India has become one of the fastest-growing economies in the world, attracting investors and entrepreneurs from across the globe. With its large consumer market, skilled workforce, and government support for business reforms, many foreign companies are looking to expand their presence in India.
If you are planning to set up a foreign company in India, you need to understand the legal process, types of business entities available, documentation required, and the steps involved. This guide will explain everything in simple words so that foreign investors can make informed decisions.
Why Foreign Companies Choose India
India is not only a hub for technology, manufacturing, and services but also a country with high growth potential. Here are a few key reasons why foreign companies find India attractive:
- Large market size – Over 1.4 billion people, offering huge demand for goods and services.
- Skilled workforce – India has young, talented, and English-speaking professionals across industries.
- Government reforms – Initiatives like “Make in India” and “Ease of Doing Business” have simplified company registration processes.
- Cost efficiency – Lower operational and labor costs compared to many developed countries.
- Global connectivity – India is well-connected for international trade and investment.
Legal Framework for Foreign Companies in India
Foreign companies can operate in India under the Companies Act, 2013, and rules set by the Ministry of Corporate Affairs (MCA). In addition, compliance with the Foreign Exchange Management Act (FEMA) and approval from the Reserve Bank of India (RBI) may also be required, depending on the business model.
According to Indian law, a foreign company is any company incorporated outside India that establishes a place of business within India.
Ways a Foreign Company Can Enter India
Foreign investors can set up operations in India through different business structures. Each option has its own advantages and compliance requirements.
1. Wholly Owned Subsidiary (WOS)
- 100% shares held by a foreign company.
- Treated as an Indian company for legal purposes.
- Can engage in most sectors where 100% Foreign Direct Investment (FDI) is allowed.
2. Joint Venture (JV)
- Partnership with an Indian company.
- Helpful for companies entering industries with restrictions on FDI.
- Local partner provides knowledge of the market, culture, and networks.
3. Liaison Office (Representative Office)
- Acts as a communication channel between the foreign company and the Indian stakeholders.
- Cannot undertake commercial activities.
- Used for market research, brand promotion, and coordination.
4. Branch Office
- Can undertake trading, consultancy, export/import activities.
- Needs prior approval from the RBI.
- Cannot do retail trading or manufacturing directly.
5. Project Office
- Temporary setup for executing a specific project.
- Common in construction, engineering, and infrastructure sectors.
Step-by-Step Process for Setting Up a Foreign Company in India
To start a foreign business in India, you need to follow these steps:
Step 1: Select the Business Structure
Choose between WOS, JV, Branch Office, Liaison Office, or Project Office depending on your business needs.
Step 2: Obtain Digital Signature Certificate (DSC) and Director Identification Number (DIN)
Foreign directors of the company must get a DSC and a DIN for online filing with the MCA.
Step 3: Reserve Company Name
Apply through the MCA portal using the RUN (Reserve Unique Name) service. The name should be unique and comply with guidelines.
Step 4: Draft Memorandum of Association (MoA) and Articles of Association (AoA)
These are the company’s constitution documents that define objectives and rules of operation.
Step 5: Filing of Incorporation Application
Submit required forms such as SPICe+ (INC-32), eMoA (INC-33), and eAoA (INC-34) along with supporting documents.
Step 6: Obtain Certificate of Incorporation
Once approved by MCA, the company will receive a Certificate of Incorporation along with a Corporate Identity Number (CIN).
Step 7: Permanent Account Number (PAN) and Tax Registration
Apply for PAN and Tax Deduction Account Number (TAN) for taxation purposes.
Step 8: Open a Bank Account in India
A current account in the company’s name is mandatory for financial transactions.
Step 9: Comply with FEMA and RBI Guidelines
If FDI is involved, ensure that reporting is done to the RBI within the prescribed time frame.
Documents Required
The following documents are generally required for registering a foreign company in India:
- Passport and address proof of directors and shareholders.
- Certificate of Incorporation of the parent company.
- Board resolution for establishing a company in India.
- Identity proof and photographs of directors.
- Registered office address proof in India (rental agreement or ownership proof).
All foreign documents must be notarized and apostilled/consularized.
Compliance Requirements After Incorporation
Once a foreign company is registered in India, it must follow these compliance rules:
- Annual filings with MCA – Financial statements and annual returns must be filed.
- Income tax compliance – Filing of income tax returns and payment of taxes.
- Goods and Services Tax (GST) – Registration if turnover crosses the threshold or if the business is engaged in interstate supply.
- Transfer pricing regulations – If dealing with the parent company or foreign affiliates.
- Statutory audits – Appointment of auditors and regular audits are mandatory.
Key Benefits of Setting Up a Foreign Company in India
- Full legal protection under Indian corporate laws.
- Access to India’s large market with rising middle-class consumers.
- Tax benefits and incentives in special economic zones (SEZs).
- Strong talent pool in technology, finance, research, and manufacturing.
- Growing global trade relations make India a strategic hub.
Challenges Foreign Companies May Face
While India offers many advantages, foreign companies may also face challenges such as:
- Complex compliance requirements.
- Cultural and language differences.
- Lengthy approval process in certain sectors.
- Taxation and transfer pricing issues.
To overcome these, it is advisable to take professional help from legal and financial experts who specialize in foreign companies in India.
Final Thoughts
India is one of the most promising destinations for foreign investors. Setting up a foreign company in India can be highly rewarding if done with proper planning, legal compliance, and market research. Whether you choose a wholly owned subsidiary, a joint venture, a liaison office, or a project office, India offers great opportunities for growth and expansion with the right guidance from Groom Tax.
By following the right steps and seeking professional guidance, foreign companies can establish a strong and compliant presence in India.
