Rule 2(c ) of the Companies (Registration of Foreign Companies) rules, 2014 has defined electronic mode to include virtually every transaction carried out through electronic mode including e-mail, mobile devices, social media, cloud computing, document management, voice or data transamission or otherwise. The rule also states that it is irrelevant whether or not the main server is installed in India or not.
The wide definition covers a wide range of services in its ambit including B2B and B2C transactions, data interchange and other digital supply transactions; offering to accept deposits or inviting deposits or accepting deposits or subscriptions in securities in India or from citizens of India; financial settlements, web based marketing, advisory and transactional services, database services and products, supply chain management; online services such as telemarketing, telecommuting, telemedicine, education and information research; all related data communication services.
In order to continue in India, the foreign companies are now required to establish a permanent place of work in India through registration. The interpretation of the Act and Rules suggests that even a single transaction conducted in India by a foreign company would be sufficient to infer that such foreign company has established a place of business in India.
There are two types of strategies through which foreign entities can establish permanent workplace in India
a. Registration of a company
b. Establishing a liaison/ branch
Registration of a company:
This is the cheapest, fastest and easiest way of entering the Indian marketplace. There are sectors wherein Central Government has allowed foreign direct investment of upto 100% into private limited companies or public limited companies. These sectors are covered under the automatic route.
Establishing a Liaison/ Branch
Permission from either RBI or Government is required for establishing a Liaison office, branch office or a project office in India. The process involves more time and cost as compared to incorporating a company in India. Further, foreign nationals are not allowed to open Liaison or branch or project offices. Hence, the option is available only for foreign companies.