Setting up a subsidiary in India

Bhargavi Venugopal
Author

January 7, 2017
Published on

Implanting in India is a reality for over 1,000 French entities. These companies cover a wide range of sectors and employ approximately 300,000 people. So why have these companies decided to establish themselves in India? Why have so many French companies chosen to create their subsidiaries in India? The reasons are clear. With a GDP growth rate of +7.7% in Q4 of the fiscal year 2017-2018, India confirms its position as the fastest-growing economy globally. Additionally, India is one of the top 10 economic powers and the second most populous country in the world. Its middle class is rapidly expanding, its industrial and service sectors are thriving, and its markets are diverse. Moreover, India is the country that has best weathered the global economic slowdown compared to other emerging economies. Are you convinced? Here's what you need to know before establishing your subsidiary in India.

Why set up in India?

With a middle class of between 200 and 300 million consumers and a booming economy, India is a country with tremendous potential because it has strong economic and political fundamentals:

A massive domestic market, with a population of 1,319 million inhabitants in 2016, growing by over 20 million people per year, equivalent to the population of France every 3 years.
A young workforce (50% of the population is under 25), abundant (10 to 15 million Indians enter the labor market each year), and skilled.
An English-speaking work environment that facilitates exchanges.
An unprecedented economic situation: sustained and steady economic growth for the past 20 years (+7% on average).
A stable political situation: a democratic regime and the rule of law.
A favorable tax regime: companies can benefit from full tax exemption for the first 5 years of operation and then a 50% exemption for the next 5 years.
A deep-rooted Franco-Indian relationship: France ranks among the top 3 foreign investors in India, with French companies investing approximately €20 billion in India.

Where to set up in India?

India's economic activities are concentrated in certain cities, and depending on your field of activity, you will need to establish your subsidiary:

In Bangalore for services, information and communication technology (ICT), R&D, and aerospace.
In Delhi for trading, distribution, and the defense industry.
In Mumbai for finance and industry (film, chemicals, textiles, fisheries).
In Kolkata for exports, petrochemical and metallurgical industries, and trade. In Hyderabad for ICT and the pharmaceutical industry. In Chennai for textiles and ICT. In Pune for automotive and ICT.

Of course, this list is general, and you should consider your ecosystem: customers, suppliers, competitors, business partners, and logistics partners before making the right choice for your city of establishment.

What are the legal forms of Indian companies?

The most common legal forms of companies in India are:

The "Private Limited Company" or "Pvt Ltd," which requires a minimum of 2 and a maximum of 50 shareholders and a minimum initial capital of 100,000 Rupees (€1,400). Pvt Ltd is the preferred form for foreign investors.
The "Public Limited Company" or "PLC," which requires a minimum of seven shareholders and a minimum share capital of 500,000 Rupees (€7,100). The company's management is also ensured by a board of directors, and the liability of the shareholders is limited to the amount of their contributions.
The "Partnership," composed of a minimum of two partners and a maximum of twenty. The company is created by contract and does not constitute a legal entity. Partners are jointly and severally liable for all their personal assets. There is no minimum capital required.

The majority of French companies have chosen to establish their subsidiaries in the form of a "Private Limited Company."

What are the steps to register a company in India?

Registering a company in India can be relatively fast or take several weeks. It now takes between 4 and 12 weeks to obtain approval for the company name, its certificate of incorporation, and its registration number. The steps to create a "Pvt Ltd Company" are as follows:

Obtain a digital signature for each director.
Register directors to obtain a DIN (Director Identification Number).
Define the registered office address.
Declare the shareholders.
Establish the share capital.
Define the company's articles of association and nature of business.
Reserve the company name (you can submit up to 6 company names).
Pay stamp duty.
File the incorporation documents. Obtain a PAN and a TAN: Indian tax law requires all companies established in India to have a Permanent Account Number (PAN). Then, you need to apply for a Tax Account Number (TAN) from the nearest Indian tax administration office to the company's registered office.

What is the tax regime in India?

The fiscal year starts on April 1 and ends on March 31 of the following year. The deadline for submitting the tax return varies depending on the status:

Corporate tax:

Foreign companies are taxed at a rate of 40% on their profits. A surcharge of 2% is imposed on foreign companies with income exceeding 10,000,000 Rupees (€142,000). An additional 5% applies beyond 100,000,000 Rupees in profits. Depending on the states, the Value Added Tax (VAT) varies from 12 to 15%.

Income tax:

Income tax rates in India are indexed to individual incomes:

Up to 200,000 Rupees (€2,650), no tax. From 200,001 to 500,000 Rupees (€6,600), 10% of the amount exceeding 200,000. From 500,001 to 1,000,000 Rupees (€13,230), 20% of the amount exceeding 500,000 + 30,000 Rupees. Beyond 1,000,000 Rupees, 30% of the amount exceeding 1,000,000 + 130,000 Rupees.

Note that France and India are bound by a double taxation avoidance agreement.

What is the legal environment in India?

The minimum legal working age (typically 15 years) depends on the sectors of activity.

If you bring in expatriates, they will need an Employment Visa. A French national cannot be employed with a salary lower than $25,000 per year.

If you employ locally, you will need to meet certain conditions:

An Indian resident cannot work more than 9 hours per day – and not more than 48 hours per week. One day off is mandatory (usually Sunday). The minimum wage is set by each State and depends on the sector of activity: on average, it is around 150 Rupees per day (€2.1).