Introduction
India is one of the world’s fastest-growing economies—and a top destination for foreign companies looking to expand. With a booming consumer market, skilled workforce, and favourable government policies, the opportunity is huge. But entering India is not as simple as opening an office.
Foreign businesses must navigate India’s regulatory framework, FEMA rules, tax structure, entity setup, cross-border remittances, and compliance requirements.
At Mittal & Company, we regularly assist foreign subsidiaries, multinational companies, and global entrepreneurs entering the Indian market—especially in Pune, Mumbai, Bengaluru and NCR.
This guide covers the key considerations, legal requirements, and common mistakes to avoid when setting up a foreign business in India.
1️⃣ Choose the Right Entry Strategy
Foreign businesses can enter India through multiple routes. Selecting the wrong mode can lead to delays, compliance issues, or higher taxes.
✔️ Common Entry Structures
a. Liaison Office (LO)
No commercial activity allowed
Only communication & coordination
Cannot earn income in India
Requires RBI approval
Best for: Market research, early-stage presence.
b. Branch Office (BO)
Can earn revenue
Allowed for import/export, consultancy, IT services, R&D
No manufacturing allowed
Best for: Project-based or service-based foreign companies.
c. Project Office
Set up for executing a specific project
Automatically approved if project is funded by an Indian entity
Best for: EPC, construction, infrastructure, oil & gas companies.
d. Wholly Owned Subsidiary (WOS) / Private Limited Company
100% foreign ownership allowed in many sectors
Separate legal & tax entity
Best structure for long-term operations
Best for: Technology, manufacturing, trading, consulting, or long-term presence.
2️⃣ Understand FEMA & FDI Rules
Every foreign investment entering India is regulated under the Foreign Exchange Management Act (FEMA) and overseen by the Reserve Bank of India (RBI).
Key FEMA Considerations:
Check whether your sector allows Automatic Route or requires Government Approval
Report investment inflows within 30 days
File FC-GPR after allotting shares
Ensure share valuation as per RBI guidelines
Maintain compliance for repatriation of profits
⚠️ Mistake to Avoid:
Many foreign founders invest funds before verifying sector permissions, causing major delays and compliance violations.
3️⃣ Mandatory Registrations & Legal Requirements
Once your business structure is chosen, complete these registrations:
✔️ Company Incorporation (if forming a subsidiary)
Name approval
Digital Signature (DSC)
DIN for foreign directors
SPICe+ incorporation form
PAN & TAN
Bank account setup
✔️ Other Key Registrations
GST Registration
Shop & Establishment License (Pune or PCMC)
Professional Tax
IEC Code for import/export
EPF/ESIC (if hiring employees)
✔️ Sector-Specific Approvals
Some industries require additional approvals:
NBFC, fintech
Defence
Media
Retail (FDI-regulated)
Real estate
4️⃣ Taxation Considerations for Foreign Businesses
Indian taxation is complex—understanding it early saves major headaches.
✔️ Key Tax Components:
Corporate Income Tax (22% or 15% for new manufacturing units)
GST
Transfer Pricing compliance
TDS on foreign remittances
Equalisation Levy (for certain digital services)
DTAA benefits (Double Taxation Avoidance Agreement)
✔️ Transfer Pricing Rules
All transactions between your Indian subsidiary and foreign parent must be:
“At Arm’s Length Price”, and supported with proper documentation.
⚠️ Mistake to Avoid:
Not maintaining transfer pricing files can lead to heavy penalties during audits.
5️⃣ Operational Considerations for Foreign Entities
To operate smoothly in India, foreign businesses must plan for:
✔️ Hiring & HR Compliance
Employment contracts
Payroll systems
PF & ESIC
Gratuity, bonuses, statutory leaves
✔️ Banking & Repatriation
Authorized dealer bank selection
Repatriation of profits under FEMA
Correct withholding tax
✔️ Accounting & Audit
Maintain books as per Indian Accounting Standards
File annual audit report
File TDS, GST, ROC returns
6️⃣ Common Mistakes Foreign Companies Make (and How to Avoid Them)
❌ Mistake 1: Choosing the wrong business structure
Many companies choose a Liaison Office but later realise it cannot invoice or earn revenue.
✔ Fix: Evaluate the long-term business model before deciding. WOS is usually the safest option.
❌ Mistake 2: Ignoring FEMA & RBI reporting
Foreign companies often miss FC-GPR filings or share allotment deadlines.
✔ Fix: Maintain a compliance calendar. Work with a CA firm experienced in foreign setups.
❌ Mistake 3: Not accounting for transfer pricing
Incorrect pricing between parent & subsidiary leads to tax scrutiny.
✔ Fix: Ensure proper benchmarking and documentation.
❌ Mistake 4: Using incorrect tax structures
Some founders treat India like a branch office, causing double taxation.
✔ Fix: Understand DTAA & corporate tax rules before sending/receiving funds.
❌ Mistake 5: Weak documentation
Improper agreements, missing invoices, or wrong valuation reports create regulatory risks.
✔ Fix: Maintain robust documentation—contracts, valuation reports, board resolutions, FDI filings.
7️⃣ How Mittal & Company Helps Foreign Businesses Enter India
We specialize in helping foreign businesses establish & operate smoothly in India.
✔ Our Services Include:
Foreign company incorporation
FEMA & RBI compliance
FDI reporting (FC-GPR, FC-TRS, ARF)
Transfer pricing documentation
GST and Income Tax registration
Accounting, payroll & bookkeeping
Statutory audit
Corporate tax planning
Cross-border remittance advisory
Whether you’re opening a subsidiary, launching operations, or exploring the Indian market—our expert CA team ensures a smooth, fully compliant setup.
✅ Conclusion
Setting up a foreign business in India is a high-opportunity decision—but comes with regulatory complexity. With the right structure, proper FEMA compliance, careful tax planning and expert CA support, foreign companies can scale confidently in the Indian market.
If you’re planning to establish a foreign entity in India, Mittal & Company is here to guide you end-to-end—from incorporation to full compliance.
📞 Contact Us: www.camittal.com
✉️ Email: info@camittal.com