Expanding to India

Expanding to India

India, a land of rich cultural heritage and a thriving economic powerhouse, presents an exciting landscape for international business expansion. Boasting the world's fifth-largest economy, India offers a young and skilled workforce, a rapidly growing consumer base, and a government actively promoting foreign investment.

However, navigating the intricacies of establishing a business presence in India can present challenges for foreign companies. Complex regulations, diverse business landscapes across different states, and unique cultural nuances can create hurdles to a smooth entry.

This blog empowers you with the knowledge and guidance to overcome these challenges and unlock the full potential of the Indian market.

How to Set Up a Business in India

India's economic dynamism and vast consumer base make it a compelling destination for international business ventures. However, navigating the legalities and intricacies of establishing a business presence can be a complex process.

Here are the essential steps involved in setting up a business in India, along with key factors to consider for a successful launch:

Factors to Consider for Starting a Company in India

  • Business Entity: India offers various business entity structures for foreign investors. Popular options include Liaison Offices, Branch Offices, Subsidiary Companies (wholly-owned or joint ventures), and Limited Liability Partnerships (LLPs). Choosing the right structure depends on factors like your level of control, operational flexibility, and tax implications.
  • Industry Regulations: Certain industries in India have specific regulatory requirements and restrictions on foreign investment. Conduct thorough research to ensure your business aligns with permissible activities for foreign entities.
  • Location: Strategically select your business location based on factors like proximity to customers, talent pool availability, and infrastructure. Major cities like Delhi, Mumbai, and Bangalore offer established business environments, while specific regions may have industry-specific clusters.
  • Taxation: India's tax system can be complex, with various direct and indirect taxes applicable to businesses. Understanding the tax implications for your chosen business structure and industry is crucial for financial planning.

By carefully considering these factors, you can establish a solid foundation for your business operations in India.

How to Set Up a Company in India

Now that you've considered the key factors for starting a company in India, let's delve into the specific steps involved in setting up your business:

1. Choose a Business Structure:

  • Liaison Office: Limited functionalities, primarily for market research and promotional activities. Cannot undertake profit-making activities.
  • Branch Office: Extension of an existing foreign company, with limitations on business activities. Requires a proven track record of the parent company.
  • Subsidiary Company (Wholly-Owned or Joint Venture): Separate legal entity with greater operational flexibility. Wholly-owned subsidiaries offer complete control, while joint ventures involve partnering with a local Indian company.
  • Limited Liability Partnership (LLP): Hybrid business structure combining features of a company and a partnership. Offers flexibility in profit-sharing and management structure.

2. Registration Process:

  • Obtain Director Identification Number (DIN): Mandatory for all directors of the company.
  • Digital Signature Certificate (DSC): Required for online filing of documents.
  • Company Name Approval: Obtain approval for your desired company name from the Ministry of Corporate Affairs (MCA).
  • Memorandum of Association (MOA) and Articles of Association (AOA): Prepare these documents outlining the company's objectives and internal governance structure.
  • Company Incorporation: File incorporation documents with the MCA online portal.
  • Obtain Permanent Account Number (PAN) and Tax Account Number (TAN): Necessary for tax purposes.
  • Open a Corporate Bank Account: Manage business finances after company incorporation.

3. Local Regulations:

  • General Business Laws: Ensure compliance with India's Companies Act, Contract Act, Foreign Exchange Management Act (FEMA), and other relevant legislation.
  • Compliance: Stay up-to-date with ongoing compliance requirements, including annual filings, tax returns, and regulatory audits.
  • Industry-Specific Regulations: Certain industries may have additional regulations and licensing requirements. Conduct thorough research to ensure your business adheres to all relevant industry-specific regulations.

4. Taxation:

  • Corporate Tax Rate: The standard corporate tax rate for domestic companies and foreign companies is currently 30%. Lower tax rates may apply for certain industries or company sizes.
  • Tax Incentives: The Indian government offers various tax incentives to attract foreign investment. These may include tax holidays, exemptions on customs duty, and subsidies for specific sectors. Consult a tax advisor to explore potential tax benefits for your business.
  • Tax Obligations: Familiarise yourself with various taxes such as Goods and Services Tax (GST), income tax, and social security contributions. Ensure timely filing and payment of all applicable taxes.

5. Banking and Finance:

  • Opening a Corporate Bank Account: Foreign-invested companies can open corporate bank accounts in India to manage business finances. The specific requirements and procedures may vary depending on the chosen bank.
  • Foreign Exchange Regulations: India maintains foreign exchange controls that regulate the inflow and outflow of foreign currency. Understanding these controls is crucial for managing your company's finances.

How Do I Go About Manpower and Human Resources in India?

Building a successful team in India requires navigating the country's unique human resources landscape. Understanding the procedures for obtaining work permits, managing social security contributions, and adhering to labour laws is crucial for effective workforce management.

