How NRIs Can Set up Business in India?

Who is an NRI?

Simply put, a non resident Indian (or ‘NRI’) is a citizen of India, holding an Indian passport, who is temporarily residing in any other country for education, employment or any other purpose. Legally speaking, the status of NRI may be defined in many ways. Under the Income Tax Act, an NRI is not defined, but the status of “resident” and “non resident” is discussed in Section 6.

The status of a person as a resident or non-resident depends on his duration of stay in India. This duration is calculated on the basis of number of days for each financial year beginning from 1st April to 31st March (known as previous year under the Income Tax Act). Section 6 of the Income Tax Act requires physical presence of 182 days or more to be considered as a resident. The Foreign Exchange Management Act (FEMA) requires 183 days or more of residence.

The NRI status may be distinguished from certain other concepts of citizenship– namely Person of Indian Origin (PIO) and Overseas Citizenship of India (OCI).  A Person of Indian Origin (PIO) is a person of Indian origin or ancestry (up to 4 generations) but who is the citizen of another country. A PIO may also have been a citizen of India and subsequently taken the citizenship of another country. While the Indian Constitution does not allow dual citizenship, PIOs may register themselves as Overseas Citizens of India (OCI). While registration as an OCI does not amount to dual citizenship, it does provide certain privileges for OCI registration holders.

How NRIs can set up a business in India?

Currently, foreign investment into India is at an all time high. Thus it is unsurprising that NRIs too want to get in on the action. Currently, there are no restrictions either for foreigners or for NRIs to incorporate a business in India. Prior to FEMA, when the regulatory act was the Foreign Exchange Regulation Act (FERA), NRIs were not allowed to incorporate/subscribe to Indian companies without permission from the Reserve Bank. However, with the repeal of FERA, such restrictions have been abolished.

What type of entity should an NRI set up?

Currently, foreign investment in partnerships, proprietorships and one person companies are not allowed in India. In the case of Limited Liability Partnerships, foreign investment is allowed only with prior approval of the Reserve Bank of India. However, in the case of private limited companies, foreign investment is allowed freely. Hence this is the most convenient entity that an NRI should look to set up business in India.

Setting up a business for NRIs – things to know

Registration

The website of the Ministry of Corporate Affairs contains a simplified registration for incorporation of private limited companies.

Related:Registration Process: 6 Steps to Incorporate a Private Limited Company

Becoming a Director

Under the amended Companies Act 2013, an NRI and even a foreign national can become a director of a company incorporated in India. To become a director, one needs a Director Identification Number (DIN) after obtaining a Digital Signature Certificate (DSC). For these processes to be conducted from overseas, NRIs need to produce copies of passport and address proofs and get them attested at their respective Indian Embassies, High Commissions or Consulates.

DSC

A digital signature of the directors must be created and registered for electronic submission of incorporation form. Digital signatures are certified by agencies appointed under the Information Technology Act, 2000. They are obtained after paying requisite fees and may be renewed from time to time. On production of valid documents, DSC can be generated within 24 hours.

DIN

This is a unique number allotted by the Ministry of Corporate Affairs to a person appointed as a director in a company. It is obtained by applying under Form – DIR 3 under sections 153 and 154 of the  Companies Act, 2013. The form is digitally signed and needs to be attested by a Company Secretary after payment of fees. DIN can only be obtained once DSC is approved by the Government.

No. of Directors

For a private company, the minimum number of directors is two while the maximum is 15. However, this maximum number can be increased if needed, by passing a special resolution.

Residence of Directors

While there is no restriction as to what nationality a director must be, Section 149(3) of the Companies Act, 2013 requires that any one director should be classified as a resident of India under the Income Tax Act (given above).

Registered Office

One main requirement of incorporation of a company in India is that it must have a registered office. For a company to be registered in India by the Ministry of Corporate Affairs, it should have its registered office in India itself.

SPICe

This is a Simplified Proforma for Incorporation Company Electronically. This is an initiative by the Ministry of Corporate Affairs to speed up electronic incorporation, thereby encouraging NRIs and foreigners to set up businesses in India.

PAN & TAN

In order to establish itself as a separate legal entity, a company will require a Permanent Account Number (PAN) and a Tax Deduction and Collection Account Number (TAN). Forms 49A and 49B of the Income Tax Department are the required forms. These applications can also be done online.

Related:Documents Required for PAN Card Application

Notifying RBI

Depending on the sector in which the company is the function, RBI notification may or may not be necessary. In case the business is in a sector that allows 100% FDI through the automatic route, RBI notification is not required. If the specification of “100% FDI through automatic route” is not specified, notification to RBI will be required prior to incorporation.

Shareholders

Shareholding in an Indian company may be by foreign or Indian nationals, depending on the FDI norms in the particular sector. The Reserve Bank allows 100% FDI in many sectors and such sectors may have completely foreign shareholding as well.

Thus, setting up a business in India is no longer a complicated matter. In fact, foreigners and NRIs are encouraged to establish their businesses in India through the amended Companies Act and the many online initiatives that have been launched.

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