21/06/2017
Foreign companies in India typically operate through a Liaison Office, Project Office, Branch Office or Wholly Owned Subsidiary (WOS).
Liaison Offices are only meant to promote the parent company’s business interests, spread awareness of the company’s products and/or explore further opportunities for business. They are not allowed to undertake any business activities and thus cannot earn any income in India. Expenses must be met entirely through inward remittance of foreign exchange from the Head Office outside India. Therefore, no money can be repatriated from a Liaison Office.
Project Offices are set up to execute specific projects in India. They can only undertake activities related to execution of the specified project. Project Offices can remit outside India a surplus upon completion of the project
Branch offices are often used by foreign companies engaged in manufacturing and trading activities in India. They are allowed to represent the parent company, but have limited operational capacity. Notable operations not allowed by branch offices include retail trading activities and manufacturing or processing activities.
All investments and profits earned by branches of a foreign company are repatriable after taxes are paid, but there are two uncommon exceptions. First is that certain sectors are subject to special conditions, such as defense. For these sectors, there will be a lock-in period where companies have to wait for permission to be granted by the Indian government. The second exception is only when non-resident Indians (NRIs) specifically choose to invest under non-repatraible schemes
Wholly Owned Subsidiaries in India have independent legal status distinct from the parent foreign company. Foreign entities with long term business objectives often choose to establish their presence with a WOS because it provides longevity, flexibility and a stronger legal foundation to do business in India.
The two ways of repatriating profits from a WOS in India are:
- Payout of Profits as Dividends
- Buyback of Shares by the Company
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About the author
HIMANSHU TIWARI
CHARTERED ACCOUNTANT
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