India’s economy is among the fastest-growing in the world, making it a tremendously profitable market for international businesses. Establishing a subsidiary in India could serve as a feasible strategy for international enterprises of a foreign country seeking to broaden their operations and obtain visibility among this substantial client base. The procedure of incorporating a foreign company’s subsidiary in India is entirely done online through the submission of an application. Similar to any other business, an Indian subsidiary is subject to the applicable requirements of the 2013 Companies Act.
This blog acts as a comprehensive guide on what constitutes a foreign subsidiary, minimal criteria for setting up a foreign subsidiary, registration of a wholly owned subsidiary, a step-by-step guide for registration of a foreign subsidiary company in India, and a list of documents needed for the incorporation process if you’re interested in establishing a subsidiary business in India.
What is a Foreign Company in India?
Any entity or corporate body formed outside of India that maintains a place where it conducts business in India and engages in any kind of commercial activity is referred to as a “Foreign Company” under the Indian Companies Act. Nonetheless, businesses that are registered under the Indian Companies Act are exempt from the jurisdiction of international businesses. To form a business in India, these companies must adhere to the regulations set out by the Companies Act of 2013, the Companies (Registration of Foreign Companies) Rules of 2014, the FEMA, the RBI, and other authorities.
In India, a foreign national can set up a business as a private limited company. In India, the quickest option to incorporate is as a private limited company. A private limited business can receive up to 100% of its FDI under the automatic route of the FDI policy. A private limited company can be incorporated by a foreign national as a wholly-owned subsidiary or joint venture.
India offers a number of ways for these enterprises to set up offices and conduct lawful business. In India, the following are some typical forms of this business registration:
Wholly Owned Subsidiary:
These types of companies are the most popular choice. A wholly-owned subsidiary can conduct a variety of commercial operations and is regarded as a distinct legal entity from the parent firm. All of the subsidiary’s shares are owned by the parent business. Under the Indian Companies Act of 2013, the subsidiary must be registered as a private limited company.
Branch Office:
Businesses are able to open branch offices in India to carry out particular tasks. Typically serving as an extension of the parent corporation, branch offices perform restricted tasks, including marketing and liaison work. The Reserve Bank of India (RBI) must get permission to open a branch office.
Project Office:
A project office is established for a particular project or contract, much like a branch office. It is of a transient nature and usually needs RBI permission.
Joint Venture:
Foreign companies and Indian partners may establish joint ventures. In this situation, the business and its Indian partners can partner together to form an entirely novel business. The parties’ agreement may dictate changes to the governance as well as management structure.
Liaison Office (Representative Office):
The main function of a liaison office is to represent the parent company’s interests. It is not permitted to do business or make money in India. It has to have RBI permission and is governed by certain rules.
What is a Foreign Subsidiary Company?
A company that is formed in a particular country but is owned or managed by a company in another is known as a foreign subsidiary. The holding company is the name given to the parent corporation. Companies frequently utilize foreign subsidiaries to grow into new markets or to benefit from cheaper expenses or tax rates in other nations.
Any corporation in which a foreign business owns at least 50% of the equity shares is considered a foreign subsidiary. It is an entity that operates in one country while its parent business is based in another and is either fully or partly owned by the parent firm. To be regarded as a foreign subsidiary in India, a corporation needs to be formed there. The location of the parent company is irrelevant.
What are the Advantages of Establishing a Foreign Subsidiary Company?
The following are the benefits of online registration of a foreign subsidiary/WOS in India:
Limited liability
The first and foremost advantage of online registration of a foreign subsidiary/WOS is limited liability. The amount of capital that the subsidiary’s owners may be held liable for is equal to the amount of capital that they have put into the business.
Option to leave
Subject to Reserve Bank of India (RBI) clearance, the parent company can choose to sell its interest to another international or Indian company in order to dissolve its Indian subsidiary.
Splitting of accountabilities and tasks
Another benefit of having a foreign subsidiary is that it lets you delegate different tasks to your parent company and its subsidiary. For instance, you can set up a foreign subsidiary to handle a particular product or service under its own brand or voice, or you can channel all revenues from a particular region through the foreign subsidiary.
Independent entity
Subject to Indian laws and regulations, the foreign subsidiary company does business independently and is in charge of its own finances and legal duties.
Separate legal entity
This kind of subsidiary company is governed by Indian rules and regulations and has a distinct legal identity from the international parent company.
Ownership and control
The foreign subsidiary is owned by its foreign parent company, which also usually exercises managerial and operational control over it.
Technical Knowledge Accessible
Asia is among the many nations that offer access to the newest technology and creative approaches to solving technical problems. Japan is among them. Establishing a foreign subsidiary allows multinational corporations to recruit workers from throughout the world, which is one benefit of doing so.
Foreign direct investment (FDI) limits
These vary by industry and are subject to changes in government policy for foreign subsidiary businesses operating in India.
