How a Foreign National from Bhutan and Nepal Can Start and Register a Company in India?

India is rising in potential for investment. However, for foreign nationals from Bhutan and Nepal, specific legal and regulatory frameworks under Foreign Exchange Management Act (FEMA), 1999 and other regulatory policies such as FDI guidelines, Reserve Bank of India (RBI) rules, and Ministry of Corporate Affairs (MCA) provisions come into play. This paper explores in detail how a foreign national from Bhutan or Nepal can start and register a company in India, the essential procedures, restrictions, compliance requirements, and remittance-related guidelines.

Legal Framework and Applicable Laws

The process of company incorporation and foreign investment in India is governed by a set of core legislations, regulatory policies, and guidelines. These include the Foreign Exchange Management Act (FEMA), the Companies Act, the Consolidated FDI Policy issued by DPIIT, and relevant notifications and circulars from the Reserve Bank of India (RBI). A detailed explanation of each is given below:

Foreign Exchange Management Act (FEMA), 1999

FEMA is the foundational legislation that regulates all foreign exchange transactions in India. It provides a legal framework for the transfer and conversion of foreign currency and governs the inflow and outflow of foreign capital, particularly in the context of investments by foreign individuals and entities.

Under FEMA, foreign nationals except those from countries with restricted access (like Pakistan, Bangladesh, etc.) can invest in India in accordance with the Foreign Direct Investment (FDI) Policy. FEMA also prescribes guidelines for repatriation of profits, disinvestment, acquisition of immovable property, and opening of bank accounts by foreign nationals. The Act empowers the Reserve Bank of India to issue regulations related to foreign exchange, such as the Foreign Exchange Management (Transfer or Issue of Security by Persons Resident Outside India) Regulations, which are critical for foreign investors.

For citizens of Nepal and Bhutan, FEMA compliance allows investment in shares and debentures of Indian companies under the FDI route, but subject to payment via inward remittance in free foreign exchange. However, the remittance of sale proceeds from immovable property or certain financial assets outside India is restricted for them.

Companies Act, 2013

The Companies Act, 2013 governs the incorporation, functioning, management, and dissolution of companies in India. It is administered by the Ministry of Corporate Affairs (MCA). Foreign nationals, including those from Nepal and Bhutan, can incorporate a company in India by complying with the procedures laid down under the Act.

Key aspects regulated under the Companies Act include: 

• Types of companies that can be formed (Private, Public, LLP, etc.)

• Requirements for directors and shareholders

• Filing and approval of incorporation documents such as the SPICe+ form

• Compliance and annual return filings

• Maintenance of books of accounts and statutory registers 

For foreign nationals, the Act also mandates documentation such as proof of identity, address, notarization and apostille of foreign documents, and requires compliance with relevant rules for foreign shareholders.

Consolidated FDI Policy (by DPIIT)

The Department for Promotion of Industry and Internal Trade (DPIIT), under the Ministry of Commerce and Industry, issues the Consolidated FDI Policy which lays down the framework for foreign investment in India. The policy is updated periodically and consolidates all FDI regulations in one document.

This policy classifies sectors into: 

• Automatic Route: Where no prior approval from the government is needed

• Government Route: Where prior approval from the relevant ministry or department is necessary 

The policy also prescribes sectoral caps, prohibited sectors, guidelines on downstream investment, pricing norms, reporting requirements, and conditions applicable to foreign investment. For foreign nationals from Nepal and Bhutan, investment is allowed under the FDI policy provided it is routed through inward remittance in foreign exchange.

Special provisions exist for countries sharing land borders with India, and hence scrutiny of investments from Nepal and Bhutan may be subject to security clearance by the relevant authorities, even though these two countries enjoy preferential bilateral arrangements with India.

Reserve Bank of India (RBI) Circulars and Notifications

The RBI, as the central bank and the apex foreign exchange regulator, issues various notifications, circulars, and master directions which elaborate the operational guidelines under FEMA. These circulars cover procedures for: 

• Receipt and reporting of foreign investment

• Acquisition and transfer of immovable property

• Repatriation of profits and sale proceeds

• KYC norms and opening of bank accounts 

For instance, RBI’s Master Direction on Foreign Investment in India outlines the requirement to file Form FC-GPR for allotment of shares to foreign investors, Form FC-TRS for transfer of shares, and the timelines for filing. https://www.compliancecalendar.in/learn/rbi-fema-fdi-reporting-emf-smf-filing-fctrs-fla-return

For Nepalese and Bhutanese citizens, RBI circulars clarify that while they may invest in Indian companies under the FDI scheme, remittance of sale proceeds of certain assets is not allowed. Furthermore, acquisition of immovable property requires specific prior approval.

