Here’s a practical guide from Enterprise Singapore and our knowledge partner RSM on the nuts and bolts of setting up shop in India. It covers:
To do business in India, one of the first things to consider is your business structure. Different regulations apply depending on your business structure and activities.
Here are six business structures to consider depending on the nature of your business:
If you plan to invest in India for the long term, consider setting up a company.
Choose between setting up a private limited company or a public limited company. Either way, you can set up your company as a wholly owned subsidiary or a joint venture. Each of them is a legal entity on its own.
India regulates companies by incorporating and governing them under its Companies Act, 2013. In addition, India’s Foreign Direct Investment (FDI) policy may set restrictions for foreign companies in selected sectors such as insurance and multi-brand retail trade segments. You may need to set up your company as a joint venture if you wish to do business in industries with such restrictions.
You can set up a partnership firm to run the business with partners. You and your partners will share the profits from the business according to your agreement in a Partnership Deed, which you can register with the Registrar of Firms.
The Indian Partnership Act, 1932 lays down the rights and obligations of partners, retirement and admission of partners, dissolution of the company and related aspects. According to the Indian Companies Act, 2013, you may not have more than 50 persons partnering in a business.
To combine the merits of a company and a partnership, you can set up a limited liability partnership (LLP). LLPs are rapidly emerging as an alternative to companies and partnership firms, both traditionally more popular.
LLP is a hybrid business entity. It gives you certain benefits, such as limited liability and greater tax efficiency. You can decide on any internal business structure, so long as there is mutual agreement among partners.
You may partner anyone, or another business entity, such as another foreign company or another local/ foreign LLP to set up an LLP. Do note that an LLP needs at least two designated individual partners and at least one of them must be a resident in India.
No tax is levied on distribution of profits as dividends to partners, unlike in the case of a company where Dividend Distribution Tax (“DDT”) is applicable on repatriation. FDI in LLPs are permitted under the automatic route in LLPs operating in sectors/activities where 100% FDI is allowed without any performance-linked conditions.
One common practice among foreign companies is to set up a liaison office or representative office in India as a first step into the Indian market.
A liaison office generally performs preparatory and auxiliary activities. It cannot carry out any commercial activity and is not considered a permanent establishment in the country.
You need approval from the Reserve Bank of India (RBI) to open a liaison office.
If you secure a contract from an Indian company and need to operate in India to fulfil the contract, you can set up a project office to manage the project. Depending on the nature of your contract, you may need RBI’s approval to run a project office in India for the duration of the project.
Another option is to open a branch office in India. Under the regulatory laws, your branch office can only carry on certain specified activities. These include export or import of goods, providing services in information technology, or acting as a buying or selling agent in India.
Since a branch office is a profit-making foreign enterprise in India, do note that it falls into the higher tax bracket for foreign companies. You also need RBI’s approval to set up a branch office.
Set aside enough time to register your business, which may take less than a month, and up to four months:
It differs for private and public companies:
You may increase the maximum number of directors by passing a special resolution.
Yes, at least one of your directors must be a resident who has stayed in India for at least 182 days in the previous financial year.
A director in your company does not need any minimum qualification.
However, there are age restrictions. You cannot appoint anyone who is younger than 25 years old or above 70 years old as your managing director or full-time director. You need to pass a special resolution before appointing anyone who is 70 years old.
Yes, foreigners can make up your entire board. However, at least one director must have stayed in India for at least 182 days in the previous financial year.
Most sectors in India allow a company that is fully owned by foreigners to invest.
However, specific sectors set maximum limits for foreign ownership. Some sectors do not allow foreign investment at all.
You can refer to India’s consolidated policy on Foreign Direct Investment for details.
It depends on your business structure:
In most sectors, you can start operating without prior approval.
You need prior government approval if you invest beyond the respective set limits in these sectors:
The prohibited sectors are:
You need a licence to carry out industrial activities involving:
After setting up your company, because you need to apply for the licence in the name of your company. You also need to submit a copy of your certificate of incorporation when you apply.
Industrial licenses are valid for different periods. Generally, each licence is valid for 10 to 20 years. You only need to renew them after they expire.
There’s no need to display the business licence in most cases but it is a good practice to do so.
Take note that certain licenses need to be prominently displayed, such as the Shops and Establishment Licence.
There is no minimum amount.
You don’t need approval to increase your capital, but you must report the increase to the authorities.
If you are increasing share capital by issuing new shares to non-residents, please follow RBI’s rules.
There is no typical share capital requirement.
It varies. For example, it can be INR 1 or INR 100 (S$2.09) or any other value.
Generally, companies issue equity shares (common stock) at a face value of INR 10 per share and preference shares (preferred stock) at a face value of INR 100 per share.
You can only issue shares in Indian Rupee.
No restrictions but you must pay withholding tax first if you have to.
It is not necessary. Your company may use a single bank account to deposit capital and carry out other business transactions.
It usually takes two to three days after you have submitted all the documents needed.
Most banks do not need you to keep a minimum amount. Do check with your bank as the rules may be different across banks and types of accounts.
Yes, they can.
If your company meets the certain conditions, you can enjoy these tax incentives:
There are no tax benefits that only apply to foreign-owned companies.
The corporate tax rate for FY 2017-18 is:
A special tax called the Minimum Alternate Tax, which is 18.5% of book profits, applies to your company if the income tax payable is less than 18.5% of your book profits.
You need to pay income tax on a quarterly basis as advance tax for income earned during a financial year (1 April to 31 March). The due dates for payment of advance tax and the amounts to pay are:
The remaining tax, if any, has to be paid by company as a self-assessment tax on or before the due date of filing return of Income.
There is no withholding tax when you repatriate dividends. This is because your company would have paid a Dividend Distribution Tax of 20.357% when paying out dividends.
The withholding tax rates on payments to non-residents (unless reduced by a particular tax treaty) are as follows:
Yes, India started collecting Goods and Services Tax from 1 July 2017. The tax rate varies from 0% to 28%, depending on the goods and services you buy.
Yes, there is a tax treaty between India and Singapore to avoid double taxation of income.
In general, you need to give your employees bonus, gratuity and paid leave, and contribute to their pension or provident fund. Different employment-related laws protect these employee benefits.
Yes, you need to contribute to the provident fund and pension fund of your employees. In addition, you have to deduct withholding tax and professional tax on the behalf of your employees.
India does not have a Social Security Agreement with Singapore to prevent dual contribution of social security in the country of origin and destination when you transfer your employee between India and Singapore.
Yes, you need to apply for a work pass or employment visa for your Singaporean employee to work in India, regardless of the duration of work. The nature of work affects how long the visa is valid and the type of visa the employee gets.
Your employee needs to bring along these documents when he applies for the visa:
In general, it takes three days to process an application from a Singapore citizen and six days for others.
You need a registered business address if your company is incorporated in India.
Your place of business and business address can be:
You can also use a residential property as your business address, with the owner’s permission.
Please note all information is provided in good faith for guidance and reference purposes only, and is correct as of 17 September 2018.