HOW TO SET UP AN ENTITY IN INDIA?

At the outset, the foreign investor needs to choose the type of legal structure for registering the organisation.

1 Types of Business Presence in India

There are three primary forms of Business Presence in India

Parameters	Liaison Office (LO)	Branch Office (BO)	Wholly Owned Subsidiary/ Joint Venture
Activities Permitted	Representative of the Head Office. It is not allowed to undertake any commercial activities	Foreign Branch Office can undertake the activities of its Head Office. However, it is not allowed trading activities, manufacturing or processing activities directly or indirectly.	A WOS /JV is the most commonly used entity to conduct business operations in India. Except some prohibited activities, it can carry out almost all kinds of business activities in India
Residential Status	Non-Resident	Non-Resident	Resident
Time Taken to Set-Up	Three months Approx	Three months Approx	One-month Approx
Tax Rate	Generally there is no income and therefore no tax	BO is treated as a foreign entity and therefore the tax rate is between 40%-45% depending on the Turnover and income	The tax rate a WOS is: Manufacturing Entity: 17% Non-Manufacturing Entity: Turnover <4 billion INR – 25% Turnover >4 billion INR – 30%
Repatriation of Funds	The funds can only be repatriated once the LO is closed	The funds can be freely repatriated on payment of taxes in India	The funds can be repatriated in the form of dividends, royalty, fees for technical services or management fees.
Transfer Pricing	Not Applicable	Not Applicable	Applicable
Legal Status	Not a separate legal entity	Not a separate legal entity	Separate legal entity
Cost of compliance	Low	Low	High

Foreign Direct Investment (FDI) and Foreign Exchange Management Act (FEMA) Compliances

The most common legal structure is the formation of a Private Limited Company. However, depending on the Sectors and nationality of the foreign investor, the FDI can take place either through Automatic Route or the Approval Route.

Under the Automatic Route, no approval is required from the Government and therefore it is much easier and faster.

As the name suggests, under the Approval Route, prior approval of the Government is required making it a time-consuming affair.

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