Investment Rights of Citizens and NRIs from Nepal and Bhutan

Foreign nationals from Nepal and Bhutan enjoy special status under the Indo-Nepal Treaty of Peace and Friendship, 1950, and India-Bhutan bilateral relations. However, their investment in India is permitted with specific conditions:

Equity Investment

NRIs resident in Nepal and Bhutan, and citizens of both countries are permitted to invest in shares and convertible debentures of Indian companies under the Foreign Direct Investment (FDI) Scheme on a repatriation basis, provided the investment consideration is paid via inward remittance in free foreign exchange through normal banking channels. Transactions in Indian Rupees are also permitted, but repatriation of sale proceeds of such investments in foreign exchange is not permitted under FEMA.

Immovable Property Investment Restrictions

Citizens of Nepal and Bhutan cannot acquire or transfer immovable property in India without prior permission of the RBI, except for a lease not exceeding five years. They are not permitted to remit the sale proceeds of such immovable property outside India. 

Types of Business Entities Allowed

Foreign nationals from Nepal and Bhutan who wish to establish a business in India have several legal forms of entities they can choose from, subject to compliance with Indian laws, FEMA regulations, and specific restrictions as applicable to their countries of origin. Below is a comprehensive explanation of each permitted entity structure, along with regulatory considerations

Private Limited Company

The Private Limited Company is the most popular and preferred form of business entity for foreign nationals, including those from Nepal and Bhutan. It offers limited liability to shareholders and a separate legal identity, making it ideal for small to medium-sized businesses seeking investment or scaling operations. A minimum of two shareholders and two directors are required to incorporate this type of company under the Companies Act, 2013. At least one of the directors must be an Indian resident.

For Nepalese and Bhutanese nationals, there are no special prohibitions against forming a private limited company in India, subject to compliance with FDI norms under FEMA and RBI regulations. However, in the case of investment from a company incorporated in Nepal or Bhutan, prior RBI approval may be required. The investment must also comply with the sectoral caps and entry routes as prescribed by the Consolidated FDI Policy.

Public Limited Company

A Public Limited Company is suitable for large-scale operations and enterprises that intend to raise capital from the public or list on stock exchanges in the future. It requires a minimum of seven shareholders and three directors. Like the private limited company, a public company also enjoys a separate legal identity and limited liability. Foreign nationals from Nepal and Bhutan can invest in or incorporate a public limited company, provided they comply with the relevant sectoral FDI guidelines and obtain necessary approvals where applicable.

Due to the scale and scrutiny involved in public limited companies, the incorporation process is more rigorous. Additionally, if the investors or shareholders include foreign entities from Nepal or Bhutan, RBI and DPIIT scrutiny may be involved depending on the investment structure and business activity.

Limited Liability Partnership (LLP)

A Limited Liability Partnership (LLP) is a hybrid structure that combines the operational flexibility of a partnership with the limited liability benefits of a company. Foreign nationals from Bhutan or Nepal can invest in or become partners in an Indian LLP; however, this is permitted only with prior approval of the Reserve Bank of India (RBI). The Foreign Direct Investment (FDI) in LLPs is allowed under the automatic route in specific sectors, but for nationals from neighbouring countries such as Nepal and Bhutan, this becomes a government route matter due to geopolitical considerations.

An LLP must have at least two partners, with at least one designated partner being an Indian resident. The advantage of an LLP is that it does not require share capital and has fewer compliance burdens than a company. However, due to the need for RBI approval and the limited FDI flexibility in LLPs, this option is generally less commonly used by Nepalese and Bhutanese investors. 

Liaison Office and Branch Office

Foreign companies and individuals from Nepal and Bhutan may consider setting up a Liaison Office or Branch Office in India. However, this option is subject to strict restrictions, especially for Nepalese entities. 

