct business can apply for a Business Visa (B visa).
To obtain an E visa, applicants must satisfy any of the following requirements:
- Must be sponsored by a registered Indian company to come to the country to work (an employment contract is required to be presented upon application) or employed as a specialist on a specific project by a foreign company with operations in India;
- Must be involved in a non-government organization (NGO) recognized in India; or
- Must hold a senior management role in an international company.
The duration of the E visa is generally for one year, renewable up to a maximum of five years. However, exemptions may apply for certain types of employment (e.g., specialists, software developers, etc.)
To be eligible for a B visa, foreign applicants must satisfy the following:
- Must be a person of assured financial standing and has expertise in the field of their intended business
- Must not be visiting India for the business of money lending or petty trading or for a full-time employment in the country including payment of salary in India
- Must comply with all other requirements like payment of tax liabilities, etc.
The B visa is generally valid for a maximum of five years. A multiple entry visa valid for up to 10 year may be available for those setting up a joint venture in India.