No limitations on repatriation
The foreign parent entity is free to return its profits and dividends to its home nation as long as it complies with Indian foreign exchange regulations.
Greater Opportunities for Expansion
In certain situations, especially when the market is dominated by competitors, growing internationally might result in more growth and profits than would have been possible in the country of origin.
More Reasonably Priced Manufacturing Alternatives
The creation of an overseas subsidiary can give you access to low-cost labour and products in some markets. The sophisticated manufacturing infrastructure seen in many global markets can lead to cheaper material costs, lower manufacturing prices for large-scale production, and, ultimately, lower production costs.
Obtaining Local Information
By establishing a legal entity in a different nation, the business can establish new business relationships with regional partners and joint ventures that capitalize on local expertise.
Taxes advantages
The foreign subsidiary must pay taxes on its income earned in India in accordance with Indian tax rules.
Adherence to Indian laws
The foreign subsidiary company must abide by all applicable Indian laws and rules, including those pertaining to labour, the environment, and intellectual property.
Online Registration of a Foreign Subsidiary/WOS: Crucial Documents for Registration
Following are the documents which are required from the foreign company and the directors, nominees and authorized signatories:
1. Director’s Identification Number
2. Digital Signature Certificate
3. PAN Card of Directors
4. Passport in the case of directors with other nationality
5. Identity Proof
6. Address Proofs
7. No Objection Certificate from the Landlord
8. Board Resolution passed by the Board of Directors
9. Company’s address proof
10. Shareholding Details
11. PAN and TAN
12. Details of the foreign investments
13. Director’s affidavit
14. GST registration
Checklist of Pre-Formalities for Online Registration of a Foreign Subsidiary/WOS
Some of the formalities that are to be done for the online registration of a foreign subsidiary/WOS:
- Contact details of all promoters/directors
- PAN card of all promoters/directors
- Details on the number of total members and the directors
- Address proof of all promoters/directors
- Authorized share capital details
- Utility bills for the address proof (past two months)
- Face value of shares of the company and the minimum paid-up capital details
What are the essential Forms for Online Registration of a Foreign Subsidiary/WOS?
There are many important forms that are to be filled and submitted during the online registration of a foreign subsidiary/WOS in India. This step is to be completed with utmost precision in order to avoid any kind of delay in the registration process. Below are the essential forms for online registration of a foreign subsidiary/WOS:
- Application for the company name reservation – SPICe Part-A (Online application)
- Application for the company registration – SPICe Part b (Online application)
- Form MoA INC – 33 Memorandum of Association – Physical Copy
- Form AoA INC – 34 Articles of Association – Physical Copy
- Form INC – 9 (Online application)
- Application Forms for GST, Professional Tax etc
- Application for the Form AGILE – PRO – S (Online application)
Online Registration of a Foreign Subsidiary/WOS:
The registration of a foreign subsidiary/wholly owned subsidiary company can be done online in India. The steps of the online registration of a foreign subsidiary/WOS are mentioned below.
Step-By-Step Procedure
A foreign subsidiary company must complete a number of requirements in order to register in India, such as acquiring government clearances (Ministry of Corporate Affairs) and registering with the appropriate government offices (RBI/FIPB, for example).
1. Capital Structure:
The subsidiary company incorporated in India will decide on the capital structure and how much of the company’s first approved capital will be injected. When compared to the foreign parent company, the capital structure facilitates the benefits of financial leverage based on the debt ratios.
2. Reservation of Name:
In compliance with Rule 8 of the Companies (Incorporation) Rules, 2014, the suggested name must be distinct and reflect the type of business being incorporated in India. The following criteria can be used to choose the name application:-
| To benefit from its goodwill in the overseas division, a foreign company that has a subsidiary or wholly owned subsidiary (WOS) can utilize the coined word of its name as the coined word for the company’s incorporation in India. |
| By using the term “India” in their name, international businesses are allowed to use the same name (name from a foreign nation) in India. |
| A foreign company can utilize its registered trademark to get incorporation in India. |
| Any other name that the foreign company chooses. |
3. Company incorporation:
Following name approval, the applicant proceeds with the company’s incorporation within 20 days, subject to a further 20 days upon payment of additional costs, and prepares the aforementioned paperwork.
4. Additional forms that are linked:
Submitting the PAN and TAN data using the SPICe+ form. You must download the PDF file in order to use it as an attachment. The data in the AGILE PRO form on bank accounts, GST, EPFO, and ESIC. (Required of all newly formed businesses.
5. INC-9:
This is the electronic form INC-9, which has to be downloaded, suitably apostilled, and filled out by the subscriber and first director of the company. One of the directors or subscribers must affix the DSC with the INC-9 Form, which is created online.