• Liaison Office: A Liaison Office acts as a channel of communication between the parent company and Indian businesses. It is not permitted to carry out any commercial or income-generating activities. Its functions are limited to representing the parent company, coordinating activities, gathering market information, and acting as a communication link. Foreign entities must obtain prior permission from the RBI to open a Liaison Office in India. For entities incorporated in Nepal, this is the only permitted form of business presence in India. No trading, manufacturing, or business activity can be conducted through this office.

• Branch Office: A Branch Office can carry out business activities like export/import of goods, rendering of professional services, or acting as a buying/selling agent. However, foreign companies from Nepal are not permitted to open Branch Offices in India. This restriction arises from the foreign exchange controls and security concerns applicable to countries sharing land borders with India. On the other hand, companies or nationals from Bhutan may be allowed to set up Branch Offices, but again, this is subject to prior approval from the RBI and other relevant authorities, and only for permitted sectors. 

Summary of Key Restrictions for Nepalese Nationals

While Bhutanese nationals generally enjoy greater investment freedom due to bilateral treaties with India, Nepalese nationals and companies face more limitations, especially with respect to: 

• Remittance of sale proceeds outside India

• Acquisition of immovable property

• Establishment of Branch Offices 

Thus, for Nepalese investors, the only practically viable business form in India is a Private Limited Company (if individual investment is made) or a Liaison Office (if established by a Nepalese entity), subject to FEMA and RBI regulations. 

Company Registration Procedure in India

Registering a company in India as a foreign national, including citizens of Nepal and Bhutan, requires adherence to the legal framework laid down by the Ministry of Corporate Affairs (MCA), the Companies Act, 2013, and accompanying FDI regulations under FEMA, 1999. Below is a step-by-step explanatory guide to the registration process.

Choosing the Type of Company

The first step is selecting the appropriate type of business structure. For most foreign investors, the Private Limited Company (PLC) is the most common and suitable form due to its ease of operation, limited liability, and access to funding. It allows foreign shareholding (subject to FDI rules) and has a flexible management structure. Other types like Public Limited Company, LLP, or Branch Office can also be considered depending on the business goals and regulatory permissions.

Obtaining Digital Signature Certificate (DSC)

Every proposed director or subscriber to the Memorandum and Articles of Association must possess a Digital Signature Certificate (DSC). This certificate is mandatory for filing company registration documents electronically with the MCA. Foreign nationals, including citizens of Nepal and Bhutan, are required to obtain Class 3 DSC from certified Indian authorities by submitting their passport, photo ID, and address proof attested by an Indian Embassy or a public notary.

Director Identification Number (DIN)

Next, a Director Identification Number (DIN) must be obtained for at least two individuals who will act as directors of the company. DIN is a unique identification number allotted by the MCA to individuals who intend to become directors in Indian companies. This process is typically covered within the SPICe+ (INC-32) form submission but must be backed by identity and address proof, duly verified.

Name Reservation via RUN (Reserve Unique Name)

Before registration, the proposed name of the company needs to be approved by the MCA. This is done through the RUN (Reserve Unique Name) facility on the MCA portal. The proposed name should comply with the naming guidelines, not resemble an existing company or trademark, and preferably indicate the nature of business. Once approved, the name remains reserved for 20 days, during which the company must complete its registration formalities.

Filing SPICe+ (INC-32) – Integrated Form for Incorporation

The SPICe+ (INC-32) form is a simplified and integrated incorporation form that combines multiple applications into a single filing. It enables the applicant to simultaneously apply for: 

• Incorporation of the company

• Allotment of Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN)

• Registration for Employees’ Provident Fund Organisation (EPFO), Employees’ State Insurance Corporation (ESIC), and Professional Tax (in some states)

• Opening of a bank account in the company’s name through linked banks such as ICICI, HDFC, etc. 

This reduces procedural delays and ensures a streamlined registration process.

Charter Documents – MoA and AoA

The Memorandum of Association (MoA) and Articles of Association (AoA) are the constitutional documents of the company. The MoA defines the scope of the company’s activities and its relationship with the outside world, whereas the AoA lays down the internal management rules, rights of shareholders, and roles of directors. These documents must be prepared carefully and submitted electronically during the SPICe+ process. For foreign nationals, the MoA and AoA must be signed and notarized as per the rules prescribed under the Companies (Incorporation) Rules, 2014.

