India’s Legal and Regulatory Framework for Foreign Investments

When a foreign company plans to enter the Indian market, there are several rules and regulatory compliances (regulatory framework and compliances) that they must obey. They are imposed by the Indian government to ensure fair trade practices and safeguard consumers’ interests. Thus, businesses must know the company incorporation procedure in detail before making expansion plans.

FDI Policies & Ease of Doing Business for Foreign Companies in India

One of the biggest reasons why foreign companies prefer investing in India is its lenient FDI policies. As per reports, the Indian Government allows 100% Foreign Direct Investment under the automatic route for almost all sectors, which include railways, roads and highways, tourism and hospitality, telecom services, thermal power, and more.

However, there are certain zones in which investment is allowed only up to a certain limit, that too with government approval. They are air transport, broadcasting services, defense, digital media, etc.

As per the latest official rankings, India is currently occupying the 63^rd position in the world when it comes to ease of doing business. This is due to the flexibility that foreign companies can avail of while starting operations in India. Some of them are as follows:

• The government has now introduced a single SPICe form for the process of company incorporation. There is no need to separately submit the Director Identification Number (DIN), Permanent Account Number (PAN), and Tax Deduction and Collection Account Number (TAN).
• When it comes to registering the organization’s name with the Ministry of Corporate Affairs, businesses can complete this task via a simple online service.
• For midsize enterprises, the corporate tax rate has been reduced from 30% to 25%.
• Electricity connections are available within 15 days with Right of Way (RoW) and 7 days without Right of Way (RoW).
• Required customs documents for cross-border trading have been reduced to three.
• Implementation of the Indian Customs Single Window Project which now enables companies to submit their customs clearance documents online, via a single portal.
• Construction permit costs were reduced to 5.4% of the economy’s per capita income.

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Regulatory Framework and Compliances Process for Incorporation of Foreign Companies in India

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For incorporation of the Indian entity of a foreign business, it must be registered in the following ways:

• Joint Venture

It is a joint venture when a foreign organization plans to join forces with an Indian company to start its business.

The process to register as a joint venture is as follows:

Step 1: Both parties must sign a Memorandum of Understanding (MOU) or Letter of Intent.

Step 2: They must discuss all the terms and conditions thoroughly before going forward with the deal.

Step 3: The agreement must adhere to international and domestic laws and contain all details relating to the transfer of shares, holding shares, dispute resolution agreements, etc.

• Liaison Office

For conducting liaison activities in India, foreign businesses can apply for a liaison office. This is applicable for entities having a profit-making record in the last three financial years, with a valuation of more than USD 50,000.

The registration process is as follows:

Step 1: Apply for establishing a liaison office to the Foreign Exchange Department via an Authorized Dealer Category–I Bank (AD).

Step 2: File an MOA/AOA/certificate of incorporation in the English version.

Step 3: Attested by the Notary Public or Indian Embassy, submit the latest audited balance sheet.

Step 4: Wait for the Reserve Bank of India to provide a unique identification number.

Step 5: Obtain a PAN card from the Income Tax Department.

• Wholly Owned Subsidiary

When a foreign firm invests 100% FDI in an Indian organization, it becomes the former’s wholly owned subsidiary.

Here is the registration process for the same:

Step 1: The company’s present directors need to apply for a DSC (Digital Signature Certificate) and DIN (Director Identification Number).

Step 2: Draft an AOA and MOA; the shareholders need to subscribe to the latter.

Step 3: Reserve the business’s name by submitting Part-A of the SPICe+ form.

Step 4: Complete the registration application through the Ministry of Affairs (MCA) portal.

Step 5: Submit all necessary documents like address proof, KYC documents of the Indian directors, passport and other documents of the foreign directors, etc.

Step 6: Open a bank account and submit the share capital documents.

• Branch Office

Foreign entities having a large manufacturing or trading business can apply to open a branch office in India. However, they must have a profit-making record for the past five financial years and a net worth of more than USD 1,00,000.

Mentioned below is the Company Incorporation Procedure:

Step 1: Apply for the digital signature of the organization’s authorized signatory.

Step 2: File the branch office registration application with the Reserve Bank of India via the Authorized Dealer Bank.

Then, the concerned authorities send the company’s KYC documents to the latter’s banker for verification.

