Foreign Direct Investment (FDI) is at an all time high in India and with the kind of growth saga India has to share, investing in Indian market will prove to be very promising and beneficial for businesses worldwide including the Chinese businesses proposing to invest in India.
As said, investment by the Chinese companies in India is on all time high and hence, it is important to discuss the legality on the same just to give an insight to the foreign nationals about the Indian laws and regulations.
So, here we begin with the fundamentals of the Indian laws regarding foreign investment and company registration in India.
The first step in setting a business in India is to check whether the same has been allowed or not and the same can be done very easily. One needs to understand the nature of his business first and then check the same as per Indian laws whether it is allowed or not.
As per Indian laws, there are two routes by which any foreign nationals or companies can invest in India.
- Automatic route: If your business falls under this route then you do not require any approval from the Reserve Bank or Government of India for the investment. One can directly start the company registration procedure and invest the capital funds into the bank account of the company.
- Approved route: Under the approval route or government route, the foreign investor or the Indian company should obtain prior approval of the Government of India agencies or bodies specified before investing.
The application for foreign investment is transferred to Foreign Investment Promotional Board (FIPB).
To know your investment route, you need to understand your business and then verifiy the same on the FDI circular of DIPP. Further, once your route of investment is set, then you can proceed to the next step.
Indian laws offer different types of forms like the private limited company, public limited company, branch office etc, to foreign nationals to start their business in India. However, the form must be selected only after careful examination of all the related pros and cons.
As said, the Chinese companies can register a private company, public limited company to their choice in India without any limitation. The foreign direct investment which ranges up to 100% in a private limited company or a Public Limited Company happen under the automatic route and in such case no special permission is required from the central government in India.
Secondly, if, Chinese businesses don’t want to form any company and only want to register branch office, project office or a liaison office in India, then, it necessarily requires RBI approval.
There are the following types of forms which can be registered by the Chinese Companies or foreign individuals:
- Private Limited Company/Public Limited Company
- Limited Liability Partnership (LLP)
- Branch office, Project office
- Liaison office
Also, as per the data and recommendation, limited companies are the best option to choose when it comes to starting a business in India.
Once you have verified whether your business is allowed in India or not, the next step is to start registering the company. However, we recommend you to go through the following key points before starting the registration in India:
- Resident Director: To register a company in India, the company must have a resident director i.e. any one of the directors must stay in India for more than 182 days during the financial year i.e. 1st April to 31st March.
- Registered Office: To register a company in India, one needs an office which is declared as the registered office of the company and since you are a Chinese national, you need to take one location on rent which can be declared as the registered office of the company.
- Amount of Investment: Before registering a company in India, you must decide the amount of investment you are willing to invest in the Indian company. This is because all this information is to be entered into the company and the fees for registration of company depends on the same.
- Consultant: Choosing a right consultant is also one of the most difficult tasks because there are various professional competing with each other and hence there are many chances that you might fall into the wrong hands.
- State of Registration: India is a federal state where powers are divided between centre and state. Further, there are various states which offer various schemes to the manufacturers and where corruption is also very less and hence, offers you more satisfaction and smoothness in running the business.
- Tax rates: Any company registered in India is regarded as a domestic company and taxed at 30% and if the turnover is less than 5 Cr, then the same is taxed at 25% plus surcharge and cess.
The company registration procedure for foreign national is as follows:
1. Initial requirement: In order to start a Private Limited Company in India, minimum two directors are required, wherein; one of the Directors of the Company must be an Indian Resident who has continuously stayed in India for over 182 days.
2. Documents required: The second step is to gather all the required documents which are needed for company registration. The documents required are as follows:
The copy of the all related documents required for company registration should be notarised by a notary in the home country or by the Indian Embassy.
3. Filing of DIN: Once the document set is ready, the next step is to file the DIN application. DIN is referred to as Director Identification Number (DIN). DIN once allotted is valid for lifetime. Further, to become a director, DIN number is mandatory in India.
4. Name approval & incorporation: Once the DIN is approved, name approval is filed and approved. Also, once the name is approved, the incorporation of a company is filed. During the incorporation procedure, all the related documents must be an apostle from the Indian embassy or local notary.
5. Invest the paid up amount: Once the company is formed, the next step is to open the company bank account. After opening the bank account, one needs to invest the amount which is being agreed at the time of incorporation. After investment, intimation must be sent to the RBI regarding the investment made.