Document Requirements for Foreign Nationals

For registration, foreign promoters and directors must submit the following key documents: 

• Passport-size photograph of each director and subscriber

• Passport or national ID card (authenticated by Indian embassy or apostilled)

• Proof of current residential address such as utility bill or bank statement, not older than two months

• Board resolution or authorization (in case the subscriber is a corporate body)

• No Objection Certificate (NOC) from the landlord where the registered office will be located

• Proof of address of the registered office such as an electricity bill, lease deed, or rental agreement, also not older than two months 

All documents must be translated into English (if applicable) and attested appropriately.

Filing with Registrar of Companies (RoC)

Once all documents are ready and SPICe+ and linked forms are duly filled, the application is filed electronically with the Registrar of Companies (RoC) in the relevant jurisdiction. Upon verification, the RoC may raise queries or request clarification, but once satisfied, the Certificate of Incorporation (CoI) is issued. This certificate includes the Corporate Identification Number (CIN) and confirms that the company has been legally registered.

The issuance of the CoI marks the legal birth of the company, which can then begin its operations as a distinct legal entity recognized under Indian law. The company is now eligible to open a bank account, hire staff, and conduct lawful business activities, subject to sectoral regulations and FDI guidelines.

FDI Compliance and RBI Reporting 

• Mode of Investment: Must be through inward remittance in free foreign exchange through normal banking channels.

• FDI Sectoral Caps and Entry Routes: Check if the proposed sector falls under automatic or government approval route.

• Post-Investment Reporting: File Advance Remittance Form (ARF) with RBI through AD Bank. File Form FC-GPR within 30 days of issue of shares.

• Compliances under FEMA: Maintain records of foreign investments. Submit annual returns as required. 

Restrictions and Special Conditions for Nepalese and Bhutanese Nationals

While citizens of Nepal and Bhutan enjoy certain investment privileges in India due to historical and diplomatic ties, they are also subject to specific restrictions. These limitations apply to remittance of funds, acquisition of immovable property, and the type of business establishments they can set up. Below is a detailed explanation in paragraph form for better understanding:

Restrictions on Remittance

Citizens of Nepal and Bhutan are not permitted to repatriate (i.e., send back to their home countries) the proceeds from the sale of immovable property or financial assets in India. Even if they are allowed to invest in shares, debentures, or property (under limited conditions), the money earned by selling those assets cannot be taken out of India. This restriction exists under FEMA and is intended to control foreign exchange outflows.

Limitations on Immovable Property Acquisition

Individuals from Nepal and Bhutan are not allowed to freely acquire or transfer immovable property (such as land or buildings) in India. If they wish to do so, they must obtain prior permission from the Reserve Bank of India. However, leasing property is allowed but only for a limited duration. They can lease immovable property for up to five years without RBI approval. Any lease beyond this period, or any attempt to buy property, must be specifically approved by RBI.

Restrictions on Entities Incorporated in Nepal or Bhutan

Companies or business entities that are incorporated in Nepal or Bhutan also face restrictions when trying to operate in India. These entities are not allowed to acquire immovable property without RBI’s prior permission. Additionally, such companies are not permitted to set up branch offices or subsidiaries freely. In the case of Nepalese entities, only Liaison Offices are permitted to be established in India. These Liaison Offices are strictly limited in function they cannot undertake any commercial or income-generating activities.

Rules for Branch and Liaison Offices

When it comes to setting up business presences in India, there are differences in what is allowed depending on the type of office and the country of origin: 

• Branch Offices: Normally, a foreign company that has established a Branch Office in India is allowed to acquire property needed for business operations. But for companies incorporated in Nepal, establishing a Branch Office is not permitted. They are only allowed to operate through Liaison Offices.

• Liaison Offices: A Liaison Office acts as a representative of the foreign company in India and is permitted to promote its business, act as a communication channel, and gather information. However, Liaison Offices cannot carry out actual business activities or earn income in India. They can only lease property (for office space) and that too for a lease period not exceeding five years. 

In essence, while Nepalese and Bhutanese nationals can invest in Indian businesses, they face restrictions on property ownership and remittance of sale proceeds. Entities from these countries are restricted to non-commercial forms of business presence like Liaison Offices and must navigate various approvals and compliance processes if they wish to expand their business footprint in India. 

