Checklist for Setting Up a Company in India for a Foreign Company

Taxmarket Services

5 min read

India is one of the most promising markets for foreign companies looking to expand their operations. With a rapidly growing economy, a large consumer base, and business-friendly policies, it’s no wonder that global businesses are eager to enter this dynamic landscape. However, setting up a company in India involves navigating through several legal, financial, and administrative processes.

Here’s a detailed checklist, with real-life scenarios, to guide you through the process of incorporating and running a business in India.

1. Selecting the Right Business Structure

Imagine you’re a UK-based technology firm planning to expand to India. Your goal is to sell software solutions and provide local customer support. The first step is to decide the type of entity that suits your business model.

A Wholly Owned Subsidiary might be ideal if you want complete control over operations. This structure allows 100% foreign ownership and is a preferred choice for many tech companies.
If your focus is market research or building relationships, setting up a Liaison Office would suffice. This is a non-profit structure meant for promotional activities.
For those planning to export goods or collaborate with Indian firms, a Branch Office or a Joint Venture could work better.

Each structure has its pros and cons. For example, while a wholly-owned subsidiary provides autonomy, it comes with more compliance responsibilities than a liaison office. Consulting with an expert can help you make the right choice.

2. Getting Digital Signatures and Director Identification Numbers

Now that you’ve decided on your business structure, the next step is preparing for incorporation. Every company director needs a Director Identification Number (DIN), and digital signatures are essential for filing electronic documents with the government.

Imagine your CEO and CFO, both based in London, want to act as directors. They’ll need to submit their identity proofs, address proofs, and photographs to apply for DINs. It’s worth noting that foreign nationals acting as directors must adhere to specific documentation requirements, which can vary depending on their country of origin.

3. Reserving Your Company Name

Let’s say your technology firm has a globally recognized brand name. Before you incorporate your Indian entity, you’ll need to check if the same name is available in India. Using the Reserve Unique Name (RUN) service on the MCA portal, you can ensure your company’s name is unique and complies with Indian naming conventions.

Pro Tip: If your preferred name is unavailable, you may want to reserve a similar name or trademark it before proceeding. This ensures brand consistency across markets.

4. Incorporating the Company

With the name finalized, it’s time to incorporate the company. This involves submitting an application through the SPICe+ form on the MCA portal. Think of this as the core step where you legally establish your business.

For example, you’ll need to prepare and submit documents like the Memorandum of Association (MoA) and Articles of Association (AoA). The MoA outlines your company’s objectives, while the AoA specifies operational rules. These documents, along with proof of the directors’ identities and addresses, are submitted for approval.

5. Setting Up Tax Registrations

Once your company is incorporated, you’ll need to obtain:

PAN (Permanent Account Number): Essential for all tax filings.
TAN (Tax Deduction and Collection Account Number): Required for deducting taxes at source (TDS).

Picture this: You hire a local accountant to help manage payroll. Without a TAN, you can’t deduct TDS on salaries or vendor payments. Ensuring these registrations are completed early will save you from compliance issues later.

6. Opening a Corporate Bank Account

After incorporation, you’ll need a bank account in India to handle transactions. Most Indian banks require your Certificate of Incorporation, PAN, and proof of the directors’ identities to open a corporate account.

Imagine this scenario: Your CFO needs to transfer funds from your UK headquarters to your Indian subsidiary. A properly set-up corporate account simplifies cross-border transactions and ensures compliance with India’s Foreign Exchange Management Act (FEMA).

7. Registering for GST

If your company plans to sell goods or services in India, Goods and Services Tax (GST) registration is mandatory. For example, if your software firm anticipates an annual turnover exceeding ₹20 lakhs, you’ll need to register for GST to collect and remit taxes.

Some companies overlook this step, thinking it’s unnecessary for the initial months of operation. However, failing to register can lead to penalties and delays in commencing business activities.

8. Complying with FDI Regulations

Foreign Direct Investment (FDI) is regulated in India, with some sectors requiring government approval. Let’s say your technology firm plans to manufacture software products locally. While most IT-related activities fall under the Automatic Route (no approval needed), sectors like defense or telecom may require prior permission.

It’s crucial to check whether your business falls under the Automatic Route or the Government Approval Route to avoid legal complications.

Learn more about FDI regulations here - India's FDI Regulations Explained

9. Hiring Employees and Registering for Labor Laws

When you’re ready to hire a local team, compliance with Indian labor laws becomes essential. This includes:

Registering for the Employee Provident Fund (EPF).
Ensuring Employees' State Insurance (ESI) for eligible employees.

For example, if you hire software developers and customer support staff, you must ensure they’re enrolled in social security schemes. This not only protects employees but also builds goodwill for your company.

10. Filing Annual Returns and Maintaining Records

Once your operations are underway, maintaining compliance is an ongoing responsibility. Annual returns, financial statements, and statutory registers must be kept updated. Let’s say you’re operating a wholly-owned subsidiary. You’ll need to:

File Form AOC-4 (financial statements) within 30 days of the AGM.
Submit Form MGT-7 (annual return) within 60 days of the AGM.

Failure to meet these deadlines can result in penalties, so setting up a compliance calendar is advisable.

11. Sector-Specific Approvals

If your company operates in sectors like banking, insurance, or healthcare, you may need additional approvals. For instance, a foreign pharmaceutical company entering India must obtain a license from the Drug Controller General of India (DCGI).

12. Seeking Professional Guidance

Setting up a company in a new country is no small task. Engaging with legal and financial advisors who understand Indian regulations can save you time and effort. These experts can handle everything from FDI compliance to transfer pricing, ensuring you remain focused on growing your business.

A Final Thought

Setting up a company in India is an exciting opportunity, but it requires meticulous planning and execution. By following this checklist and seeking professional guidance, foreign companies can establish themselves in India seamlessly and begin tapping into one of the world’s fastest-growing markets.

At TaxMarket.in, we specialize in helping foreign companies navigate the complexities of setting up operations in India. Whether it’s incorporation, compliance, or ongoing tax management, our experts are here to assist.

Contact us today to take the first step toward your Indian expansion!