| A) Branch Office |
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A foreign company can open a branch office with permission from the Reserve Bank of India (RBI). Although the branch office functions as an extension of a foreign company doing business in India, it is not a separately incorporated company.
The RBI limits branch office activities in India to the following : |
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Representing the foreign company as a buying or selling agent |
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Conducting research for the parent (provided it is shared with Indian companies) |
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Promoting technical and / or financial collaboration between Indian and foreign companies |
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Conducting export and import activities |
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Rendering professional or consultancy services |
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Opening of a Bank Account
A branch office can open a bank account in its name with any bank in India. It can avail of bank credit facilities like Cash Credit, Overdraft etc. without permission of the RBI as its legal status is ‘person resident in India’ and it will be treated at par with any other business established in India. |
Remittance of profit or surplus
A branch office is subject to tax in India and can remit profits abroad subject to RBI guidelines. |
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| B) Project Office |
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As the name suggests, a project office is a branch office set up by a foreign company to execute specific projects.
Such offices are required to focus only on activities relating to and incidental to the execution of the project. After project completion, a project office can remit abroad surplus project; general permission for which has been granted by the RBI. Project offices are usually set up so that a company may execute public projects awarded to it. In limited cases Private projects are also allowed. |
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| C) Liaison Office |
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A Liaison office needs fewer resources as compared to a Project and/or Branch office. Typically, a Liaison Office is a representative office set up to investigate the business and investment climate.
A Liaison Office cannot directly engage in commercial activity or earn any income in India. Therefore, all expenses of the offices are borne by the parent company through remittances from abroad. Additionally, a parent company cannot repatriate money out of India through a liaison office. In summary, a Liaision Office can do the following : |
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Represent its parent Company in India |
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Promote export/ import of goods & services from/ to India. |
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Promote technical & financial collaboration between its parent company
and Indian companies
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| Any foreign company interested in establishing a liaison office in India in order to explore must obtain permission from the RBI. |
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| D) Technical Collaborations |
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| A foreign company may enter into a technical collaboration with an Indian company, whereby it transfers technology only to the Indian company and receives payment for the technology. In this scenario no separate entity is required to be established in India. Any technology payments by the Indian company to the foreign company are subject to tax deducted at the source. Such payments may obligate the Indian company to pay a 5 percent R&D fee. Generally, the RBI automatically approves technology transfer payments from the Indian company to the foreign company. |
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| E) Direct Sales |
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| “Direct sales” are often the easiest and least costly business option in India. By doing so, a foreign company can avoid certain Indian taxes and be exempt from specific compliances as long as certain precautions are taken. The goods exported to India may be subject to import duties in India.
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| "Our professionals at USIndiaTax have extensive experience assisting our clients with forming a legal entity in India and various permissions/compliance regarding it. A careful tax planning is required before opening a subsidiary, branch, joint venture, project office or liaison office in India. We can help you in corporate planning and setting up in India." |
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| Options To Set Up New Business In India |
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