UK Company Expanding to India: Legal and Compliance Checklist 

Now that India is a prime target for businesses outside of the UK, several factors will give your company the edge. India boasts a large consumer population, an expanding digital economy, and more developed business sectors, all of which mean that your company will have plenty of opportunities for rapid growth.

A UK company expanding to India will have to do much more than some market analysis and prep for funding. These companies need to select a legal structure, understand the process for Foreign Direct Investment (FDI), go through the formalities to incorporate the business, and deal with taxes, employment, foreign currency transactions, and ongoing corporate compliance.

This checklist highlights the main points a UK company should consider before starting business activities in India.

1. Choose the Right Business Structure

The first step is how the UK company will set up in India.

How and why the UK company wants to do business in India determines the type of company it may choose from among the Indian private limited company, wholly owned subsidiary, branch office, liaison office, etc.

For businesses that intend longer-term commercial activities, an Indian private limited company or a wholly owned subsidiary offers the company a separate legal identity and gives greater flexibility of operation.

The answer lies in the proposed operations, the ownership and financing structure, the operating sector and the tax consideration.

The UK parent company needs to clarify, prior to the incorporation of the Indian company, the roles and responsibilities of the Indian entity.

2. Check FDI Rules Before Investing

FDI for UK companies in India is a crucial part of the business expansion process.

India allows foreign investment in most business sectors, but the permitted investment level and the route through which the investment can be made can be business activity-specific. Some activities can be invested in through the automatic route, while certain business activities require either approval of the Government of India or compliance with more business conditions.

Therefore, the UK company needs to check:

• If any foreign investment is allowed for the specific business activity
• The sectoral investment limit, if any
• If the investment can be made through the automatic route or requires an approval
• If any other licenses are required
• If there are any specific conditions of ownership or operation

The FDI policy is subject to change, and while transferring funds or while issuing shares, the company is required to check the rules of the specific sector.

3. Understand FEMA Requirements

Foreign investment in India is regulated by the Foreign Exchange Management Act (FEMA) and related rules.

Compliance with FEMA for foreign firms includes receiving foreign investment, share issuance to non-residents, reporting transactions, and transfer of funds.

Take the case of an Indian firm that receives foreign investment. It is obliged to comply with the reporting requirements specific to the banking and regulatory systems.

Therefore, a UK firm looking to make the investment must liaise with its Indian authorized dealer bank and its professional advisers.

Timely completion of the required forms is likely to avoid issues with foreign investment reporting.

4. Complete Indian Company Incorporation

When a UK business starts an Indian company, they have to go through the MCA's incorporation process.

The process typically involves selecting a name for the company, creating incorporation filings, identifying directors and subscribers, obtaining digital signatures, and filling out the forms.

Foreign corporate shareholders might need to provide a certificate of incorporation and corporate resolutions. The MCA's SPICe+ outlined instructions give forms to fill out for supporting documents when a foreign company is a subscriber.

The specific forms and documentation depend on what structure the company plans and who the shareholders will be.

5. Arrange PAN, TAN and Other Registrations

The Indian entity will have to register a number of things after incorporation, depending on its activities.

Some of the common registrations will be:

• Permanent Account Number (PAN)
• Tax Deduction and Collection Account Number (TAN)
• Goods and Services Tax (GST)
• Import Export Code (IEC)
• Professional tax registration
• Shops and Establishments registration
• Licenses and approvals depending on the sector

Not all companies need all registrations. The registrations a company will need are dependent on its operational model and location.

6. Plan Indian Tax Compliance

Planning for Indian taxes should begin even before operations of the Indian business start.

Depending on its activities and transactions, an Indian subsidiary may have to pay corporate income tax, GST, and/or levy tax deductions.

A UK company set up in India may also have transactions between the UK parent and the Indian company. These may include management and technical services, royalties, software, loans, and various other intercompany transactions.

Such transactions need to be properly structured and documented because they may be subject to transfer pricing and related party provisions.

The Indian Income Tax Department also has specific return and form requirements for foreign companies. This makes a review by a tax professional necessary for cross-border operations.

7. Review Transfer Pricing Requirements

Transactions between an Indian entity and its UK parent/subsidiary may be subject to India's transfer pricing regime.

The group is expected to keep the necessary agreements, invoices, records, and benchmarking documents, as the case may be.

Transfer pricing should not be viewed as a year-end compliance exercise. Arrangements should be structured correctly from the outset of the transaction.

For large international groups, further reporting obligations may also be triggered under the Indian tax regime.

8. Follow Employment and Payroll Laws

Setting up a branch in India comes with additional compliance requirements.

When a UK company opens a branch in India, the Indian entity will need to deal with:

• Employment contracts
• Minimum wages
• Working Terms & Conditions
• Employee benefits
• The Provident Fund (EPF)
• Employees' State Insurance (ESI)
• Professional tax
• Taxes on payroll
• Leave & Workplace Rules
• Labour registrations based on the state

Employment laws may differ from state to state and also based on the type of business. Companies should therefore review local requirements before hiring their first employees.

