Setting up of business entity in India depends on the objective of the overseas investor. The objective may vary from the execution of the project in India to the setting up of an Indian company. The taxability of the entity depends on the nature of the entity.
Following are the three entry strategies to set up a business by the foreign entity:
- Branch office
- Liaison office
- Project office
- Wholly owned Indian Company
- Joint venture
- Foreign Collaborations
- Incorporation/ registration of entry vehicle
A ‘Liaison Office’ is a representative office set up primarily to explore and understand the business and investment climate. Such office is not permitted to undertake any commercial / trading / industrial activity, directly or indirectly, and is required to maintain itself out of inward remittances received from parent company through normal banking channels.
The Liaison Office generally acts as a communication channel between the parent company overseas and its present or prospective customers in India. The Liaison Office can also be set up to establish business contacts or gather market intelligence to promote the products or services of the overseas parent company. The cost involved in Liaison Office is very low and also the statutory compliances are very less as compared to company.
It is best to start have the understanding of Indian customer and business environment to open a Liaison office rather than incorporating a company and blocking the capital.
One of the other entry strategies for the companies incorporated outside India to establish their business in India is by way of opening the Branch office in India. As per Indian laws companies incorporated outside India engaged in manufacturing or trading activities are allowed to set up Branch Offices in India with specific approval of the Reserve Bank.