Overview: Why India, Why Now
India offers a large consumer base, a deep talent pool, and multiple pro-manufacturing incentives. For Chinese enterprises exploring India, the path is absolutely law-first: choose the correct entry route, secure any required government approvals, incorporate properly, and maintain timely regulatory filings. This guide explains the essential legal steps to start and operate confidently in India while maintaining a respectful, cooperative approach to Indian institutions.
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Entry Routes for Chinese Companies
Wholly-Owned Subsidiary (WOS) or Joint Venture (JV)
Most foreign businesses choose an Indian private limited company as a WOS or a JV. A WOS gives strategic control; a JV leverages a local partner’s distribution or licenses. Limited Liability Partnerships (LLPs) are possible in permitted sectors but are less common for larger scale operations.
Branch Office (BO), Liaison Office (LO), Project Office (PO)
BO/LO/PO are not separate companies; they are foreign office types permitted for limited activities and require Reserve Bank of India (RBI) permission. A Liaison Office cannot generate revenue in India. Project Offices are tied to specific projects and timelines.
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Press Note 3 (2020) & Approval Route
Key rule for Chinese investment: investors from countries sharing a land border with India (including China) require prior government approval for foreign direct investment (FDI) into any sector in India. This flows from Press Note 3 (2020) and remains in effect. In practice, proposals are reviewed on security and policy grounds by the relevant ministries before approval. Expect longer timelines than “automatic route” FDI. When structuring deals, plan for approvals, detailed disclosures, and potential queries.
- Who files: The Indian investee company or its authorised advisor typically files on the DPIIT/FIFP portal.
- Transactions covered: Primary investments, secondary transfers that result in beneficial ownership changes, and subsequent rounds.
- Deal planning tip: Build approval contingencies into term sheets and closing conditions.
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Incorporation: Step-by-Step (SPICe+)
Pre-requisites
- Directors: At least two directors; at least one must be an Indian resident director. Obtain Director Identification Numbers (DIN) and digital signatures (DSC).
- Name: Conduct a proper name check; avoid restricted words without approvals.
- Constitutional documents: Draft Memorandum of Association (MoA) and Articles of Association (AoA) aligned with FDI conditions.
SPICe+ flow on MCA
- File SPICe+ Part A for name reservation.
- Complete SPICe+ Part B with e-MoA (INC-33), e-AoA (INC-34), AGILE-PRO-S for tax/GST/ESIC/EPFO options, and attach foreign board resolutions (apostilled/notarised as applicable).
- Receive the CIN (Corporate Identification Number) and Certificate of Incorporation with PAN/TAN allotment.
Timeframes vary with document readiness, apostille, and any approval-route dependencies.
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Post-Incorporation Registrations
- FDI reporting: If foreign investment is received, complete RBI filings (e.g., SMF forms like FC-GPR for equity) within prescribed timelines.
- GST: Register if your taxable turnover exceeds the applicable threshold or if your business model requires it (for example, to claim input tax credit or to supply certain categories). Select the correct principal place of business.
- IEC (Import-Exporter Code): Mandatory for imports/exports; apply on DGFT portal.
- Shops & Establishments / local labour registrations: As per state laws.
- Sectoral registrations: For regulated sectors (telecom, fintech, e-commerce marketplace rules, etc.), obtain specific approvals/conditions.
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Tax, GST & Permanent Establishment
Corporate tax & withholding
Tax rates depend on the structure you choose (company vs. branch), applicable regimes, and treaty relief. Withholding applies to cross-border payments (royalties, fees for technical services, interest) subject to Indian law and any India–China tax treaty provisions.
GST basics
Goods and Services Tax applies to the supply of goods and services in India. Thresholds are notified by law and periodically revised; many manufacturers/traders register at ₹40 lakh turnover (normal states), while service providers often consider the ₹20 lakh threshold (special states may vary). E-invoicing and timely returns (GSTR-1/3B) are operational necessities.
Permanent Establishment (PE)
Separate from company-law presence, a non-resident can trigger a permanent establishment in India if it has a fixed place of business, dependent agent, or project/site presence meeting threshold tests—leading to Indian tax exposure on attributable profits. Plan personnel deployment, contracts, and risk control to manage PE exposure.
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Contracts, IP & Compliance Hygiene
- Governing law & forum: Use clear governing-law clauses (often Indian law) with well-drafted arbitration/venue provisions compliant with Indian arbitration law.
- Vendor & distributor agreements: Define quality standards, service-level commitments, and compliance with Indian consumer and competition laws.
- IP protection: File trademarks early; consider patents/designs where relevant. Record licenses where required.
- Employment: Use written employment contracts, local compliant payroll, and applicable state labour registrations.
- Data & privacy: Track India’s data protection obligations for responsible data handling.
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Banking, FX & FDI Reporting
Open a current account with an AD Category-I bank. All foreign equity inflows must follow permitted mode of payment and be reported in time. Keep your share valuation, share certificates, and statutory registers in order. For BO/LO/PO, follow the specific bank and RBI conditions on remittances and activity scope.
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FAQs
Do Chinese investments always need prior approval?
Yes, as a baseline rule under Press Note 3 (2020), investments from countries sharing a land border with India require prior government approval.
Can we set up a wholly-owned subsidiary?
Yes—subject to sectoral caps and approval requirements. Many sectors permit up to 100% foreign investment, but approval applies to Chinese investors.
How long does incorporation take?
Incorporation via SPICe+ can be quick if documents are ready, but deals involving prior FDI approval will take longer due to review timelines.
Do we need GST registration from day one?
Register when your model or turnover requires it. Many businesses register early to enable input tax credit and smooth compliance.
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Suggested Reading (Internal)
- Special Economic Zones (SEZs)
& Industrial Corridors: What Foreign Companies Need to Know
- E-Commerce & Online Services:
FDI Rules for Foreign Businesses in India
- Healthcare & Pharma: Entry
Routes for Overseas Companies in India
- Agriculture & Food
Processing: Rules for Foreign Investment in India
- Legal Framework for Foreign
Investors in India’s Renewable Energy Sector
- How Foreign Tech Companies Can
Operate in India: IT Sector Laws & Norms
authoritative references:
- DPIIT – Foreign Direct Investment Policy: dpiit.gov.in
- Press Note 3 (2020) – Prior Approval Rule: pdf
- RBI/FEMA – Non-Debt Instruments Rules & reporting: rules
- DGFT – Importer Exporter Code (IEC): dgft.gov.in
- CBIC – GST FAQs/registration: cbic-gst.gov.in
- E-commerce FDI conditions (marketplace vs inventory): overview
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