January 16, 2019

Compliances of a Foreign Company Carrying On Business in India:

As per Section 2 (42) “foreign company” means any company or body corporate incorporated outside India which:
(a) Has a place of business in India whether by itself or through an agent, physically or through electronic mode; and
(b) Conducts any business activity in India in any other manner.

CONTENTS:
  •  Regulatory provisions under Foreign Exchange Management Act, 1999.
  • Regulatory provisions under Companies Act, 2013.
  • Regulatory provisions under Income Tax Act, 1961.
  • Other Compliances to be made by foreign Companies in India.

Regulatory provisions under Foreign Exchange Management Act, 1999:

Applicable Regulation:   

Foreign Exchange Management (Establishment in India of Branch or Office or other place of business) Regulations, 2000 

A foreign company or individual planning to set up business operations in India can do so through:

• A Liaison Office/ Representative Office,
• Project Office Or
• A Branch Office.

Accordingly, Companies incorporated outside India, desirous of opening a Liaison or Branch office in India have to make an application in form FNC (Anex-1). It may be noted that RBI has authorized AD Category-I bank to forward FNC along with the necessary enclosures, comments and recommendations to: The Chief Manager-in-charge, RBI, Foreign Exchange Department, Central Office Cell, New Delhi.

The applications will be considered by RBI under:

• Reserve Bank route (where 100% FDI is permissible), or
• Government route (where 100% FDI is not permissible).

Regulatory provisions under Companies Act, 2013:

Applicable Sections & Rule:

Sec. 380 to 386, 392 & 393 Read with Companies (Registration of Foreign Companies) Rules, 2014.

A Foreign Company can avail following strategies to Start Business in India:

1. As a Wholly owned subsidiary Company (where 100% FDI is permissible).
2. As a Joint Venture with an Indian partner, for example, strategic collaborations with Indian partner organizations (where 100% FDI is not permissible).

Section 380: Documents, etc., to be delivered to Registrar by Foreign Companies:

(1). Every foreign company shall, within 30 days of establishment of its place of business in India, deliver to the ROC for registration:

(a) A certified copy of the charter, statute or MOA and AOA of the company or other instrument constituting or defining the constitution of the company and if the instrument is not in English language, a certified translation thereof in the English language;
(b) The full address of the registered or principal office of the company;
(c) A list of the directors and secretary of the company with particulars;
(d) The names and addresses of one or more persons resident in India authorised to accept on behalf of the company service of process and any notices or other documents required to be served on the company;
(e) The full address of the office of the company in India which is deemed to be its principal place of business in India;
(f) Particulars of opening and closing of a place of business in Indian on earlier occasions;
(g) Declaration that none of the directors of the company or authorised representative in India has ever been convicted or debarred from formation of companies and management in India or abroad; or
(h) Other prescribed particulars.

(2). Rule 3(3): Foreign Companies requires application in Form FC-1 to be supported with an attested copy of approval from the RBI under FEMA read with rules and regulations made thereunder, or a declaration from the authorised representative of the Company that no such approval is required.

(3). Rule 3(4): Any alteration in the aforesaid documents the Foreign Company is require to submit a return in Form FC-2 containing the particulars of alteration as prescribed, to ROC, within 30 days of such alteration.

Section 381: Accounts of Foreign Companies:

(1). Rule 4: Every Foreign Company shall prepare financial statements of its Indian business operations according to Schedule III and, deliver a copy of the same to ROC within 6 months from closer of every financial year. Provided that, for any special reason ROC may extend the said period by 3 months further. If any of such documents is not in English Language, a certified translation in English Language shall be attached.

(2). Rule 5: The company shall get its accounts, audited by a Practicing CA in India or a firm or LLP of practicing CA’s.

(3). Rule 6: Every Foreign Company shall file financial statements along with list of places of business in Form FC-3. along with such fees as provided in Companies (Registration Offices and Fees) Rules, 2014.

Section 382: Display of Name, etc., of Foreign Companies:

• Every Foreign Company is required to exhibit outside its every office or place of business in India, and in all business letters, bill heads and letter paper, and in all notices, and other official publications, the name of the company and the country where it is incorporated.
• The name shall be in legible letters of English language and also in the vernacular language of the state where such office is situated.
• The company is also required to mention the fact that liability of the company is limited if it is so.

