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The fastest growing economy in the world, India is an important market globally. Be it access to the Indian talent pool or expansion into the Indian consumer market, setting up a company in India is on the growth roadmap for many companies across the globe.
Can a non-India resident set up an entity in India ?
Yes, a Private Limited Company (PLC) in India can be formed by non-India residents or foreign companies online and does not require the shareholder’s physical presence. You can easily set up an office in any part of India with Inrole’s business-in-a-box solution.
What are the key steps involved in setting up and running a PLC?
Following are the steps involved in setting up and running a legal entity in India specifically for non-India resident individuals/ corporates:
1. Legal Entity Setup:
Setting up a legal entity in India is typically the first step. The most common legal structures for foreign companies in India are:
Private Limited Company: This is the most popular choice for companies due to its flexibility, limited liability, and ease of raising capital. A PLC can be incorporated as a stand alone entity or as a subsidiary of a foreign company. For RoC registration, online forms known as SPICE forms are submitted with the Ministry of Corporate Affairs (MCA). You can read about the minimum requirements of incorporation of a subsidiary here
Branch Office or Liaison Office: This is suitable for companies seeking a physical presence without full incorporation.
2. Registration and Approvals:
The specific process varies depending on the type of legal entity chosen, but it generally involves the following:
Tax Registration: The Certificate of Incorporation obtained from the MCA also mentions Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) issued by the tax authorities. These tax numbers are used to register on the respective Income Tax Department’s portal for submission of direct tax with the government.
Goods and Services Tax (GST) Registration:
Goods and Services Tax (GST), also referred to as Value Added Tax (VAT), was implement in India in July 2017. GST is a destination-based tax on consumption of goods and services in which transactions are classified into Intra-state or Inter-state transactions.
Reserve Bank of India (RBI):
All cross-border transactions fall within the regulatory framework of RBI and the Foreign Exchange Management Act (FEMA). For instance, for each foreign remittance received in the Indian bank account, the Indian bank issues a Foreign Inwards Remittance Certificate (FIRC). This FIRC copy is used to submit the form FC-GPR with the RBI.
Other Licenses: Depending on the nature of your business, you might need additional licenses or approvals from regulatory bodies e.g. import export license.
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3. Business bank account:
Once the PLC is incorporated, a bank account is opened by passing a board resolution in the first board meeting. The type of bank account is called a current account and the initial capital is transferred into the current account of the company from the foreign bank accounts of the shareholders.
You can choose traditional banking options such as HDFC, ICICI or Kotak. However, we recommend choosing an authorized bank i.e. a bank that is an authorised payment option on government portals for tax payments such as GST, TDS etc.
Neo Banks are also a popular alternative, as they are faster to open and easier to manage, however, they are not linked to government portals and hence you may need a traditional bank account in addition to a neo bank for business banking.
6. Audit & Compliance: An annual statutory audit of the PLC is mandatory irrespective of the business volume. In addition, a Transfer Pricing audit is applicable if there are sales / purchase transactions between a foreign holding company and a subsidiary Indian company
Inrole is a trusted partner to set up and run an entity in India. With 40 years of practical experience, Inrole guides you through the entire process, helping you avoid potential pitfalls at the time of setting up.
4. Employment:
India has complex employment laws that you need to comply with:
Employment Contracts: Drafting legally compliant employment contracts is crucial. Indian law requires specific terms and conditions to be included in these contracts.
Statutory Benefits: Ensure compliance with laws related to minimum wages, overtime, holidays, leave, and social security.
Employee Provident Fund (EPF) and Employee State Insurance (ESI): These are mandatory social security contributions for employees. It's also important to stay updated with any changes in laws or regulations that may affect your business operations in India.
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