Taxation and Other Registrations

Once registered, the company must comply with Indian taxation and labor laws: 

• PAN and TAN: Allotment is simultaneous with SPICe+ registration.

• GST Registration: Required if turnover exceeds prescribed threshold or for inter-state supply.

• Import Export Code (IEC): Mandatory for any import/export activity.

• ESIC, EPFO, Professional Tax: Mandatory for labor compliance (auto-included in SPICe+).

• Annual Filings and Audit:

• Financial statements to be audited annually.

• Filing of annual returns with ROC and MCA. 

Conclusion 

While foreign nationals from Nepal and Bhutan enjoy a unique and preferential status in India, their rights to establish companies are governed by a blend of relaxed and restricted regulations. Company registration is possible, but repatriation and immovable property acquisition are tightly regulated. Ensuring compliance with FEMA, RBI, and MCA requirements is key to successful incorporation and operation of a business in India. 

Frequently Asked Questions (FAQ)

Q1. What types of business entities can a foreign national from Nepal or Bhutan set up in India?

Ans. A foreign national from Nepal or Bhutan can generally incorporate the following types of business entities in India: 

• Private Limited Company – This is the most common form, allowing full-fledged operations and profits.

• Public Limited Company – Suitable for larger investments and capital-intensive sectors.

• Limited Liability Partnership (LLP) – Allowed only with prior approval from the Reserve Bank of India (RBI).

• Branch Office or Liaison Office – Subject to RBI approval and limited to representational roles. 

However, there are restrictions, especially for Nepalese nationals. For example, entities incorporated in Nepal are only allowed to open Liaison Offices and not Branch Offices or wholly-owned subsidiaries.

Q2. Can a Nepalese company or citizen set up a Private Limited Company in India?

Ans. A citizen of Nepal (as an individual) can invest in and set up a Private Limited Company in India, subject to compliance with FEMA and FDI policy. However, a Nepalese-incorporated company cannot directly set up a Private Limited Company or Branch Office in India. It can only establish a Liaison Office, which cannot carry out commercial or revenue-generating activities.

Q3. Are Bhutanese nationals allowed to establish any type of business in India?

Ans. Yes, Bhutanese nationals can set up Private Limited Companies, Public Limited Companies, or LLPs in India, provided they meet eligibility and compliance norms under FEMA and Companies Act, 2013. However, LLPs by foreign nationals require prior RBI approval. Bhutanese companies can also apply for Liaison or Branch Offices, subject to regulatory approval.

Q4. What is a Liaison Office, and what can it do in India?

Ans. A Liaison Office is a communication or representative office of a foreign company in India. It can: 

• Promote the parent company's business.

• Act as a communication channel between the foreign office and Indian parties.

• Conduct market research or feasibility studies. 

However, it cannot: 

• Carry out commercial or trading activities.

• Earn any income in India.

• Sign contracts or execute deals on behalf of the parent company. 

Q5. Can Liaison Offices own property in India?

Ans. Liaison Offices are not permitted to own immovable property in India. However, they are allowed to lease office space for up to five years without requiring prior approval from the Reserve Bank of India. For longer lease periods or property acquisition, RBI permission is mandatory.

Q6. Can a Branch Office be set up by a Nepalese company in India?

Ans. No. Nepalese companies are not permitted to establish Branch Offices in India. They are only allowed to operate through Liaison Offices. These Liaison Offices must also obtain prior approval from the RBI and are not allowed to carry out any business activity or earn income in India.

Q7. What is the difference between a Branch Office and a Liaison Office?

Ans. A Branch Office can undertake commercial business, represent the foreign company, and generate income in India. It can offer services, conduct export/import activities, and sign contracts. A Liaison Office is limited to non-commercial functions like promoting the parent company, networking, and gathering market information. It cannot engage in business or income-generating activities. Nepalese companies are restricted to Liaison Offices only, while Bhutanese entities may seek permission for Branch Offices.

Q8. Is RBI approval mandatory for all business structures?

Ans. RBI approval is mandatory for: 

• LLPs by foreign nationals (including those from Nepal and Bhutan).

• Establishing a Branch Office or Liaison Office.

• Acquiring immovable property or leasing it for more than five years. 

For Private or Public Limited Companies, general permission is available under the automatic route if FDI norms are followed. However, any special circumstances involving Nepal or Bhutan may attract additional scrutiny or require clarification from the RBI.