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Modes for Setting up Business in India

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Modes of Setting up Business in India

For a foreign company three modes of setting up business in India are available, these are

Liaison Office – This kind of office is setup wherein only liaison / Marketing work is undertaken by the entity in India and all transactions whether related to Sale/ Purchase/ Provision of any services and even receipts and payment of money is undertaken directly by the parent company. Liaison office is not authorized to undertake any type of commercial activity accept liaison.

Foreign Branch Office – This kind of office setup is one step ahead of Liaison Office. In this type of setup trading transactions i.e. sale / purchase of goods and provision of services is allowed directly by the Foreign Branch Office itself but there are restrictions with regard to manufacturing and providing training.

Wholly Owned Subsidiary – This type of setup is allowed to undertake all kinds of commercial transaction.

After deciding on the mode for setting up business in India as mentioned above necessary permission of either the Reserve Bank of India (RBI) or Foreign Investment Promotion Board (FIPB) is required. In most of the activities 100% foreign equity participation is allowed on automatic route, in such cases there is no requirement for permission. For others permission is required from either FIPB or RBI before registration.

After obtaining permission of Reserve Bank of India (RBI) or Foreign Investment Promotion Board (FIPB) company / branch office / liaison office is required to be registered with the Registrar of Companies under the Companies Act also. This finishes the process of incorporation of an organisation in India.

Foreign Branch Office as well as Wholly Owned Subsidiary are allowed to work subject to general or specific restrictions imposed by the Reserve Bank of India (RBI) or Foreign Inward Promotion Board (FIPB). They are required to file necessary returns with various taxation and legal authorities as a separate entity from its parent.

Liaison Office Vs Branch Office Vs Wholly Owned Subsidiary – Pros and Cons

1. Setting Up

A wholly owned subsidiary is easier to setup than a liaison / branch office and does not require RBI approval. Whereas, A Liaison / Branch Office requires prior approval of RBI and it takes around 1-6 months for formation.

2. Cost Involved

Setting up a wholly owned subsidiary costs less than setting up a branch / liaison office in India.

3. Tax Liability

Income Tax liability of Branch Office is higher than that of a wholly owned subsidiary. A Liaison Office is not chargeable to tax. The rates of income tax for branch office are

Income Tax          40% of total income
Surcharge             2.5% of income tax if total income tax exceeds INR1,00,00,000/-

Education Cess@3% of Income tax and surcharge (if any).

Income Tax Rates for Wholly Owned Subsidiary are:

Income Tax        30% of total income
Surcharge          10% of income tax if total income tax exceeds INR1,00,00,000/-

Education Cess@3% of Income tax and surcharge (if any).

Further, in case of wholly owned subsidiary Dividend Distribution Tax @15% is applicable in case of remittance/repatriation of profits as dividend.

4. Closure

Liaison / Branch office is easier to close as compared to wholly owned subsidiary. A wholly owned company has to undertake liquidation proceedings as described under the Companies Act or has to be closed under the Fast Track Closure Scheme.

Legal Compliances in India

Liaison Office, Branch office and WOS (wholly owned subsidiary) are required to comply with various other legal compliance for working in India. A brief details of the same are given below

Income Tax Compliance
- Annual Income Tax returns
- Advance Tax calculation and deposit (Not Applicable to Liaison Office)
- Quarterly Tax Deducted at Source Compliance (Not Applicable to Liaison Office)

Sales Tax Compliance (In case of sale of goods) (Not Applicable to Liaison Office)
- Periodical returns
- statutory forms
- compliance with various provisions

Service Tax Compliance (in case of provision of taxable service) (Not Applicable to Liaison Office)
- Periodical returns
- compliance with various provisions
- periodical calculation and deposit of taxes

Registrar of Companies Compliance
- Annual Statutory Audit
- Filing of Annual Returns
- Filing of forms for various changes to company / branch office

Labour Laws Compliance
- Mainly two laws Provident Fund and Employees State Insurance
- Periodical returns and compliance with provisions of the laws
- maintenance of prescribed records

The above list is not exhaustive, and various other laws may be applicable depending on the actual working of the company.

MCA ROC Portal now working satisfactorily. Or Is it?

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As everybody is aware the Ministry of Corporate Affairs (MCA) portal which is used for filing all compliance forms with the Registrar of Companies (ROC) was in non working condition recently due to change of service provider for the portal. The portal is now working satisfactorily with some minor glitches here and there. The Ministry has also informed regarding the same.

Now, the stakeholders can file the necessary compliance and other documents with ROC. The MCA has also decided to provide relief to companies who were unable to file documents during the non-working period of online portal on a case to case basis.

