How to setup direct selling foreign company in India

 

How to start a direct selling business in India as a foreign director?

A foreign company planning to set up direct selling company operations in India can do as following ways: As international direct selling company through a Liaison Office/Representative Office Project Office and Branch Office As an Indian Direct selling company incorporated under the Indian Companies Act, 1956 through a Joint Venture Wholly Owned Subsidiary.

AS A FOREIGN COMPANY (Direct Selling)

Foreign Direct Selling Company is one, which has been incorporated outside India and conducts business in India. Foreign Direct Selling Companies can set up Liaison, Project and Branch Offices in India. Such offices can undertake activities permitted under the Foreign Exchange Management (Establishment in India of a branch office or another place of business) Regulations, 2000.

LIAISON OFFICE/REPRESENTATIVE OFFICE

One of the practices for foreign companies to enter the Indian markets is the setting up of a Liaison/Representative office. A Liaison office is not allowed to undertake any business activity in India and cannot, therefore, earn any income in India. The role of such offices is, therefore, limited to collecting information about possible market opportunities and providing information about the company and its products to the prospective Indian customers. The opening and operation of such offices regulated by the Foreign Exchange Management Act-1999 (FEMA). Approval from the Reserve Bank of India (RBI) required for opening such offices.

There are certain standard conditions imposed for operations of such offices: Expenses of such offices are to be met entirely through inward remittances of foreign exchange from the Head Office abroad. Such offices should not undertake any trading or commercial activities, and their actions should be limited to collecting and transmitting information between the overseas Head Office and potential Indian customers. Such offices should not charge any commission or receive other income from Indian customers for providing liaison services. Liaison/representative offices also have to file an annual activity certificate etc. from a Chartered Accountant to RBI. Permission to set up such offices is initially granted for three years, and this may be extended from time to time.

PROJECT OFFICE

Foreign Companies planning to execute specific projects in India can set up temporary project/site offices in India. RBI has now granted general permission to external entities to establish project offices subject to specified conditions. 

Such offices can not undertake, carry on any activity other than the business relating and incidental to the execution of the project. Project offices may remit outside India the surplus of the project, after meeting the tax liabilities, on its completion.

BRANCH OFFICE

Government has allowed foreign companies engaged in manufacturing and trading activities abroad to set up Branch Offices in India for the following purposes: To represent the parent company/ other international companies in various matters in India, e.g. acting as buying/selling agents in India.

To conduct research work in the area in which the parent company is engaged to undertake export, and import trading activities promote possible technical and financial collaborations between the Indian companies and parent or overseas group companies.

Rendering professional or consultancy service Rendering services in Information technology and development of software in India and providing technical support to the products supplied by the parent/ Group companies. A branch office is not allowed to carry out manufacturing, processing activities directly/indirectly. Branch Office will have to submit activity certificate from a Chartered Accountant on an annual basis to Reserve Bank of India. The Reserve Bank of India grants permission for setting up branch offices on a case-to-case basis. RBI usually, considers the operating history of the applicant company worldwide and its proposed activities in India for approving. Branch offices established with the approval of RBI may remit outside India profit of the branch, net of applicable Indian taxes and subject to RBI guidelines.

AS AN INDIAN COMPANY

A foreign company can commence operations in India through the incorporation of a company under the provisions of the Indian Companies Act, 1956. Foreign equity in such Indian companies can be up to 100% depending on the requirements of the foreign investor subject to any equity caps prescribed in respect of the areas of activities under the comprehensive Foreign Direct Investment policy of the Government and receipt of requisite approvals. For registration as an Indian company and its incorporation, an application has to file with Registrar of Companies (ROC). Once a company duly registered and incorporated as an Indian company, it will be subject to the same Indian laws and regulations as applicable to other domestic Indian companies.

  • JOINT VENTURE WITH AN INDIAN PARTNER/ESTABLISHMENT OF WOS 
  • Foreign Companies can set up operations in India by forging strategic alliances with Indian partners.
  • Up of operations through a joint venture may entail the following advantages for a foreign investor.
  • Established distribution/ marketing set up of the Indian partners.
  • Indian Partners financial status and establishment.
  • Established contacts of the Indian partner which help smoothen the process of setting up of operations.

Foreign investment approved through two routes:

AUTOMATIC ROUTE Indian companies can issue shares under the electronic direction up to 100% of their paid capital except for those engaged in specific sectors. In particular other industries, the foreign investment is limited to a prescribed percentage ceiling. A company eligible to issue shares under the Automatic Route can receive foreign inward remittance and issue shares without obtaining any prior approval subject to specific reporting requirements.

GOVERNMENT APPROVAL All other cases where the automatic route is not applicable require prior specific authorisation from the Foreign Investment Promotion Board.

  • Currently, the FDI Policy in respect of trading is as follows: Wholesale / cash & carry trading 100% Automatic route Subjects stores guidelines for sFDIs sin trading issued by Department of Industrial Policy & Promotion vide Press Note 3 (2006 Series).
  • Trading for exports 100% Automatic route
  • Selling of items sourced from small scale sector 100% FIPB approval
  • Test marketing of such articles for which a company has approval for manufacture 100% FIPB approval
  • Single Brand product retailing 51% FIPB approval

USEFUL LINKS

  • Department of Industrial Policy and Promotion: www.dipp.gov.in
  • Reserve bank of India: www.rbi.org.in
  • Department of Economic Affairs: www.finmin.nic.in
  • Department of Company Affairs: www.dca.gov.in
  • Central Board of Direct Taxes: www.incometaxindia.gov.in
  • Central Board of Excise and Customs: www.cbec.gov.in