We’ve compiled a list of the most common mistakes international investors make while forming a business in India to assist you to avoid them.
1. Selecting the Incorrect Business Activity
Direct investments from foreigners enter India through one of two routes: the Government Route, which requires approval from the Indian government, or the Automatic Route, which allows funds to enter without approval.
The route is determined by the business’s industry. However, you should not choose a company simply because it allows for automatic investments. To avoid legal complications and other problems in the road, your business classification should match what you actually do.
2. The Inability to Find the Right Resident Director
Foreigners are not permitted to own sole proprietorships or one-person businesses. At least one local director is required for private and public limited businesses, as well as limited liability partnerships.
As a result, one of the first steps you should take is to choose a dependable and trustworthy resident director. Before appointing someone like your company’s resident director, it’s a good idea to run a background and criminal check on them.
The resident director should not be viewed solely as a legal duty. You should choose someone who is knowledgeable about the local market and can help you make business connections. Emerhub’s recruiters can assist you with finding the ideal candidate for this position.
3. Not Keeping Track of Initial Expenses
Even before you complete your company registration or begin operations, you will begin incurring business expenses. It’s critical to keep track of all of these expenses since you’ll need them when it comes time to file your taxes. If you don’t account for these costs, you may find yourself paying greater taxes once your business starts to make money.
4. Ignorance of local market conditions
Foreign investors may find it challenging to adjust to local market conditions because India is so diverse and home to so many different languages and cultures. Foreigners may encounter difficulties, especially when seeking services or purchasing raw materials.
This brings us back to the topic of finding a suitable resident director. Your resident director should act as a guide and assist you in understanding the local market conditions.
5. Mistaken Tax Planning
At the federal, state, and local levels, India has a variety of direct and indirect tax legislation. It is critical to be aware of and comprehend all applicable tax rules, as well as to account for all applicable taxes when filing taxes.
Inaccurate calculations and estimations may have a severe impact on your company’s profitability. Get in touch with Emerhub, and we’ll provide you with advice and assist you in planning and reporting your taxes.
6. Ignorance of Employment Laws
There are a few employment regulations on both the federal and municipal levels, similar to tax laws. If employers do not follow employment laws, they may find themselves in hot water. To maintain compliance with Indian legislation, international employers can obtain expert assistance from a company like Emerhub.
7. Funds Repatriation Without Approval
You must understand how to repatriate money earned in India before investing in the nation. Dividends can be repatriated rather easily, but they must first be paid and approved. However, directors’ personal income can be difficult to repatriate.
The Foreign Exchange Management Act of 1999 governs the repatriation of funds. Penalties will be imposed if regulations are broken..
8. Forming a Business When You Don’t Need One
There are various ways to do business in India without forming a corporation, which may be a better option for you in some situations.
You can utilize an Employer of Record service instead if you’re trying to hire employees in India. Employees are hired on your behalf by an employer of record. This implies you can recruit and hire people in India without having to set up a legal business. Emerhub will manage your company’s HR activities, such as hiring and payroll management, as your employer of record.
Depending on your business activity, you may also choose to open a liaison office or a branch office. If you want an office to represent your company in India or conduct other business duties that will not generate money for the parent firm locally, a liaison office is a perfect alternative. A branch office, on the other hand, can generate revenue in the local area and is ideal for businesses that deal with importing, exporting, and consulting.
Emerhub can assist you in starting your company without making any of these errors. Please complete the form below and we will contact you.