A company that is owned either wholly or partially by another company, which is called parent/holding company and operating in one country while the parent company is situated in another is called a foreign subsidiary company. Foreign subsidiary company registration in India involves the process of establishing a subsidiary company by a foreign parent company in the Indian jurisdiction. This allows the parent company to conduct business operations in India while maintaining a separate legal entity.
Foreign subsidiary company registration enables foreign businesses to operate in the Indian market under the established legal framework. It also provides opportunities for market expansion, accessing local resources and tapping into the growing Indian economy. It also ensures compliance with Indian laws and regulations.
What is a Subsidiary Company?
In the Companies Act, 2013, a definition has been provided for a subsidiary company in Section 2(87), which clearly gives that a subsidiary company is a company that is controlled by another company to be known as the holding company.
Section 2(46) of the Companies Act provides the concept of a holding company, denoting a company that governs and directs the management of other companies known as subsidiary companies. In simple terms, a holding company exercises control, while the company under its control is referred to as a subsidiary company.
Additionally, it should be duly noted that subsidiary and holding companies exist as distinct legal entities. Thus, all members and shareholders of the subsidiary company possess a status separate from that of the parent company.
What are the Benefits of Foreign Subsidiary Company Registration in India?
Access to a large and growing market:
- India offers a massive consumer base of over 1.3 billion people, providing significant business opportunities for foreign subsidiary companies.
- The Indian market has been experiencing steady economic growth, presenting potential for long-term profitability and expansion.
Local presence and market knowledge:
- Setting up a subsidiary in India allows for physical presence, enabling better understanding of local market dynamics, consumer behaviour and cultural nuances.
- Proximity to customers and competitors facilitates timely response to market trends and preferences, helping to tailor products or services accordingly.
Limited liability protection:
- A subsidiary company has a separate legal entity from its parent company, which provides limited liability protection.
- This separation shields the parent company's assets from the liabilities of the subsidiary, reducing financial risk and protecting the parent company's interests.
Tax benefits and incentives:
- India offers various tax incentives and benefits to foreign subsidiary companies, including tax exemptions on export earnings, tax holidays for specific industries and deductions on research and development expenses.
- These tax advantages can significantly reduce the overall tax burden and improve the subsidiary's profitability.
Easy repatriation of profits:
- Foreign subsidiary companies can repatriate their profits earned in India after paying applicable taxes.
- This allows the parent company to efficiently utilise the earnings as desired, such as reinvesting in other operations, funding research and development or distributing dividends to shareholders.
Operational autonomy and control:
- Registering a subsidiary provides the parent company with greater operational control over its Indian operations.
- It enables the implementation of specific strategies, policies and quality standards that align with the parent company's objectives, ensuring consistency across the organisation.
Access to skilled labour:
- India is known for its large pool of skilled professionals in various sectors, including technology, engineering, finance and more.
- Establishing a subsidiary in India allows foreign companies to tap into this talent pool, acquiring skilled employees and leveraging their expertise to drive business growth.
Joint ventures and partnerships:
- Registering a subsidiary in India opens up opportunities for collaboration with local businesses through joint ventures or strategic partnerships.
- Such alliances can facilitate market penetration, shared resources, access to distribution networks and leverage local expertise, leading to mutual growth and success.
Intellectual property protection:
- India has strengthened its intellectual property laws and regulations, providing improved protection to foreign companies' patents, trademarks and copyrights.
- By establishing a subsidiary, foreign companies can benefit from enhanced intellectual property rights enforcement and safeguard their valuable assets in the Indian market.
Government support and initiatives:
- The Indian government has launched several initiatives to attract foreign investment and promote ease of doing business, like the "Make in India" and "Digital India" campaigns.
Basic Checklist for Registering a Foreign Subsidiary Company in India
To register a foreign subsidiary company, several conditions must be met. These conditions include:
- Minimum 2 Directors
- Resident Director (at least 1)
- Office Premises in India
- Memorandum of Association (MOA) and Articles of Association (AOA)
- Obtaining Director Identification Number (DIN)
- Digital Signature Certificate (DSC)
- Compliance with Foreign Exchange Management Act (FEMA)
- Compliance with Companies Act, 2013
- Tax Obligations
What are the Necessary Documents for Registration of Foreign Subsidiary Companies in India?
The essential documents that are needed for registering a Foreign Subsidiary Company in India are:
For Indian National:
- PAN Card information
- Address Proof
- Identity Proof such as Aadhaar Card, Driving License, Voter ID
For Foreign National:
- Passport
- Address Proof (certified by the Indian Consulate)
- Identity Proof (certified by the Indian Consulate)
Other Crucial Documents:
- Directors Identification Number (DIN)
- Digital Signature Certificate (DSC)
- Memorandum of Association (MOA) and Articles of Association (AOA)
- No Objection Certificate from the property owner of the business premises
- Certificate of Incorporation granted by the foreign government
- Residential Proof
What is the Procedure of Foreign Subsidiary Company Registration in India?