Step 3: Wait for RBI’s approval and then register the branch office with the Registrars of Companies (ROC).

Step 4: Apply for a PAN, TAN, and bank account.

Step 5: Register the organization with the State Police Department.

Step 6: Complete Import Export Code and GST registration.

• Project Office

If a foreign business receives projects from Indian companies, it can apply for a project office.

Here are the steps for registration:

Step 1: Attest documents like MOA, certificate of incorporation, board resolutions, etc. by the Indian Embassy.

Step 2: File application for the project office with the RBI via the AD Bank.

After this, the organization’s KYC documents are sent to its banker for verification.

Step 3: Wait for RBI’s approval and then complete registering the project office with the ROC.

Step 4: Apply for a bank account, PAN, TAN, and other applicable licenses.

Regulatory Compliances for Companies in India for Export and Import of Products

When exporting and importing products from India, several regulatory compliances need to be considered. The specific requirements may vary depending on the nature of the product, destination country, and applicable regulations. However, here are some key regulatory compliances to keep in mind:

Export Compliances in India:

• Import-Export Code (IEC): Obtain an IEC from the Directorate General of Foreign Trade (DGFT). It is a mandatory requirement for any person or entity involved in exporting goods from India.
• Customs Documentation: Prepare and submit necessary customs documents such as shipping bills, bills of export, commercial invoices, packing lists, and any other documents required by the customs authorities.
• Export Restrictions and Prohibitions: Familiarize yourself with any export restrictions or prohibitions applicable to the specific product you intend to export. Certain goods require special licenses or permits for export.
• Export Promotion Schemes: Explore various export promotion schemes offered by the government, such as the Merchandise Exports from India Scheme (MEIS) or the Export Promotion Capital Goods (EPCG) scheme, which provide benefits or concessions to exporters.
• Quality Control and Standards: Comply with applicable quality control standards, certifications, and labeling requirements for the product. Some products may require mandatory testing and certification from authorized bodies.
• Packaging and Labeling: Ensure proper packaging and labeling of goods, including accurate product information, country of origin, and other relevant labeling requirements of the destination country.
• Export Documentation: Maintain accurate and complete export documentation, including commercial invoices, export contracts, transport documents (such as bills of lading or airway bills), and any other documents required by the buyer or regulatory authorities.
• Export Declaration: File an export declaration with the customs authorities, providing the necessary details of the goods being exported.
• Trade Compliance: Ensure compliance with trade compliance regulations, including sanctions, embargoes, and export control regulations. This includes screening parties involved in the export against restricted or denied party lists.

Import Compliances in India:

• Import-Export Code (IEC): Similar to exporting, an IEC is required for importers in India.
  Customs Duty and Tariffs: Pay applicable customs duties and tariffs on imported goods based on their classification in the Customs Tariff Schedule.
• Customs Valuation: Comply with customs valuation rules to determine the assessable value of imported goods for customs duty purposes.
• Import Licensing: Check if any specific import licenses or permits are required for the product you intend to import. Certain goods, such as restricted items or those subject to quality control measures, may require additional authorizations.
• Import Documentation: Prepare and submit necessary import documents, including the bill of entry, commercial invoice, packing list, insurance documents, and any other documents required by customs authorities or regulatory agencies.
• Product Standards and Certifications: Comply with applicable product standards, certifications, and labeling requirements as per the regulations of the importing country and any specific Indian regulations, such as the Bureau of Indian Standards (BIS) requirements.
• Sanitary and Phytosanitary Measures: Ensure compliance with import regulations related to food safety, animal and plant health, and other sanitary and phytosanitary measures imposed by the importing country.
• Intellectual Property Rights: Respect intellectual property rights when importing products and avoid infringing on trademarks, copyrights, or patents of others.
• Trade Compliance: Adhere to trade compliance regulations, including import controls, licensing requirements, and trade sanctions imposed by India or the destination country.
• It is important to note that this list is not exhaustive, and additional compliances may be applicable depending on the specific products, trade agreements, and regulatory changes.

It is advisable to consult with experts, such as customs agents, trade consultants, or legal professionals, to ensure full compliance with the relevant regulations and requirements.

Reference

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Regulatory Framework and Compliances for India

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