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Entry Strategies for Foreign Investors

A foreign company planning to set up business operations in India has the following options:

As an Indian Company

A foreign company can commence operations in India by incorporating a company under the Companies Act, 1956 through:

· Joint Ventures; or

· Wholly Owned Subsidiaries

Foreign equity in such Indian companies can be up to 100% depending on the requirements of the investor, subject to equity caps in respect of the area of activities under the Foreign Direct Investment (FDI) policy. Details of the FDI policy, sectoral equity caps & procedures can be obtained from Department of Industrial Policy & Promotion, Government of India (http://www.dipp.nic.in ).

Joint Venture with an Indian Partner

Foreign Companies can set up their operations in India by forging strategic alliances with Indian partners. Joint Venture may entail the following advantages for a foreign investor:

• Established distribution/ marketing set up of the Indian partner

• Available financial resource of the Indian partners

• Established contacts of the Indian partners which help smoothen the process of setting up of operations

Wholly Owned Subsidiary Company

Foreign companies can also set up wholly-owned subsidiary in sectors where 100% foreign direct investment is permitted under the FDI policy.

Incorporation of a company

For registration and incorporation, an application has to be filed with Registrar of Companies (ROC). Once a company has been duly registered and incorporated as an Indian company, it is subject to Indian laws and regulations as applicable to other domestic Indian companies.

For details please visit the website of Ministry of Corporate Affairs at www.mca.gov.in

As a Foreign Company

Foreign Companies can set up their operations in India through

· Liaison Office/Representative Office

· Project Office

· Branch Office

Such offices can undertake any permitted activities. Companies have to register themselves with Registrar of Companies (ROC) within 30 days of setting up a place of business in India.

Liaison Office/Representative Office

Liaison office acts as a channel of communication between the principal place of business or head office and entities in India. Liaison office can not undertake any commercial activity directly or indirectly and can not, therefore, earn any income in India. Its role is limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers. It can promote export/import from/to India and also facilitate technical/financial collaboration between parent company and companies in India.

Project Office

Foreign Companies planning to execute specific projects in India can set up temporary project/site offices in India. RBI has now granted general permission to foreign entities to establish Project Offices subject to specified conditions. Such offices can not undertake or carry on any activity other than the activity relating and incidental to execution of the project. Project Offices may remit outside India the surplus of the project on its completion, general permission for which has been granted by the RBI.

Branch Office

Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up Branch Offices in India for the following purposes:

1. Export/Import of goods

2. Rendering professional or consultancy services

3. Carrying out research work, in which the parent company is engaged.

4. Promoting technical or financial collaborations between Indian companies and parent or overseas group company.

5. Representing the parent company in India and acting as buying/selling agents in India.

6. Rendering services in Information Technology and development of software in India.

7. Rendering technical support to the products supplied by the parent/ group companies.

8. Foreign airline/shipping company.

A branch office is not allowed to carry out manufacturing activities on its own but is permitted to subcontract these to an Indian manufacturer. Branch Offices established with the approval of RBI, may remit outside India profit of the branch, net of applicable Indian taxes and subject to RBI guidelines Permission for setting up branch offices is granted by the Reserve Bank of India (RBI).

Branch Office on “Stand Alone Basis”

Such Branch Offices would be isolated and restricted to the Special Economic Zone(SEZ) alone and no business activity/transaction will be allowed outside the SEZs in India, which include branches/subsidiaries of its parent office in India. No approval shall be necessary from RBI for a company to establish a branch/unit in SEZs to undertake manufacturing and service activities subject to specified conditions.

Application for setting up Liaison Office/ Project Office/ Branch Office may be submitted in form FNC 1 (available at RBI website at www.rbi.org.in )

Useful Addresses:

Department of Industrial Policy and Promotion

Joint Secretary

Secretariat for Industrial Assistance (SIA)

Ministry of commerce & Industry

Udyog Bhavan, New Delhi-110 011, INDIA

Tel:+91-11-23011983

Fax:+91-11-23011034

E-mail:sia_dipp@ub.nic.in

Website: http://dipp.nic.in

Reserve Bank of India (RBI)

Foreign Investment Division,