There are a number of American companies in India which have been doing business successfully over the years.
India is also a large depository of skilled yet cheap labor. Hence, it becomes easy for the American companies to optimize their productions in India.
If you are an Indian-American with dreams to set up your own company in India, some important facets of the US tax law that you must not forget are:
Ownership by US citizens, residents or green card holders in a foreign company can attract provisions of subpart F income as well as certain reporting requirements such as Form 5471, FBAR, etc. Most entrepreneurs do not plan keeping these in mind and end up facing complications later on.
Generally, the earnings of foreign corporations are not taxed in the U.S. until the foreign corporation repatriates its earnings through the distribution of dividends. There is, however, an exception. If the foreign corporation is a Controlled Foreign Corporation (CFC), a different set of rules applies. For starters, the CFC will not automatically get exemption from taxation in the US on income earned in India.
To start a company in India, a minimum of two persons and an address in India are required. A private limited company in India must have a minimum of two directors (persons) and a minimum of two shareholders (can be persons or corporate entities). Further, the incorporation rules in India states that one of the Director of the Company must be both an Indian Citizen and Indian Resident (any person who has lived in India for over 186 days is considered an Indian Resident).
The preferred legal entity structure for foreign companies is to establish a company with three Directors, two being foreign nationals from the parent company and one director being a local Indian citizen. Since, there are no requirements for minimum shareholding with the Indian Director, 100% of the shares of the Indian Company can be held by foreign nationals or entities.
An address in India is required to serve as the registered office of the Company. The city in which the registered office address of the company will be setup will also determine the legal jurisdiction applicable for the company. Most foreign companies setup their registered offices in major metros of India like Delhi, Mumbai, Bangalore, Hyderabad, Chennai, etc.,
Post registration of the company in India, the Indian Director can help open a bank account for the company in India. Once the bank account is opened, the Company must make FDI reporting to the Reserve Bank of India. The procedure for reporting FDI inflow into the company is simple and can be completed easily by a legal or accounting professional in India. Completing the FDI reporting would ensure that the business is in compliance with all regulations in India and ready to operate.