6. Filing of other MCA Forms:
There are other various important forms for online registration of a foreign subsidiary/WOS. All online forms, such as SPICe+, AGILE PRO, and INC-9, must be downloaded in PDF format and submitted to the MCA. The Digital Signature Certificate (DSC) must be affixed to the forms after downloading. When finished, the form is filed online together with the MCA when the necessary filing costs are paid. For tracking and record-keeping purposes, a distinct service request number (SRN) is established upon payment.
7. Certificate of Incorporation:
Following a successful review by the regulatory authorities, the Certificate of Incorporation is created, containing information about the Subsidiary Company registered with a CIN, PAN, and TAN.
Online Registration of a Foreign Subsidiary/WOS: Post-Registration Compliance
Some of the crucial post-registration compliance for a Foreign Subsidiary/WOS is:
- Foreign subscription money receipt with KYC from the bank
- Form INC-20A filing, which tells the details about the subsidiary company commencement. (Declaration)
- Forms MGT-6 and BEN-2 filing; only if they are applicable.
- FIRC Certificate from the bank for filing FCGPR
- Issuance of the share certificates to all the subscribers within two months of the company incorporation.
- FC GPR filing with RBI in single master form according to the regulations of FDI along with the mentioned documents:
- Report of Valuation
- Copy of the following:
- Certificate of Incorporation, Memorandum of Associations, Articles of Associations, and Board resolution and share certificates.
- Details of remittance
- Foreign Inward Remittance Certificate copy
- KYC documents copy
- Debit statement
- Company Secretary Certificate
Online Registration of a Foreign Subsidiary/WOS: Challenges Faced During Registration
There are various challenges faced during the Online Registration of a Foreign Subsidiary/WOS, such as:
- Challenges related to compliance with different rules and regulations
- Challenges related to filling out documents
- Challenges related to taxation compliances
- Challenges related to amendments made during the online registration of a foreign subsidiary/WOS
- Challenges related to requirements of capital
- Various other challenges
Conclusion
In conclusion, it is crucial to follow all the above-mentioned regulations and adhere to all the requirements laid down by the Indian authorities for the online registration of a foreign subsidiary/WOS in India. In order to start a foreign subsidiary, all the important forms are to be duly filled and submitted to the ROC, and all the minimum requirements are to be adhered to as well. Non-compliance with the said rules and regulations can result in fines and penalties for the parent company and can even result in imprisonment. For a successful WOS registration or subsidiary company registration, compliance with all regulatory requirements, along with required documents, makes the incorporation of the company easy and simple.
Frequently Asked Questions
In order to incorporate a subsidiary of a foreign company, the parent foreign company’s legal drafts and basic documentation, as well as the documents of the foreign subsidiary’s directors or shareholders -both foreign and Indian-and the registered office address of the Indian subsidiary, are required.
A wholly owned subsidiary (WOS) is a corporation that is 100% owned by another organization, also referred to as the “parent company,” or an independent and distinct legal entity.
A foreign subsidiary company is defined as “a company that is not incorporated in India that is either controlled by an Indian resident entity or has an Indian resident entity owning more than 50% of its share capital, with the foreign entity acting as a holding or parent company.”
Being a non-resident business, they will have to pay a 40% income tax. Under the IT Act, these companies that hold a PE will also be required to pay a minimum alternative tax of 15%.
A private company is the only one that qualifies as a small company. A corporation cannot be categorized as small if it is a holding company, subsidiary, charity, or firm subject to a special act.
Foreign companies and/or their nationals may jointly own 100% of the shares of the Indian company. The mandatory minimum ownership requirements for Indian private limited businesses are two shareholders. Therefore, an Indian Private Limited Company cannot have all of its shares held by one corporate body or individual.
After receiving approval from the Reserve Bank of India (RBI), a foreign company can open a Branch Office by registering it through the Registrar of Companies.
Yes, it is mandatory for any foreign business operating without a fixed place of business or habitation in India to seek GST registration if it provides products or services to receivers in India.
The minimum capital requirement to register a company has been removed by the MCA’s notification of the Companies (Amendment) Act 2015. Because of this, there are no minimum capital requirements for forming a business, and the legislation allows the minimum share capital to be determined in the articles of incorporation.
Establishing a wholly owned subsidiary in India allows these companies to operate in industries where Foreign Direct Investment (FDI) is permitted under the Companies Act of 2013 and the RBI/FEMA regulations.
An Indian company is not the same as these kinds of subsidiary companies. A foreign subsidiary is governed by the laws of the country in which it is established and is a distinct legal entity from its parent firm.
Yes, by designating an approved representative, this business can create a subsidiary in India without having an actual presence there.
A foreign company’s establishment period in India is contingent upon several elements, such as the kind of subsidiary, the nature of the enterprise, and the effectiveness of the registration process. The incorporation procedure typically takes two to three months.
The DSC is a requirement for directors and authorized signatories in order to electronically sign along with the submission of registration documents to Indian authorities.
Read Our Article: Holding and Subsidiary Company: Key Differences
