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Guide To Starting A New Business In India For NRIs

Updated on Sep 09, 2020
NRI Business

Starting a business in India has never been easier. Foreign direct investment (FDI) has been steadily growing since the economic liberalization of 1991. India registered its highest FDI inflow amounting to $64.37 billion in the last financial year 2018-19. This can be attributed to the relaxed FDI regulations in many sectors of the economy. Today, India ranks 63rd among the 190 economies and 1st for the South Asian region in the latest World Bank’s Ease of Doing Business index (EoDB).

businessman as an NRI

Non-resident Indians (NRIs) are one of the major contributors to the Indian economy. Along with large inward remittances, NRIs also bring along skills, technology, a modern and global perspective when setting up businesses in India. The Indian government, upon recognizing the role they play in the economic development of the country have made many administrative changes and offered incentives to attract foreign investors and encourage investment in India. 

Both the central government and the state governments have initiated multiple schemes to boost investment including subsidized rates of electricity, free of cost land for establishing promising ventures, and even tax exemption for some period to drive business set up in India.

Having said that, setting up a business is no easy process. First, you need to arrange the funds, get the documents and paperwork ready, get clearance from various ministries and departments, sort out the compliance requirements, and obtain the necessary licenses, etc.

ease of doing business

The EoDB index is an aggregate of 10 areas of business regulations as shown above. And a lower numerical value represents a higher ranking because it indicates accessibility and ease to achieve the requirements for those parameters. 

Challenges and Solutions in setting up a new business for NRIs  in India

  • New Companies Act, 2013 allows the formation of a single person company but it is only applicable to resident Indian. NRIs and PIOs (Person of Indian Origin) cannot set up a one-person company in India. However, they can become directors of an Indian company. The problem of a one-person company can be solved by hiring a resident Indian for a salary to act as director for the company in India.

NRIs, PIOs, Overseas Citizens, or Foreign residents or nationals are allowed to invest in India either by buying shares in an existing Indian company or registering an entirely new company.

NRIs have the option of forming a Private Limited Company, a Limited Liability Partnership or open a branch office, liaison office, or project office in India. The most preferred form of business organizations for foreign investors is Private Limited Company and LLP. The reasons for this will be discussed later. 

  • Prerequisites for forming a business include getting a Director Identification Number (DIN) in India and a Digital Signature Certificate (DSC) of the proposed directors. To get these requirements, Identify Proof (Passport), Address Proof (e.g. Bank Statement) needs to be provided. NRIs/foreign nationals will have to get their documents notarized from the Indian Embassy of the country they are currently residing in. NRI will also have to register for PAN (Permanent Account Number) and TAN (Tax Deduction and Collection Account Number) for income tax purposes.

To enhance the ease of doing business index, SPICe Form which stands for Simplified Proforma for Incorporating Company Electronically was introduced in 2018 to streamline the process of company incorporation. With a single registration form, it becomes easier to apply for PAN, TAN, and DIN. 

  • Address proof is an essential requirement for business registration in India. Many NRIs face the problem of not having address proof (Electricity bill, Gas bill) when they plan to start a business in India since they are residing in other countries. To overcome this problem the Indian government has introduced the concept of virtual office space. NRIs or foreign nationals can now opt for a virtual office in India and move forward with their business set-up. 

Now coming to FDI, there are two routes:

  • Automatic Route: Does not require the permission from the RBI or Indian government. The 100 percent automatic route includes sectors like the Infrastructure Company in the Securities Market, Insurance, Medical Devices, Pension, Petroleum, etc.
  • Government Route: Prior approval from the government is mandatory. To increase the speed and transparency in the FDI approvals, Foreign Investment Promotion Board (FIPB) has been replaced by the Foreign Investment Facilitation Portal (FIFP) which functions as the online single-window clearance for the incoming  FDI proposals in consultation with the respective ministry and the Department of Policy and Promotion (DIPP). Only 11 sectors such as defense, retail trading, etc require government approval. 

There are certain sectors where FDI is prohibited such as Agriculture or Plantation project (excluding animal husbandry, horticulture, pisciculture, fisheries, etc), Atomic Energy Production, Housing, and Real Estate (excluding commercial projects, townships, etc), the tobacco industry, Lotteries, Nidhi Company and many others. 

Due to the many relaxations, there are several advantages for NRIs to start business both in Private Limited Company and Limited Liability Partnership. 

  • The compliance requirements for a private limited company and LLP are comparatively minimum. Along with the basic guidelines, they will have to comply with FEMA/FDI/RBI and Income Tax guidelines only. Most of the compliance requirements have been sorted by the government. 
  • FDI by NRIs are allowed in any private or public limited company via the automatic route and even for LLP, although RBI approval may be needed in some cases. 
  • The liability of NRIs in forming a private limited company or LLP is limited to the scale of their capital contribution. 
  • Private Limited and LLP are widely accepted establishments in terms of NRI investment owing to the existence of many foreign national companies and foreign LLPs in the country.
  • Both have an unending existence. 

Important points to consider while forming a Private Limited Company by an NRI in India:

  • Minimum of two directors required. At least one director needs to resident Indian. 
  • All the documents (DIN, DSC, PAN address proof, ID have to be submitted on the MCA portal by filing the incorporation form. 
  • Registered office to be situated in India.
  • FDI in a private limited company is approved only by the Automatic route. RBI/FEMA/FDI compliance has to be completed. 

Important points to consider for forming Limited Liability Partnership by NRI:

  • Every LLP requires at least two partners and shall have at the minimum two people as designated partners. One of them should be a resident Indian. 
  • LLP incorporation form called FiLLiP is to be submitted along with all the necessary documents. 
  • FDI in LLP can be made either by capital investment or by buying shares. Approval by the government might be needed in certain cases.
  • Documents may include LLP partnership agreements, ID proof, notarized NRI documents by the Indian Embassy, DSC, and others as prescribed by the Registrar of Companies (ROC).

If you are an NRI looking to start a business in India take advantage of the exclusive NRI bank accounts like Non-Resident Account (NRE). It lets you send money online via various money transfer services as foreign earning to your bank account or repatriate your money back whenever you want. By using money transfer service providers instead of high street banks when you are sending money to India, you can save a huge amount on the transfer fee and get a higher exchange rate. Here are the hassle free ways of sending money to India.

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