Includes steps involved in establishing a local office.
Last Published: 10/10/2018
The most important factors in choosing a location in India are: (1) physical infrastructure; (2) state government support and flexibility; (3) cost and availability of power; and (4) the law and order situation.  Other factors to consider include labor availability and cost, labor relations and work culture, and proximity to resources and/or markets.  Under labor law, an employer with more than 100 workers cannot fire them without permission from a government labor commissioner -- something usually impossible to obtain.
Given the shortage of good commercial office space at reasonable prices in major Indian cities, business centers are a viable option for new companies wanting to establish a physical presence.  Business centers are facilities that are ready to move in, wired for communications, and air-conditioned.  Billing is normally done monthly.  For long-term use, discounts are generally available.  Many state governments are creating special Technology Parks for selected industry sectors like software, biotechnology, and automotive.

Type of Office

A foreign company or individual planning to set up business operations in India – but choosing not to establish a subsidiary or to form a joint venture with an Indian partner – can do so by establishing liaison, project, or branch offices in India.  Approval from the Reserve Bank of India (RBI) is required and can be obtained by submitting form “FNC”.  Such companies also must register themselves with the Registrar of Companies (ROC) within 30 days of setting up a place of business in India.

Liaison or Representative Office

Many foreign companies initially establish a presence in India with a liaison or representative office that is not directly engaged in commercial transactions in India.  The purpose of these offices is to oversee their networking efforts, promote awareness of products, and to explore further opportunities for business and investment.  A liaison office is not allowed to undertake any commercial activity and cannot earn any revenue in India.  As no revenue is generated, there are no tax implications to the office in India.  Such offices are not allowed to charge any commission or receive other income from Indian customers for providing liaison services.  All expenses are to be borne by inward remittances.  A foreign company establishing a liaison office cannot repatriate money out of India.
A liaison office can undertake only liaison activities, i.e. it can undertake the following activities in India - representing in India the parent company / group compa­nies; promoting export / import from / to India; promoting technical / financial collaborations be­tween parent / group companies and companies in India; acting as a communication channel between the parent company and Indian companies.

Branch Office

A branch office, like a liaison office, is not an incorporated company but an extension of the foreign company in India.  A branch of a foreign company is limited to the following activities by the RBI: representing the parent company and acting as its buying/selling agent, conducting research for the parent company, carrying out import and export trading activities, promoting technical and financial collaborations between Indian and foreign companies, rendering professional or consulting services, rendering services in information technology and development   of  software  in  India,  and  rendering  technical  support  to  the products supplied by the parent/group companies.

A branch office does business in India and is subject to taxation in India.  The branch office may repatriate profits generated from their Indian operations to the parent company after paying taxes.  However, a branch office is not allowed to carry out manufacturing and processing activities directly (though it can sub-contract such activities to an Indian manufacturer).

Project Office

Foreign companies sometimes set up a temporary project office to undertake projects in India awarded to the parent company.  It is essentially a branch office set up for the limited purpose of executing a specific project.  Approval for project offices is generally accorded for executing government-supported construction projects or where the projects are financed by Indian and/or international financial institutions and multilateral organizations.  In exceptional cases, approval is also given for private projects.  Upon completion of the project, project offices may remit profits outside India after meeting tax liabilities.
None of these entities is permitted to acquire real estate without prior RBI approval.  However, all these offices can lease property in India for a maximum period of five years.

Partnership firms

Under the current Foreign Direct Investment policy and the Foreign Exchange Management Law, foreign investment into Indian partnership firms requires permission from the RBI.  A partnership is an association of two or more persons to carry on as co-owners of a business for profit.  Each partner of a partnership has unlimited liability.

LLP firms

A limited liability partnership (LLP) is a hybrid of and existing partnership and a full-fledged company.  It is a separate legal entity, liable to the full extent of its assets, with the liability of the partners being limited to their agreed contribution in the LLP.  Foreign direct investment in LLP’s is allowed in activities where 100 percent foreign direct investment is allowed under the automatic route.

Limited company

A limited company is an incorporated entity, which is a separate legal entity distinct from its members / shareholders.  Foreign investment in India is governed by the FDI policy of the government as well as the Foreign Exchange Management Law.  As per the current policy, all companies in India must be incorporated under the provisions of the Companies Act, 2013.

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