Guide to Foreign Authority Approvals for USA Business Operations

An Indian company must obtain approvals from the Reserve Bank of India (RBI) under the Foreign Exchange Management Act (FEMA), 1999, and from the US federal and state authorities depending on the business activity. The specific approvals depend on whether the Indian entity is setting up a branch, liaison office, subsidiary, or joint venture in the USA.

Under FEMA, an Indian company can invest in a US entity (subsidiary or joint venture) under the automatic route without prior RBI approval, provided the total overseas investment does not exceed 400% of the net worth of the Indian company as per the last audited balance sheet. For investments exceeding this limit, or for certain restricted sectors, prior RBI approval is required through the approval route.

For US operations, the Indian company must register with the US Securities and Exchange Commission (SEC) if it plans to raise capital through public offerings. Additionally, state-level registrations are mandatory—such as registering with the Secretary of State in the state where the business will operate, obtaining an Employer Identification Number (EIN) from the Internal Revenue Service (IRS), and securing any industry-specific licenses (e.g., from the Food and Drug Administration for food products, or the Federal Communications Commission for telecommunications).

An Indian individual seeking to work or operate a business in the USA must obtain a non-immigrant visa from the US Department of State through the US Embassy or Consulate in India. The most common visa categories for business operations are the B-1 visa (for short-term business visits) and the L-1 visa (for intra-company transferees). For long-term work, the H-1B visa (specialty occupations) or E-2 visa (treaty investor) may apply.

The E-2 visa is available to Indian nationals who invest a substantial amount of capital in a US business. The investment must be active (not passive), and the investor must demonstrate control over the funds. The visa is initially granted for up to 5 years and can be renewed indefinitely as long as the business remains operational.

For the L-1 visa, the Indian company must have a qualifying relationship (parent, subsidiary, affiliate, or branch) with the US entity, and the employee must have worked for the Indian company for at least one continuous year within the preceding three years. The L-1A visa is for managers/executives, while the L-1B visa is for employees with specialized knowledge.

Indian companies investing in the USA must comply with FEMA regulations and submit periodic reports to the RBI. The key compliance requirements include:

1. Form ODI (Overseas Direct Investment): The Indian company must file Form ODI with the designated Authorized Dealer (AD) bank within 30 days of making the investment. This form captures details of the investment, the foreign entity, and the funding structure.

2. Annual Performance Report (APR): The Indian company must submit an APR to the RBI through the AD bank within 60 days from the end of the financial year of the foreign entity. The APR includes financial statements, details of shareholding, and operational performance.

3. Disinvestment/Transfer: If the Indian company sells its stake in the US entity, it must file Form ODI with the AD bank within 30 days of the transaction. The proceeds must be repatriated to India within 90 days.

4. Reporting of Changes: Any change in the shareholding, capital structure, or business activity of the US entity must be reported to the RBI within 30 days.

Non-compliance can result in penalties under FEMA, including fines and restrictions on future overseas investments.

The licenses required depend on the nature of the business. At the federal level, the following are common:

• Employer Identification Number (EIN): Required for tax purposes, hiring employees, and opening a US bank account. Obtainable from the IRS online.
• Industry-specific licenses: For example, the Food and Drug Administration (FDA) for food, drugs, or medical devices; the Federal Communications Commission (FCC) for broadcasting or telecommunications; the Securities and Exchange Commission (SEC) for investment advisors or broker-dealers.
• Export/Import Licenses: If the business involves exporting goods from the USA, a license from the Bureau of Industry and Security (BIS) may be required.

At the state level, the requirements vary. Common state licenses include:

• Business License: Required by most states for any business operating within their jurisdiction.
• Professional Licenses: For regulated professions such as law, medicine, accounting, or real estate.
• Sales Tax Permit: Required if the business sells goods or services subject to state sales tax.
• Zoning Permits: Required if the business operates from a physical location.

The Small Business Administration (SBA) provides a useful online tool to identify federal and state licenses based on business type and location.

A foreign-owned US business must register for federal taxes with the IRS and for state taxes with the relevant state tax authority. The key steps include:

1. Obtain an EIN: This is the business equivalent of a Social Security Number and is required for filing tax returns, opening bank accounts, and hiring employees.

2. Choose a Tax Structure: The business can be structured as a C Corporation, S Corporation, Limited Liability Company (LLC), or Partnership. Each has different tax implications. For foreign owners, the C Corporation is most common because S Corporations have restrictions on foreign shareholders.

3. Register for State Taxes: Depending on the state, the business may need to register for income tax, sales tax, use tax, and employment taxes. For example, California requires registration with the California Department of Tax and Fee Administration (CDTFA) for sales tax.

4. File Annual Tax Returns: The US entity must file Form 1120 (for C Corporations) or Form 1065 (for Partnerships) with the IRS annually. Foreign owners may also need to file Form 5472 (information return for foreign-owned corporations) and Form 1120-F (for foreign corporations with US operations).

5. Withholding Taxes: If the business pays dividends, interest, or royalties to the Indian parent company, it must withhold US withholding tax at the applicable rate (typically 30% unless reduced by the India-US Double Taxation Avoidance Agreement).

If you are planning to set up a US business operation, consult a qualified international business attorney and a chartered accountant familiar with FEMA and US tax laws. They can help you navigate the approvals, registrations, and compliance requirements specific to your business structure and industry.

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This page provides preliminary information. It is not legal advice. For your matter, consult a qualified professional.