Get you Tax query Solved
Pick from the basket of various allied services:
Get Expert Assistance
An offshore company is a company incorporated in an outside/foreign country other than the country where it has its head office. When a company owner establishes or expands the same company in another country, it will be treated as an offshore company. The location of the offshore company will be different from the head/main office of the company.
For example – A US tax resident establishes a software development company in his state of residence. If he shifts some of his company operations to a foreign country like India by re-establishing the same company in India under the Indian law, i.e. Companies Act, 2013, it will be an offshore company of the US tax resident.
Thus, an offshore company is a company registered in a different country from where its investors and founders reside. The offshore company follows the regulations, laws, and tax authority of the foreign country in which it is registered and not where its founders/owners reside. The company owners prefer to establish an offshore company in foreign countries as it receives many facilities and legal benefits from that country.
When a foreign company establishes its offshore company in India, it is governed by the Companies Act, 2013 and FEMA (Foreign Exchange Management Act), 1999. The foreign investors must register the offshore company as per the provisions of the Companies Act, and the FEMA regulates the foreign/offshore investments and transactions.
Under FEMA, the foreign owners can establish an offshore company as a private or public limited company. The private and public limited companies allow FDI into India under the automatic route for those sectors that are not capped or restricted.
An offshore company can also be established as a Limited Liability Partnership (LLP) as FDI is permitted under the automatic route in an LLP for the sectors or activities where 100% FDI is allowed through the automatic route.
A foreign company can establish an offshore company in any of the following forms in India:
Examples of offshore companies in India – Cisco, General Electric (GE), IBM, Microsoft, etc.
The foreign company owner must fulfil the following requirements to establish an offshore company in India:
When the offshore company is established in India as a private limited company, it must have a minimum of two shareholders and two directors. When the offshore company is established in India as a public limited company, it must have at least seven shareholders and three directors.
When the offshore company is established as an LLP, it must have at least two designated partners. Additionally, at least one of the directors or partners in a company or LLP must be an Indian citizen.
The offshore company must be registered in India with an authorised share capital of at least Rs.1,00,000. There is no requirement to have a minimum paid-up capital for establishing a company.
The foreign company owner must prepare the MOA and AOA of the offshore company as per the Companies Act and Rules. The MOA must contain the name, registered office, object, liability and capital clause. The AOA must contain the details of the rules regarding the transfer of shares, share capital, the appointment of directors, voting rights of the shareholders, accounts and audit of the company etc.
The offshore company established in India can have its head office or primary address located outside India. However, a registered office address located in India and a local registered agent is required for establishing an offshore company. The registered office is the office address where the official correspondence takes place from and to India.
The Registrar of Companies will grant the Certificate of Registration for an offshore company in India upon verification of the application and satisfaction that it complies with the provisions of the Companies Act.
The offshore companies established in India need to comply with the provisions listed in the Income Tax Act, 1961 and Companies Act, 2013 after its registration. The offshore companies are required to hold an Annual General Meeting (AGM) in India yearly. They need to hire an auditor for the company in their first AGM. The auditor must ensure that accurate financial records are maintained that reflect the company’s actual position.
The auditor of the offshore company must prepare the profit and loss account and the balance sheet of the company, including the auditor’s and directors’ reports. The offshore companies must file income tax returns under the Income Tax Act and also the financial statement, annual returns of the company, and the other required annual forms with the MCA.
Other than the account books, the offshore companies must also maintain the following records under the Companies Act:
The benefits of registering an offshore company in India by a foreign investor or company owner are as follows:
Low authorised Capital: The offshore company can be registered with a minimal and affordable authorised capital requirement of Rs.1,00,000 with just two or three directors.
Reasonable Corporate Tax: The corporate tax rate of 30% is applicable to companies registered in India. The Income Tax Act also provides many incentives to IT and ITES (Information Technology Enabled Services) companies.
Double Taxation Treaties: The countries like Australia, Japan, UK, South Korea, Canada, USA, Singapore, and many more around 70 countries can enjoy the double taxation treaties with India while setting up a company. When the company owners of the countries with the double taxation treaties establish an offshore company in India, they can avoid paying taxes twice on the same income.
Highly Skilled Human Resources: India has a large pool of highly skilled professionals. Most Indian professionals are proficient in English, making it easy to communicate at work. The large pool of human resources has made it an ideal destination to build a solid offshore team.
Excellent Technological Infrastructure: India has transformed its technology in the last few years, resulting in a surge in offshore outsourcing of IT-related services and software development services to India. Many Indian cities such as Bengaluru, Pune, Hyderabad, etc., have global IT hubs with world-class infrastructure and offshore support services.
Disclaimer: The materials provided herein are solely for information purposes. No attorney-client relationship is created when you access or use the site or the materials. The information presented on this site does not constitute legal or professional advice and should not be relied upon for such purposes or used as a substitute for legal advice from an attorney licensed in your state.