Section 383: Service on Foreign Company:

• Any process, notice or other document required to be served on Foreign Company shall be sufficiently served if addressed in the name of Person as duly intimated to ROC. Service of the same through electronic mode will hold validity.

Section 384: Debentures, Annual Return, Registration of Charges, Books of Accounts and their Inspection:

Debentures:
  • The provisions of Section 71 shall apply mutatis mutandis to a foreign company.
Annual Return:
  • As per Section 92 (Annual Return subject to exceptions as referred above), every Foreign Company shall prepare and file an Annual Return to Roc in Form FC-4 within 60 days from last day of financial year.
Books of Accounts:
  •  The provisions of Section 128 (Place of keeping Books of accounts at a place other than Regd. office) shall apply to a foreign company to the extent.
Registration of Charges:
  •  The provisions of Chapter VI (Sec. 384 read with Section 77 to 87 of the Companies Act 2013), shall apply mutatis mutandis to charges on properties which are created or acquired by any foreign company
Inspection:
  • The provisions of Chapter XIV [Section 206 to 229 (Inspection, Inquiry and Investigation into the affairs of Company)] shall apply mutatis mutandis to the Indian business of a foreign company as they apply to a company incorporated in India.

Section 391: Application of sections 34 to 36 and Chapter XX:

(1). The provisions of sections 34 to 36 (both inclusive) shall apply to-

(i) the issue of a prospectus by a company incorporated outside India under section 389 as they apply to prospectus issued by an Indian company;
(ii) the issue of Indian Depository Receipts by a foreign company.

(2). Winding up: Subject to the provisions of Section 376, the provisions of Chapter XX shall apply mutatis mutandis for closure of the place of business of a foreign company in India as if it were a company incorporated in India.

Section 392: Punishment for Contravention:

  •  Without prejudice to the provisions of section 391, defaulting Foreign Company shall be liable to fine upto Rs. 3 Lakh and Rs. 50,000 for every day after the first during which the contravention continues.
  •  Every officer in default shall be liable to fine upto Rs. 5 Lakh or imprisonment upto 6 months or with both.

Section 393: Company’s failure to comply with provisions of this chapter (xxii) not to affect validity of contracts, etc:

  •  The company shall not be entitled to bring any suit, claim any set-off, make any counter claim or institute any legal proceeding in respect of any such contracts, etc. until complied with the provision of this act.

Regulatory provisions under Income Tax Act, 1961:

Foreign income:

Means any income which is neither received or deemed to be received in India nor accrues or arises or deemed to accrue or arise in India i.e. income which accrues or arises or deemed to accrue or arise outside India and also received or deemed to be received outside India. However it includes:

• Business income where business is wholly and partly controlled in India.
• Professional Income where profession was setup in India.
• Business income where business was wholly controlled from outside India.
• Professional Income where profession was set up outside India.
• Any other income (Salary, rent and dividend, etc.).

Residential Status of a Company:

According to section 6(3) of income tax act 1961 a company is said to be resident in India in any previous year, if:

(i) It is an Indian company; or
(ii) During that year, the control and management of its affairs is situated wholly in India.

Taxation of Foreign Income In India:

Companies resident in India are subject to Indian tax on their income, generally on an accrual basis, from all sources inside or outside India and whether or not remitted to
India.

• The government of India to attract foreign capital and technical know-how, granted concessions to foreign investors on certain taxes.
• Foreign branch losses can be set off against domestic profits.
• Income of foreign affiliates is includable in the Indian company's taxable income only when distributed as dividends.
• Double taxation relief is granted to residents by the credit methods.
• To the extent they cannot be credited, foreign taxes are lost permanently.

Rate of Income Tax for Foreign company:

@ 40% /50% in addition to;
Surcharge @ 2% in case income is in range of Rs. 1 Cr. to 10 Cr.
Surcharge @ 5% in case income exceeds Rs. 10 Cr.

Other Compliances to be made by foreign Companies in India:

• Goods and Service tax.
• Employees Provident Fund
• Employees State Insurance etc.

 

 

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