Overview
Setting up a subsidiary in India can be a transformative step for expanding your business operations and accessing one of the world's largest and most dynamic markets. At Praman Advisors, we specialize in providing comprehensive and tailored services for incorporating a foreign subsidiary in India. Our team of experts is here to guide you through the complexities of establishing a foreign subsidiary company in India, from understanding the legal requirements and navigating regulatory approvals to assisting with compliance and documentation. Partner with us to unlock India's vast business potential and drive your company's growth and success.
Subsidiary Company
A subsidiary company, often referred to as a sister company, is controlled by a parent company or holding company. The parent company holds the authority to control the subsidiary, either partially or entirely.
The registration process for a foreign subsidiary company in India is governed by the Companies Act of 2013. According to this Act, a subsidiary company is defined as a company in which a foreign corporate body or parent entity holds a minimum of 50% of the total share capital. This gives the parent company significant influence and control over the subsidiary.
Requirements and Key Facts
Here are the essential elements to consider for the incorporation of a foreign subsidiary in India:
- Company Name:
- Your new business requires a unique name that is distinct from existing business names or trademarks.
- Shareholders:
- The parent company can hold 100% of the shares.
- Alternatively, any combination of two foreign nationals can be shareholders.
- It is not mandatory to have an Indian resident as a shareholder.
- Share Capital:
- India does not impose a minimum capital requirement for company registration.
- Directors:
- A minimum of two directors is mandatory.
- At least one director must be an Indian resident.
- Nominee directorship services can be provided if required.
- Registered Address:
- Every company in India must have a registered address officially recorded in government records.
- Virtual office address services are available to meet this requirement.
- Annual General Meeting (AGM):
- According to the Companies Act, every Indian company must conduct at least one general meeting annually, in addition to two board meetings.
- Company Secretary:
- It is mandatory to file three secretarial returns each year, which are handled by a company secretary.
- Praman Advisors can assist with this requirement.
- A statutory auditor must also be appointed.
- Taxation:
- Following incorporation, companies are subject to a profit tax rate of approximately 25.36%.
- GST (Goods and Services Tax) is applicable to domestic sales, with monthly GST returns and one annual tax return required.
- Annual Compliance:
- India has unique compliance requirements, including mandatory statutory audits even for smaller companies.
- Foreign subsidiary companies in India must appoint a statutory auditor and submit annual filings.
Navigating these requirements is crucial for establishing and operating a company in India under the Companies Act 2013. Praman Advisors can provide comprehensive assistance to ensure compliance and smooth incorporation of your foreign subsidiary.
Advantages
Incorporating a foreign subsidiary in India offers numerous compelling advantages:
- Entry into the Indian Market:
- India's dynamic and competitive environment presents a plethora of investment opportunities, attracting foreign entrepreneurs to establish their subsidiary companies in the country.
- Foreign Direct Investment (FDI) in India:
- FDI involves investments by foreign companies in Indian private companies through share subscriptions or acquisitions. In 2020, the Indian government introduced a provision requiring prior approval for investments from countries sharing a border with India, making Indian subsidiary registration an attractive option for foreign investors.
- Perpetual Succession:
- The concept of perpetual succession ensures that a company's existence remains intact regardless of events such as changes in management, transfers of membership, or insolvency. This stability and continuity are crucial for long-term business operations.
- Limited Liability:
- Limited liability protects the personal assets of shareholders and directors, as the company bears responsibility for its debts to third parties. This principle encourages individuals to opt for company formation over other business structures.
- Scope of Diversification:
- Establishing an Indian subsidiary company provides a strategic avenue for foreign businesses to expand their operations. This contributes to the growth and development of the Indian economy and introduces a wide range of goods and services, fostering healthy competition.
- Separate Legal Identity:
- According to the Companies Act, a company is recognized as a distinct legal entity separate from its shareholders and directors. This legal status empowers the company to engage in agreements with other competent entities as an artificial legal person. It also grants the company the ability to initiate legal actions and respond to allegations before the judicial system in its own name, without direct involvement from its members or directors.
- Property Ownership and Rental:
- A subsidiary company, being a legal entity, possesses the authority and right to purchase or rent properties in India for its business activities. To prevent potential conflicts among company members, it is advisable to acquire such properties in the name of the company itself, aligning with the principle of perpetual succession.
Incorporating a subsidiary in India can drive your company's growth and success, leveraging the numerous benefits offered by the Indian market.
Types of Subsidiaries in India
In India, there are two primary categories of subsidiaries:
- Wholly-Owned Subsidiary:
- In a wholly-owned subsidiary, the parent company possesses 100% ownership of the subsidiary's shares.
- Wholly-owned subsidiaries can only be established in sectors that permit 100% Foreign Direct Investment (FDI).
- Subsidiary Company:
- In this type of subsidiary, the parent company owns at least 50% of the subsidiary's shares, giving it significant control over the subsidiary's operations.