9. Maintain Ongoing Corporate Compliance

Incorporation is just the first step.

An Indian company must comply with the laws on companies, taxes, and many other regulations. Depending on the company and its business, this may require keeping required records, holding board and share meetings, filing annual reports and financial statements, keeping accounting records, and doing tax returns.

This is why legal compliance for UK companies in India should be seen as an ongoing process, not just a one-time registration.

The Ministry of Corporate Affairs has been looking at and simplifying different parts of the incorporation and compliance system, so companies should check what the current rules are before filing.

10. Check Sector-Specific Licences

Certain industries have additional regulatory requirements.

Businesses in financial services, insurance, healthcare, food, education, telecom, pharmaceuticals (and other) regulated industries may need to obtain authorizations from the relevant authorities.

So a UK firm should do a regulatory check before settling on its Indian business model.

A structure that fits a tech company may not work for a business in a highly regulated sector.

11. Keep Foreign Exchange and Banking Records

The Indian company needs to keep proper records for all funds received from the UK parent and payments made to foreign parties.

This involves keeping good investment records, bank records, contracts, invoices, and filings for regulations.

Good documentation is especially important when the Indian company receives more capital, issues shares, pays foreign service providers, or does other cross-border deals.

12. Prepare a Compliance Calendar

Setting up a compliance calendar is a good way to avoid missing deadlines directly from the start of operations.

The calendar can list

• MCA filings
• Income Tax Filings
• GST Returns
• Payroll/Employment Filings
• REMITTANCE-related reporting
• Transfer Pricing Deadlines
• Licenses Renewals
• Board/Shareholder Compliance
• Audit Deadlines

Roles need to be clearly defined for the Indian Management Team, the UK Parent, and the Professional Advisers.

Final Checklist for a UK Business Entering India

A UK Company Expanding to India should make sure they have done the following when setting up operations:

• Decided on the correct Indian business entity
• Checked the eligibility for FDI and done a sector analysis
• Checked FEMA status
• Prepared documents for foreign shareholders
• Finalized incorporation processes
• Bought the necessary tax registrations
• Analyzed GST and other indirect taxes
• Arranged cross-border transactions
• Determined transfer pricing
• Set up employment and payroll systems
• Found the sector-specific licenses

Created a compliance calendar for performing ongoing compliance requirements

India has a lot of potential for UK companies but has a lot of complex startup requirements. Legal structuring, tax structuring, and compliance should be done together in an integrated fashion.

Hiring an attorney who practices in India to help with company registration will ensure very few company delays and helps avoid most compliance mistakes.

Expand Your UK Business to India with VenturEasy

Expanding into India from the UK? VenturEasy provides insights about the Indian company setup process and the associated compliance involved in establishing operations in India.

Selecting the right business structure and managing incorporation and continuous compliance can be done well in advance and facilitate India market entry.

Reach out to VenturEasy to share your India expansion plans and receive support in establishing your business in India.

FAQs (Frequently Asked Questions)

1. Can a UK company expand its business to India?

Yes. Companies under UK jurisdiction can create a commercial presence in India through a proper business structure, and in accordance with applicable Indian legislation on company registration, FDI, FEMA rules, and sector-specific laws and regulations. The right structure will depend on the company's activity, ownership, capital, and the company's objectives.

2. What is the best structure for a UK company expanding to India? 

UK companies that intend to have an extended, more permanent presence in India typically select a Private Limited Company or a Wholly Owned Subsidiary. Depending on what the Indian presence is for, a branch office or a liaison office may be appropriate. The most suitable structure will be chosen depending on the proposed activities and the pertinent laws.

3. What FDI rules apply to UK companies investing in India? 

All UK companies planning to invest in India must review the FDI rules pertaining to their respective industry. The foreign investment cap, entry route, and other conditions will differ across industries. Some activities may allow foreign investments under the automatic route, while others will require government approval and/or other additional conditions.

4. Does a UK company need to comply with FEMA when investing in India? 

Yes. Certain foreign investments and most of the cross-border transactions connected to India will be governed by the Foreign Exchange Management Act (FEMA) and the regulations made thereafter. Therefore, a UK company will have to ensure that its investments, share issues, remittances and required reporting are done in accordance with the prescribed procedures.

5. What registrations may be required after setting up an Indian company? 

The registrations may include PAN, TAN, GST, Import and Export code, and state and sector-specific licenses. The registrations may also include employment and tax registrations. The registrations will be based on the business and its location.

6. What ongoing compliance does a UK-owned Indian company have? 

After setting up its operations, the Indian company will maintain statutory records and files with the MCA, comply with the obligations of the income tax and GST, manage payroll and employment compliance, and maintain accounting records and comply with FEMA, transfer pricing and sector-specific laws. The company may find it useful to have a compliance calendar to track the deadlines for the recurring filings.