Update: 27th February, 2013

The portal is running smooth for users but in the backend the process seems to be taking very long. I filed a Form 1A for Name Approval of a company on 20th February and even after more than 7 days there is no update on the same and the status is showing as “Assigned” for the last 6 days. I am sorry to say that the MCA Portal is in a very bad state as of now and is reminding me of the earlier ROC where all the things happened on Snail Pace. The Ministry of Corporate Affairs officials have at this time done a major bungling and even after more than one month are unable to run the portal and backend smoothly which is causing lots of heartburn for its users and businesses.

MCA Levies Fees on some additional forms

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Ministry of Corporate Affairs vide its General Circular No. 14/2012 dated June 21,2012 has levied fees for filing forms on MCA portal, which were till now being filed for free of cost. The effective date of circular is July 22nd, 2012. The forms which are under the domain of this Circular are as follows:

A.     Form 1 of Investor Education Protection Fund Rule (Awareness and Protection of investors) Rules, 2001

Every company which is required by the Companies Act, 1956 to credit to Investor Education and Protection Fund any amount as per the relevant section of the Act, has to file a statement of amounts credited to the Fund in this form.

Earlier, the form was filed free of cost, but now it has to be filed with the concerned Registrar of Companies through MCA 21, as per the fees mentioned in Schedule X of the Companies Act, 1956.

B.     Form 23B

Every statutory auditor appointed by the company in the Annual General Meeting under section 224(1) of the Companies Act, 1956 in this form has to intimate whether he has accepted the appointment or not to the concerned Registrar of Companies, , within 30 days of the intimation received from the company by the auditor.

Earlier, the form was filed free of cost, but now it has to be filed through MCA 21, as per the fees mentioned in Schedule X of the Companies Act, 1956

C.     Form 24A

This form is filed by the company under different sections of the Act for many purposes mentioned here under.

Rectification of name of a company under Section 22 of the Companies Act, 1956
Application for issue of license under Section 25 of the Companies Act, 1956
Appointment of auditor by Central Government, when no auditor is appointed or reappointed at AGM under Section 224(3) of the Companies Act, 1956
Removal of auditor of the Company under Section 224(7) of the Companies Act, 1956
Approval for entering into contract of sale, purchase, supply of goods, materials and services and for underwriting of shares or debentures with related parties under Section 297 of the Companies Act,1956

Earlier, fees was paid for purposes mentioned at (a), (b) and (e) as per Companies (Fee on Application) Rules, 1999 and not in cases mentioned at points (c) and (d), but now fees also has to be paid as per the Rules on these purposes also.

D.     Form 36

This form is filed by receiver or manager for filing the abstract of receipts and payments, pursuant to section 424 read with 421 and also pursuant to section 600 of the Companies Act, 1956.

Earlier, the form was filed free of cost, but now, the form has to be filed with fees prescribed in Schedule X of the Companies Act, 1956.

E.     Form 61

This form is filed by the company, making an application to concerned Registrar of Companies for the following purposes:

Extension of period of Annual General Meeting under section 166(1) of the Companies Act,1956
Extending of financial year beyond 18 months under section 210(4) of the Companies Act,1956
Filing of Scheme of Amalgamation and reconstruction of companies under section 394 of the Companies Act,1956
Declaring a Company as defunct company under section 560 of the Companies Act,1956
Compounding of offences under section 621A of the Companies Act,1956

Earlier, companies could file this form for any of the aforementioned purposes, without any fees, but now fees has to be paid as per Companies (Fee on Application) Rules, 1999

F.     Form 62

This form, if being filed for filing Form 154, Form 157 and Form 158 of the Companies (Court) Rules, 1959, will now attract fees as per Schedule X of the Companies Act, 1956

G.     Form 65

The company is required to file this form, making an application to the Central Government for the following purposes

Application pursuant to rule 2 of the Companies (application for extension of time or exemption under subsection (8) of section 58A) Rules, 1979

Now the form may be filed as per Companies (Fee on Application) Rules, 1999
Others- To submit any application or document with Central Government, where no other form has been prescribed

The form, now may be filed as per Companies (Fee on Application) Rules, 1999

Due Date extended for filing Financial Statement in XBRL format for FY 2011-12

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The Ministry of Corporate Affairs has extended the due date for filing of Annual Financial Statement i.e. Balance Sheet and Profit & Loss Account for the Financial Year commencing on or after 1st April, 2011 to 15th December, 2012. For more look at circular attached below:

General_Circular_34_2012

Non-Xbrl Companies allowed to file annual filing form 23AC & 23ACA till 15th September 2012 without additional fee

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This year New Schedule VI has been made applicable on companies to prepare its financial statements. The ROC is in the process of finalising new Form 23AC & 23ACA incorporating the changes. In view of the same non-xbrl companies are permitted to file Annual Balance Sheet and Profit & Loss Account in Form 23AC & 23ACA without any additional fees or penalty by 15th September, 2012 if the due date of filing is before 15th September. After 15th September the normal rules will apply. The text of the notification is provided below for your reference.