The process of incorporating a foreign subsidiary company in India includes the below given steps:
Registering a Name for Foreign subsidiary:
- Fulfil all requirements stated by the Ministry of Corporate Affairs.
- Fill the SPICe+ forms for incorporation, providing unique names not used by existing organisations.
- Obtain approval for the chosen name within 5 to 7 days.
Apply for Director Identification Number (DIN) and Digital Signature Certificate (DSC):
- Obtain DIN from the regulatory authority responsible for director appointments.
- Apply for a DSC, which serves as the electronic signature of the company for digital document signing.
Apply for PAN and TAN Numbers:
- Apply for the company's PAN (Permanent Account Number) and TAN (Tax Deduction and Collection Account Number) after obtaining DSC and DIN.
Open a Bank Account for the Subsidiary:
- Establish a bank account in the company's name to handle financial transactions.
GST Number:
- Apply for a Goods and Service Tax (GST) number for taxation purposes.
- All companies in India are obligated to obtain a GST number.
Starting with Operations:
- Once all the above steps are completed, the company can commence its business operations.
What are the Compliances related to Foreign Subsidiary Company Registration?
There are several compliances that every foreign subsidiary company must comply with when operating in India. These include:
-
Foreign Exchange Management Act (FEMA) Compliance:
A foreign company established in India must comply with the laws and regulations under the FEMA, 1999 regarding foreign exchange and management.
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Companies Act, 2013 Compliance:
A Foreign subsidiary company must comply with the provisions defined under the Companies Act, 2013. This includes compliance related to company incorporation, corporate governance, annual financial statements, board meetings, etc.
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Reserve Bank of India (RBI) Compliance:
The Foreign subsidiary company has to comply with the compliances set by the RBI in relation to foreign exchange management. This includes reporting, repatriation of funds, capital transactions, etc.
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Income Tax Act, 1961 Compliance:
All companies in India which include such foreign subsidiary companies are required to file income tax returns as per the provisions of the Income Tax Act, 1961.
The subsidiary company is also under lawful obligation of filing annual returns with the MCA and the RoC.
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Securities Exchange Board of India (SEBI) Compliance:
If the Foreign subsidiary company lists its securities on a stock exchange, it must comply with SEBI regulations. This includes compliance with the SEBI (Listing Obligations and Disclosure Regulations) and fulfilling reporting and disclosure requirements.
What are the Taxes Applicable on Foreign Subsidiaries in India?
The taxation policies for foreign subsidiary companies are well-defined and require strict adherence to ensure timely payment of taxes. The key aspects of taxation for such companies are:
Taxable Income:
- All incomes earned within or outside India by the subsidiary company are subject to taxation.
- Taxable income includes dividends received from foreign subsidiaries.
Tax Rates for Foreign Subsidiaries:
- The tax rates applicable to foreign subsidiaries in India is generally 40%.
Surcharge:
For companies with income between Rs. 1 Crore and Rs. 10 Crores, a surcharge of 2% is levied.
Companies with income exceeding Rs. 10 crores are subject to a surcharge of 5%.
Health and Education Cess:
A 4% health and education cess is added to the total tax amount payable.
Minimum Alternate Tax (MAT):
Companies opting for concessional tax payment under Section 115BAA and 115BAB are exempted from paying Minimum Alternate Tax (MAT).
Other companies are required to pay a 15% tax on book profits as per MAT provisions.
What are the Services Offered by Startupfino in Foreign Subsidiary Company Registration?
Registering a foreign subsidiary company in India offers a diverse range of advantages and serves as a strategic step for companies aiming to expand their global reach. India, known for its flourishing economy and extensive customer base, presents enticing prospects for foreign enterprises. When a subsidiary is registered in India, a local presence is established, facilitating a deeper understanding of the market, enabling customer connections and customisation of products or services to cater to local needs. Through this registration, companies gain insights into the real Indian market, its diverse demographics and cultural landscape, making stronger relationships with stakeholders. Such strategic positioning enhances market competitiveness and aids in long-term growth and profitability.
Startupfino is a company that specialises in offering complete services for Foreign Subsidiary Company registration. We can aid with everything from providing advice in the beginning phase to ensuring that you meet all the necessary requirements and also keeping your company in good legal standing.
Our services include the below mentioned:
- Assistance with the preparation and submission of essential documents required for subsidiary company registration in India.
- Expertise in navigating the compliance and regulatory framework for foreign subsidiary company registration.
- Provision of services related to obtaining necessary approvals, such as Director Identification Numbers (DIN) and Digital Signature Certificates (DSC).
- Support in the registration process for securing PAN, TAN and GST numbers for the subsidiary company.
- Assistance in opening bank accounts and fulfilling financial requirements for the subsidiary company in India.
- Expert advice on tax implications and compliance related to foreign subsidiary company registration.
- Professional support and services to ensure smooth operations and compliance for the subsidiary company in India.
By availing our services, entrepreneurs can avoid the negative outcomes of non-followance of rules and compliances. StartupFino works hard to provide services that are prompt and effective, so you can manage your business without any issues and without facing penalties or problems.
