Key Points and Challenges NRIs Must Consider Before Starting A Business in India

In recent times, the economy has taken a big leap as it has become the 5th largest economy in the world by nominal GDP and 3rd largest in terms of purchasing power parity (PPP). At present, the overall GDP of India is $4.113 trillion. This makes India one of the most promising investment destinations for Non-resident Indians (NRIs) who are vying to start their business venture in India.

Almost every industrial sector in India such as pharma, IT, real estate, and finance has been witnessing amazing growth and it has immense growth potential for expats living in other countries. If you are a NRI looking to start a business venture in India, here is a guide that would help you understand how to do it proficiently. 

What is the role of NRIs in the Indian economy?

Non-resident Indians (NRIs) are known to be a mainstay in the Indian economy as they are the major drivers of funds in the industry. Along with the postulation of new skills, they are also promoters of newer technologies and open up new doors of success for different types of businesses operating in India.

In order to promote their participation in the growth story of India, the Indian government has made several relaxations in terms of administrative tasks and legal framework to make it easier and faster for NRIs to make an entry into the Indian diaspora.

Both the local and central governments have put in place a wide range of programs to boost investment including sponsored electricity rates, reduced land costs for setting up manufacturing units, and even tax exemption for a few months or years to promote business establishment in India.

For an NRI looking to foray in India, starting a business is full of challenges. From arranging funds at the initial stage to getting away with the necessary documentation and paperwork, handling different ministries and government bodies, meeting compliance obligations, and securing applicable licenses, there are hundreds of things that get into business setup in India. 

The EoDB index refers to a collection of 10 zones of business principles given in the below image. A lower numerical value shows a higher ranking as it specifies accessibility and simplicity to meet the requirements for those limitations.

Image source: – CompareRemit

Challenges Associated With New Business Setup For NRIs in India

According to the New Companies Act of 2013, the creation of a single-person company is only meant for resident Indians. NRIs and PIOs (Person of Indian Origin) are not permitted to set up a one-person company in the country. However, they can become the directors of an Indian business entity. This issue associated with a one-person company can be handled by hiring a resident Indian who can serve as a director for the company in India.

NRIs, PIOs, Overseas Citizens, or foreign residents or nationals are permitted to make investments in India either by investing in the shares of a running Indian business or setting up an entirely new firm.

However, for NRIs, there is an option to set up a Private Limited Company, a Limited Liability Partnership, or open a local office, liaison office, or project office in India. Among them, the most widely and commonly chosen business structures by NRIs are LLP and Private Limited Company. 

Fundamentals for setting up a business include securing a Director Identification Number (DIN) in India and a Digital Signature Certificate (DSC) of the projected directors. When it comes to fulfilling these obligations, various documents like Identify Proof (Passport), and Address Proof (e.g. Bank Statement) need to be submitted.

NRIs/foreign nationals are supposed to get these documents notarized from the Indian Embassy of the country where they are present currently. NRIs also need to register themselves for PAN (Permanent Account Number) and TAN (Tax Deduction and Collection Account Number) for income tax objectives.

When it comes to levelling up the ease of doing business index, SPICe Form which refers to Simplified Proforma for Incorporating Company Electronically was brought in the year 2018 to rationalize company setup procedure. This made it easier for NRIs to apply for PAN, TAN, and DIN through a single registration form. 

Another important element for business registration in India is Address proof. 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 make this element simpler, the Indian government has brought the idea of virtual office space. NRIs or foreign nationals can now open a virtual office in India and move forward with their business set-up.

There are two approaches to tackle FDI thing:

• Automatic Path: This approach doesn’t ask for the permission of the RBI or the government of India. This approach is completely automatic and may be inclusive of the sectors such as the Infrastructure Company in the Securities Market, Medical Equipment, Petroleum, Insurance, Pension etc.
• Government Approach: InThere are a few sectors where FDI is not allowed. These domains are Agriculture or Plantation project (excluding animal husbandry, horticulture, pisciculture, fisheries, etc), Atomic Energy Production, Housing, and Real Estate (except commercial projects, townships, etc), the tobacco industry, Lotteries, Nidhi Company and several others.

Because of the increased leniency levels, NRIs can seek to benefits from starting their business venture either as a Private Limited Company or Limited Liability Partnership. 

• FDI from NRIs are permitted in any private or public limited company through the automatic route. In the case of LLP, RBI approval may be required in a few scenarios.
• The obligation of NRIs in the setup of a private limited company or LLP is restricted to the gauge of their capital influence.
• Private Limited and LLP are some of the most commonly chosen structures in terms of NRI investment given the presence of numerous foreign national companies and foreign LLPs in India.

Important points to consider while setting up a Private Limited Company by a Non-resident Indian:

• At least two directors are needed. One of them should be a resident Indian.
• All the stated documents (DIN, DSC, PAN address proof, ID needed to be submitted on the MCA portal by filing the incorporation form. The registered office needs to be in India.
• FDI in a private limited company can be achieved only by the Automatic route. RBI/FEMA/FDI compliance has to be completed.

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

• There should be a minimum of two partner is a LLP firm. One of them should be a resident Indian.
• LLP incorporation form called FiLLiP which needs to be submitted along with all the necessary documents.
• FDI in LLP can be linked either through capital investment or purchasing shares. Approval by the government may be required in a few scenarios.
• The required documents may be inclusive of LLP partnership agreements, ID proof, notarized NRI documents by the Indian Embassy, DSC, and others as suggested by the Registrar of Companies (ROC).

The Conclusion

If you are a NRI and want to kick off a business in India, it is suggested to take the benefit of the unique NRI bank accounts such as Non-Resident Account (NRE). Though these accounts, you can transfer money online from your foreign bank account to your Indian bank account to and from. Rather than choosing high street banks, it is always a good idea to opt for these money transfer services and save a huge amount on transfer charges and enjoy a better exchange rate.