Here's a breakdown of key aspects to consider:

Types of Visa/Work Permit:

  • Employment Visa: Required for foreign employees to work in India. There are various subcategories of employment visas based on employment type, salary level, and qualifications.
  • Work Permit: Issued by the Ministry of Labor and Employment after obtaining an employment visa. Work permits specify the duration of employment, location, and job title.


  • Foreign employee's passport and highest educational diploma.
  • Letter of employment from the Indian company.
  • Job description outlining the specific duties and responsibilities.
  • Educational certificates attested by relevant authorities (may be required).
  • Medical certificate (may be required).

Visa Application Process:

  • The foreign employee typically applies for an employment visa at the Indian embassy or consulate in their home country.
  • Upon visa approval, the Indian company submits the work permit application to the Ministry of Labor and Employment.
  • Processing times for visas and work permits can vary, so plan accordingly.

Social Security Management:

  • Employee Provident Fund (EPF): Mandatory contribution for both employers and employees. A portion of the employee's salary is deposited into a retirement savings scheme.
  • Employees' State Insurance (ESI): Provides social security benefits such as medical insurance, maternity leave, and sickness benefits for employees earning below a certain wage threshold. Employer and employee contributions apply.
  • Other Social Security Contributions: Depending on the state and industry, additional social security contributions may be mandatory.

Contract Details:

  • Onboarding: Develop a comprehensive onboarding process that familiarises the employee with company policies, benefits, and the work environment.
  • Salary Payment: Ensure salaries are paid in accordance with the employment contract and meet minimum wage requirements set by the government.
  • Leave: India mandates statutory leave entitlements, including annual leave, sick leave, and maternity leave. Companies may offer additional leave benefits as well.
  • Termination: Termination of employment contracts must comply with India's labour law, which outlines specific requirements for notice periods, severance pay, and non-compete clauses.
  • Working Hours: The standard workweek in India is 48 hours, with a maximum of 3 to 5 hours of overtime per day. Employees are entitled to overtime pay for working beyond these limits.

Other Employer Costs and Insurance:

  • Professional Tax: A nominal tax levied on employee salaries in certain Indian states.
  • Gratuity: Payment to employees upon termination, retirement, or death after completing a minimum service period.
  • Employer's Liability Insurance: Consider employer's liability insurance to protect your company from potential legal or financial risks related to employee injuries or illnesses.

Should I Set Up My Own Entity or Outsource to a Local Expert in India?

The vast Indian market, with its burgeoning consumer base and economic potential, beckons international businesses seeking expansion.

However, navigating the intricacies of establishing a legal presence in India can be a complex and time-consuming process.

Let's explore both approaches to help you make an informed decision:

Setting Up Your Own Entity

  • Pros:
    • Greater Control: Maintain complete control over the setup process and ongoing operations of your Indian entity.
    • Cost Savings (Potential): If you have the internal resources and expertise, setting up your own entity can potentially be more cost-effective in the long run compared to ongoing fees associated with outsourcing.

  • Cons:
    • Time Commitment: The process of registering a business, obtaining licences, and complying with regulations can be very time-consuming, especially for those unfamiliar with India's legal framework.
    • Language and Cultural Barriers: Communication challenges can arise due to language and cultural differences.
    • Compliance Challenges: Staying up-to-date with complex and evolving regulations is an ongoing task. Non-compliance can lead to significant penalties.
    • Limited Local Knowledge: Understanding local market nuances and navigating unforeseen obstacles can be difficult without a strong local presence.

Outsourcing to a Local Expert

  • Pros:
    • Streamlined Process: A local expert can guide you through the entire setup process efficiently, saving you valuable time and resources.
    • Compliance Expertise: Local experts have in-depth knowledge of Indian regulations and ensure your business adheres to all legal requirements.
    • Reduced Risk: Minimise the risk of non-compliance issues and potential penalties with expert guidance.
    • Local Market Knowledge: Leverage the expertise of a local partner to navigate the Indian business landscape and avoid potential pitfalls.

  • Cons:
    • Cost: Outsourcing services involve fees, which can add to the overall cost of expansion.

Less Control: You relinquish some control over the setup process, relying on the expertise and communication of your chosen partner.

Choosing the Right Path

The optimal approach depends on your specific circumstances. Here's a table to help you weigh the factors:

Factor Setting Up Your Own Entity Outsourcing to a Local Expert
Control High Lower
Cost (Initial) Potentially Lower Higher
Cost (Ongoing) Lower (if you have expertise) Higher (ongoing fees)
Time Commitment High Low
Language & Cultural Expertise Lower High
Compliance Expertise Lower High
Risk of Non-Compliance Higher Lower
Local Market Knowledge Lower High

Innovare: Your Trusted Expansion Partner in India

Regardless of the chosen approach, Innovare can be your trusted partner throughout your Indian expansion journey. We offer comprehensive solutions to assist you with both setting up your own entity and outsourcing services. Contact Innovare today to discuss your specific needs and embark on a successful Indian business adventure!