General Circular No 21/2012

File No. 17/160/2012-CL-V; Government of India; Ministry of Corporate Affairs; Dated02/08/2012

All the Regional Directors, All the Registrar of Companies

Sub: Filling of Balance Sheet and Profit and Loss Account by Companies in Non- XBRL for accounting year commencing on or after 01.04.2011.

Notification no. S.O-447 (E) dated 28.02.2011 on revised schedule VI is effective from  1st April 2011. The current year filing is based on revised schedule VI is due for filing. The revised form 23AC & ACA is under finalization and will be notified shortly on the MCA website.

All companies who are required to file non XBRL eform 23AC & ACA as per revised schedule VI be allowed to file their financial statement without any additional fee/penalty upto 15th September 2012 or within 30 days from the date of their AGM, whichever is later.

Sanjay Kumar Gupta

(Deputy Director)

Applicability of Fees on Form 23B for Auditor’s Appointment deferred till 12th August 2012

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The Ministry of Corporate Affairs (MCA) has decided to defer levying of fees on filing of Form 23B for Auditor’s Appointment till 12th August, 2012. So all those companies who have not filed Form 23B intimating ROC of the Auditor’s Appointment for any previous year are advised to file the Form 23B before 12th August, 2012 to avoid levying of fees. The text of the circular is enclosed for your reference.

General Circular No. 22/2012

F.No. 17/187/2011 – CL.V ; Government of India; Ministry of Corporate Affairs; Dated the 3rd Aug, 2012

To

All Regional Directors, All Registrar of Companies, All Stakeholders.

Sub : Imposing fees on certain e-forms filed with ROC, RD or MCA(HQ) under MCA-21 where at present no fee is prescribed.

Sir,

I am directed to refer to the Ministry’s General Circular no. 14/2012 dated 21st June 2012 & General Circular no. 19/2012 dated 27th July 2012 and to say that fees on Form 23B (Information by statutory auditor to the Registrar) has been further deferred for one week and shall now be applicable from 12th August, 2012.

Yours faithfully,

(Sanjay Shorey)

Joint Director

Additional Fees imposed on delay in filing form 23C for Appointment of Cost Auditor

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The Ministry of Corporate Affairs have decided to levy additional fees in delay in filing of Form 23C -Application to the Central Government for Appointment of Cost Auditor. The additional fees will range from two times of normal fees to 9 times of normal fees on delay of more than 90 days. Companies which are required to file form 23C are advised to file the form within time to avoid paying additional fees. The text of notification is provided below for your reference.

[TO BE PUBLISHED IN THE GAZETTE OF INDIA,

EXTRAORDINARY PART-II, SECTION-3, SUB-SECTION (i)]

GOVERNMENT OF INDIA; MINISTRY OF CORPORATE AFFAIRS

NOTIFICATION

NEW DELHI, the 7th August, 2012

G.S.R. 617(E).- In exercise of the powers conferred by sub-section (1) of section 642, read with sub-section (2) of section 637A of the Companies Act, 1956 (1 of 1956), the Central Government hereby amends the notification of the Government of India in the erstwhile Ministry of Law, Justice and Company Affairs (Department of Company Affairs) number G.S.R. 501(E), dated the 6th July, 1999 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), dated the 6th July, 1999, namely:-

2. In the said notification, after sub-rule (3), and Table-III, the following sub-rule (4) and Table-IV shall be inserted, namely:-

“(4) In case of delays in filing applications with the Central Government under sub-section (2) of section 233B of the said Act, the fee as specified in the Table-IV below shall be applicable:

Table – IV

Period of Delay Fee Payable with the Application
Upto 30 days Two times of normal fee
More than 30 days and upto 60 days Four times of normal fee
More than 60 days and upto 90 days Six times of normal fee
More than 90 days Nine times of normal fee

Note: Normal fee means the fee as given in the Table-I above.”

[File No. 52/5/CAB-2011]

B.B.GOYAL

Adviser (Cost)

Note:- The principal notification was published in the Gazette of India, Extraordinary

Part II, section 3, sub-section (i), vide G.S.R. 501(E), dated the 6th July, 1999,

Relaxation of Additional Fees & Extension of Due Date during the period MCA Portal was not working

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As most people are aware the MCA Portal which is used to file documents with Registrar of Companies (ROC) was not working due to technical issue arising from change in service provider since 17th January, 2013. The MCA has decided to waive of additional fees and extend due date for documents which could not be filed due to technical issues with the MCA portal. However, the decision to waive fees will be taken on case to case basis by the ROC / RD.