Regulatory Approval: Before establishing a foreign subsidiary company in India, obtaining approval from the Reserve Bank of India (RBI) is crucial. This regulatory step ensures compliance with the country's foreign investment regulations and safeguards the interests of all stakeholders involved.
Compliance Requirements for Indian Subsidiary Registration
To establish a legal and valid Indian subsidiary company, compliance with specific regulations is mandatory:
- Foreign Exchange Management Act (FEMA):
- Foreign companies operating in India must adhere to the foreign exchange laws and regulations outlined in the Foreign Exchange Management Act, 1999.
- Companies Act, 2013:
- All Indian subsidiary companies must comply with the provisions of the Companies Act, 2013, ensuring proper governance and operational practices.
- Reserve Bank of India (RBI) Compliances:
- The RBI imposes several foreign exchange management compliances on Indian subsidiary companies, including reporting and approval requirements for foreign investments.
- Income Tax Act, 1961:
- Indian subsidiaries are required to file income tax returns annually. The current corporate tax rate in India is approximately 25%.
- Annual Returns:
- Companies must file annual returns with the Ministry of Corporate Affairs (MCA) and the Registrar of Companies, detailing their financial performance and compliance status.
- SEBI (Listing Obligations and Disclosure Requirements) Regulations:
- If the subsidiary lists its securities on a stock exchange, it must comply with the Securities and Exchange Board of India (SEBI) regulations, ensuring transparency and protecting investor interests.
Ensuring adherence to these compliance requirements is crucial for the successful registration and operation of an Indian subsidiary company.
How to Register
Incorporating a foreign subsidiary in India involves several key steps and compliance requirements. Here’s a step-by-step guide on how to register a subsidiary company in India:
- Determine the Type of Company:
- Decide on the type of company you want to establish for your foreign subsidiary in India.
- Obtain Digital Signature Certificate (DSC):
- Since the registration process is conducted online, you must obtain a Digital Signature Certificate (DSC) for the proposed directors of the company. The DSC is used to electronically sign the necessary documents during the registration process.
- Apply for a Director Identification Number (DIN):
- The directors of the subsidiary company must obtain a Director Identification Number (DIN) from the Ministry of Corporate Affairs (MCA). This can be done by submitting the DIN application online.
- Name Approval:
- Choose a unique name for your subsidiary company and apply for its approval through the MCA's online portal. Ensure that the chosen name adheres to the naming guidelines provided by the MCA.
- Draft Memorandum of Association (MoA) and Articles of Association (AoA):
- MoA and AoA are legal documents that outline the company's objectives, rules, and regulations. Prepare these documents following the Companies Act, 2013.
- File Incorporation Documents:
- Once your chosen name is approved, you must file the incorporation documents, including the MoA, AoA, and other required forms, with the Registrar of Companies (ROC) through the MCA's online portal. The incorporation process is typically done using the SPICe+ form on the Ministry of Corporate Affairs portal.
- Payment of Registration Fees:
- Pay the necessary registration fees to the ROC based on the authorized capital of the subsidiary company.
- Obtain a Certificate of Incorporation (CoI):
- If all the submitted documents and information are in order, the ROC will issue a Certificate of Incorporation. This certificate officially confirms the registration of the subsidiary company.
- Apply for Permanent Account Number (PAN) and Tax Registration:
- After obtaining the CoI, apply for a Permanent Account Number (PAN) and a Tax Deduction and Collection Account Number (TAN) from the Income Tax Department for the subsidiary company.
- Open a Bank Account:
- Finally, open a bank account in the name of the foreign subsidiary company in India.
- Compliance with Other Regulations:
- In addition to the company registration process, ensure compliance with other relevant regulations, such as obtaining a GST number.
- Obtain a GST Number:
- Goods and Services Tax (GST) registration is required, especially if the company engages in various business activities. Every Indian company must apply for a GST number for taxation purposes.
- Initiate Business Operations:
- Once the incorporation of the foreign subsidiary in India is completed, the company can commence its business operations.
Following these steps will help you establish a subsidiary company in India efficiently and in compliance with all necessary regulations.
How Praman Advisors Can Assist with Indian Subsidiary Company Registration
Still unsure how to register a subsidiary company in India? Praman Advisors simplifies the process by offering comprehensive support at every step. From selecting a unique name and obtaining essential Director Identification Numbers (DIN) and Digital Signature Certificates (DSC) to assisting with PAN and TAN applications and setting up a dedicated company bank account, we streamline the entire registration process.
Our expert team ensures compliance with all regulatory requirements, including the Foreign Exchange Management Act (FEMA), Companies Act, 2013, Reserve Bank of India (RBI) compliances, and the Income Tax Act, 1961. We facilitate the filing of annual returns, guide you through SEBI (Listing Obligations and Disclosure Regulations) compliance if your subsidiary plans to list its securities, and provide tax services to navigate India's taxation policies.
With Praman Advisors as your partner, you can confidently and efficiently initiate and grow your Indian subsidiary business, knowing that all regulatory and compliance requirements are expertly handled.
