In today’s world, businesses are not restricted to one country. A company can start in one place and work in another. The way a company is classified depends on where it is officially registered. This is where the terms “domestic company” and “foreign company” are used. A domestic company is set up and works within its own country, whereas a foreign company is started in another country but does business here. Knowing the difference between them is helpful for anyone who wants to start a business, invest money, or understand how companies are treated under different laws and tax rules
What is a Domestic Company?
A domestic company is a type of company that is incorporated or registered within the country where it operates. It follows the laws of that country and is considered a resident of that country for legal and tax purposes. In India, a domestic company means a company that is incorporated under the Indian Companies Act, 2013.
Features of a domestic company:
The domestic company has the following features:
- It is formed and registered under the local company law.
- Its registered office is located within the country.
- Most of its directors and management are residents of the same country.
- It is taxed under the domestic corporate tax system.
- It usually enjoys government benefits, incentives, or schemes designed to promote local businesses.
What is a Foreign Company?
A foreign company is a type of company that is incorporated outside the country but has a place of business within the country or conducts business there in any way, whether through a branch, office, agent, or even an online platform. In India, the Companies Act, 2013 defines a foreign company as any body corporate incorporated outside India that has a place of business in India and conducts business activity in India.
Features of a foreign company:
The foreign company has the following features:
- It is incorporated under the laws of a foreign country.
- It has a business presence or operations within the host country.
- It must comply with local laws for foreign companies.
- It may face restrictions under foreign exchange or investment laws in another country.
Domestic Company Vs Foreign Company
| Aspects | Domestic Company | Foreign Company |
| Place of Incorporation | It is incorporated in India under the Companies Act, 2013. | It is incorporated outside India under the laws of another country. |
| Governing Law | It is governed by the Companies Act, 2013 and Indian laws. | It is governed by the laws of the country where it is incorporated and by relevant provisions of the Companies Act, 2013. |
| Regulatory Authority | It is regulated by the Ministry of Corporate Affairs (MCA) and the Income Tax Department. | It is regulated by the MCA, Reserve Bank of India (RBI), and the Income Tax Department. |
| Registration Authority | It is registered with the Registrar of Companies (ROC) in India. | It is registered with the Registrar of Companies (ROC) in India after establishing a place of business in India. |
| Place of Business | The registered office and business operations are located within India. | The registered office is outside India but has a branch, liaison, or project office in India. |
| Ownership and Control | It is owned and controlled by Indian shareholders or Indian residents. Foreign residents may become shareholders. | It is owned and controlled by foreign shareholders or a foreign parent company. |
| Taxation Status | It is treated as a resident company under the Income Tax Act, 1961. | It is treated as a non-resident company under the Income Tax Act, 1961. |
| Taxable Income | It is taxed on global income (income earned in India and abroad). | It is taxed on income earned or received in India only. |
| Double Taxation Relief | It is eligible for relief under the Double Taxation Avoidance Agreement (DTAA) provisions. | It is eligible for relief under the DTAA between India and the country of incorporation. |
| Profit Repatriation | Profits and dividends are distributed locally to shareholders in India. | Profits are transferred to the parent company abroad in compliance with FEMA and withholding tax regulations. |
| Currency of Operation | Operates in Indian Rupees (INR). | Operates in foreign currency for transactions with the parent company and INR for local transactions. |
| Access to Government Incentives | It is eligible for Indian government schemes such as Make in India, Startup India, and other sector-specific incentives. | It is not eligible for domestic incentives. Rather, it is governed by Foreign Direct Investment (FDI) policies and RBI regulations. |
| Compliance Requirements | It is mandatory to file annual returns (Form AOC-4, MGT-7), financial statements, and income tax returns with the Income Tax Department. | It is mandatory to file Form FC-1, FC-3, and FC-4, and to file audited financials of the parent company with the ROC, and to comply with RBI regulations under FEMA, including the Annual Activity Certificate (AAC) and the Foreign Liabilities and Assets (FLA) return. |
| Dividend Distribution Tax | Dividends are taxed in the hands of shareholders under the Income Tax Act, 1961. | Dividends remitted to the parent company are subject to withholding tax as per the Income Tax Act, 1961. |
| Source of Capital | Capital is raised within India through Indian investors or domestic financial institutions. | Capital is provided by the foreign parent company or international investors. |
| Foreign Exchange Regulations | It is not subject to FEMA for domestic transactions. | It is fully governed by the Foreign Exchange Management Act (FEMA), 1999, for cross-border transactions. |
| Reporting Requirements | It has to report business activities and financial statements related to Indian operations only. | It has to report both Indian operations and the financial details of the foreign parent company. |
| Legal Scrutiny | It is subject to standard Indian compliance and audit requirements. | It is subject to higher compliance, audit, and disclosure requirements due to foreign ownership. |
| Examples | Reliance Industries Limited, Tata Motors Limited, Infosys Limited. | Google India Private Limited, Amazon Seller Services Private Limited, and HSBC India. |
Conclusion
The difference between a domestic and a foreign company is not just about where they are registered. It affects how they pay taxes, who owns them, and how they are managed. A domestic company works completely under local laws and contributes directly to the country’s economy. A foreign company brings global investment and expertise, but must follow more rules to operate. Understanding the difference between the two helps business owners and investors make better decisions and plan their business activities wisely.
Related Service