In our opinion, waiving of Additional Fee / Extension of Due Date should have been done on automatic basis by declaring the period in which MCA portal was not working as “Zero Period”. The decision by MCA to give relief on case to case basis will only increase the compliance requirements by the companies as well as additional work load with the ROC / RD as the companies which could not file forms in time will file separate application for relief (as opposed to automatic abatement) and the ROC/ RD would have to provide relief on case to case basis, which will increase the workload and increase the queue with the ROC Department.

We are providing below the text of the circular for your reference.

Circular No.. L./2013

No.17/187/2011-CL.V

Government of India

Ministry of Corporate Affairs

5th Floor, ‘A’ wing, Shastri Bhawan

Dr. R.P. Road, New Delhi-110 001

Dated the:  8th   February, 2013

To,

All Regional Directors,

All Registrars of Companies,

All Official Liquidators,

All Stakeholders.

Sub:-Relaxation of additional fees and extension of last date in filing of various forms with the Ministry of Corporate Affairs-reg.

Sir,

I am directed to inform you that the Ministry of Corporate Affairs has decided to extend the last date of filing and to relax the additional fees applicable on forms as per the provisions of Companies Act read with rules made there-under, which have been ought to be filed post transition of MCA 21  w.e.f.   17.01.2013, but could not be filed due to technical issues in MCA-21 system.

2. It is hereby clarified that the following relaxation shall be considered by the Regional Director/ Registrar of Companies on case to case basis while allowing for relaxation of fees or extension of last date with regard to forms to be filed by the stakeholders wherein :

(i)     Last date of filing for Forms where the due date is falling on or after  17th January,  2013  is without charging additional fee.

(ii)   All the documents which have been expired on or after 17th January due to non-submission/re-submission PUCL may be restored back.

(iii) All the cases related to filing of court orders/ competent authority where the due date/date of filing was falling on or after 17th January is extended without payment of additional fees.

(iv)  Name availability expired due to non-submission of incorporation documents will be made available for filing of the same.

(v) In case of charge documents the due date will be extended by Regional Director on case to case basis where the due date of filing was falling on or after 17/01/2013 and could not be filed.                   S

(vi)  The due date in above cases is hereby extended till 28/02/2013.

3.  The Regional Director/ Registrar of Companies will examine the request on case to case basis upon receipt of request from the stakeholders for allowing the relaxation without levying the additional fee.

4.  The process of extending date will be as under:-

a. Company/ professional will make request by e-mail/post with RD/ROC alongwith the supporting documents if, any;

b. RD/ROC will raise ticket on service desk immediately after examining the application;

c. The team of operator will resolve the ticket as per the request of RD/ROC. A system generated mail will be sent to RD/ROC and user will be informed accordingly;

d. User should file the documents within the time given in the email.

5.  The Regional Director/ Registrar of Companies is authorized to allow such extension of time for filing form/alongwith necessary document. The RD/ROC will raise ticket in the service desk for allowing such extension of time for filing forms.

6.  The stakeholders who are able to file the documents on or after 17/01/2013 till the date of this circular are not eligible for any fees relaxation or extension of last dates. Further they are not entitled for any refund.

Yours faithfully,

(Sanjay Kumar Gupta)

Deputy Director

Copy to:-

1. All Concerned

2. PS to CAM, PS to MOS.

3. PPS to Secretary, Special Secretary, PS to Joint Secretaries.

XBRL Annual Filing Due Date Extended till 28th February

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The Ministry of Corporate Affairs (MCA) has extended the due date of filing Annual Balance Sheet and Profit & Loss Account in XBRL format till 28th February. The relevant circular is enclosed below for your reference.

General Circular No: 05/2013

No. 17/ 161 /2012-CL-V

Government of India

Ministry of Corporate Affairs

5th Floor, “A” Wing, Shastri Bhawan,

Dr. R.P. Road, New Delhi-110001

Dated 12/02/2013

All the Regional Directors,

All the Registrar of Companies.

Sub: -Filing of Balance Sheet and Profit and Loss Account in extensible Business Reporting Language (XBRL) mode for the financial year commencing on or after 01.04.2011.

Sir,

In continuation of the Ministry’s General Circular Nos: 16/2012 dated 06.07.2012, 34/2012 dated 25.10.2012, 39/2012 dated 12.12.2012 and 01/2013 on the subject cited above, it is stated that the time limit to file the financial statements in the XBRL mode without any additional fee/penalty has been extended up to 28th February 2013 or within 30 days from the due date of AGM of the company, whichever is later.

All other terms and conditions of the General Circular No.16/2012 dated 06.07.2012 will remain the same.

Yours faithfully,

(Sanjay Kumar Gupta)

Deputy Director

Copy to:

1. All Stakeholders, ICAI, ICSI, ICAI-CMA, Chambers of Commerce

2. PS to MoS (CA)

3. Senior PPS to Secretary

4. PPS to Additional Secretary

5. PS to JS (R), JS (M)