Indian Subsidiary Registration

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Foreign investors are eager to establish their businesses in India, drawn by the numerous opportunities presented by the rapidly expanding market. With the exception of citizens from Pakistan and Bangladesh, as well as entities formed and operating outside India, foreign nationals are eligible to invest in the Indian market. The registration process for an Indian Subsidiary, which is a company owned by a foreign company, is regulated by the Companies Act, 2013.

What’s Included:

  1. Director Identification Number (DIN) for 2 Directors
  2. Digital Signature (DSC) for 2 Directors
  3. Drafting of Memorandum and Articles of Association
  4. Incorporation fees*
  5. Approval of Company Name
  6. Issuance of Incorporation Certificate
  7. Company PAN and TAN
  8. Registration for EPFO, ESIC, and Professional Tax*
  9. Assistance with Bank Account Opening Kit

Required Documents:

For Foreign National Applicant:

  • Passport
  • Driving License
  • Identity proof of the country of residence

For Indian Director:

  • PAN Card
  • Aadhar Card
  • Any utility bill

For Representative of the Foreign Company:

  • Passport
  • Driving License
  • Identity proof of the country of residence

Office Address Proof (Any 1):

  • Electricity Bill
  • Mobile Bill

Additional Documents:

  • No Objection Certificate from the office owner
  • Rent Agreement for the office (if it’s a rented property)

Why Establish an Indian Subsidiary Company?

  1. Limited Liability: Similar to a Private Limited Company, the liability of Directors and members in an Indian Subsidiary Company is limited to their shares. This safeguards their personal assets in the event of business losses or financial difficulties arising from company operations.
  2. Perpetual Succession: The life of the business remains unaffected by changes in shareholder status. Even after the passing of a shareholder, the Indian Subsidiary company continues to exist.
  3. Enhanced Brand Value: Operating as a Private Limited Company elevates the brand value. Employees find security in joining such companies, vendors are more willing to extend credit, and investors are reassured when considering investments. This, in turn, can enable startups to achieve substantial growth and high brand recognition in a short time.
  4. Scope for Expansion: An Indian Subsidiary offers a broader scope for expansion. Raising capital becomes more accessible through venture capitalists, financial institutions, and angel investors, thanks to the advantages of limited liability.
  5. Foreign Direct Investment (FDI): Several business activities and industries allow for 100% Foreign Direct Investment via the automated route without the need for prior approval. However, proprietorships and partnerships do not permit FDI. Even in a Limited Liability Partnership, government approval is necessary for FDI.

Foreign Direct Investment (FDI)

Foreign entities looking to invest in a Private Limited Company can do so within the framework of FDI guidelines in India. FDI in India is categorized into two routes: the automatic route and the approval route. Currently, most sectors allow for 100% FDI, with exceptions limited to specific capped and restricted sectors.

In cases where automatic approval isn’t available, obtaining prior consent from the Indian government’s Foreign Investment Promotion Board is necessary. Additionally, citizens or entities from Bangladesh and Pakistan are required to invest under the approval route. FDI can involve various equity instruments, including equity shares, preference shares, and convertible debentures, subject to prevailing norms and guidelines.

For equity shares issued under FDI, it’s essential that they are valued fairly. In cases where an NRI (Non-Resident Indian) is establishing a company or subscribing to its memorandum during the company’s formation, shares can be issued at their fair value.

Here is a list of industries that require government approval for foreign company or foreign national investments:

  • Petroleum sector (excluding private sector oil refining), natural gas, and LNF pipelines.
  • Infrastructure companies.
  • Defense and strategic industries.
  • Atomic minerals.
  • Print media.
  • Broadcasting.
  • Postal services.
  • Courier services.
  • Satellite establishment and operation.
  • Development of integrated townships.
  • Tea sector.
  • Asset reconstruction companies.

Compliance Requirements for Indian Subsidiary Companies

Indian subsidiary companies are obligated to adhere to specific compliance regulations, including:

  1. Companies Act, 2013: Indian companies must comply with the provisions laid out in the Companies Act, 2013.
  2. Foreign Exchange Management Act, 1999 (FEMA): Compliance with India’s foreign exchange laws is essential when a foreign company plans to establish a presence in India.
  3. RBI Compliance: The Indian subsidiary of a foreign company is also subject to compliance with the Reserve Bank of India’s regulations.
  4. Income Tax: Like all companies operating in India, Indian subsidiary companies are required to file income tax returns in accordance with individual tax rates.
  5. Annual Returns with ROC and MCA: Companies established in India must submit annual compliance reports to both the Registrar of Companies (ROC) and the Ministry of Corporate Affairs (MCA).
  6. SEBI: If the Indian subsidiary company lists its securities on a stock exchange, it must adhere to compliance requirements stipulated by the Securities Exchange Board of India (SEBI).

Penalties for Non-Compliance with International Transaction Reporting

  1. Failure to Furnish Chartered Accountant Report: Entities engaged in international transactions must obtain a report from a Chartered Accountant. Neglecting to provide this report can result in a penalty of Rs. 1 lakh.
  2. Penalty for Inadequate Document Maintenance: If an entity fails to maintain proper documents, reports incorrect information, or doesn’t report at all, it may incur a penalty amounting to 2% of the value for each transaction where non-compliance is identified.
  3. Penalty for Non-Presentation of Documents: During any tax-related proceeding, the tax authorities may request individuals involved in international transactions to provide relevant information or documents. These documents must be submitted within 30 days of receiving the notice. Failure to comply can lead to a penalty equivalent to 2% of the specified transaction’s value for each instance of non-compliance.