Indian subsidiary is a route for foreign entities to establish their business in the developing market of India. India is open to foreign investments subjected to Companies Act 2013, the provisions of the Foreign Exchange Management Act (FEMA) and permission of the Reserve Bank of India. A subsidiary company is a better choice to establish and flourish on Indian land as it holds the same status as an Indian company. All the information regarding the incorporation of a subsidiary company is listed below in this page.
- Minimum two directors and shareholders (Shareholder can be person or a corporate entity)
- Director Identification Number (DIN) for every Director
- Parent company must hold 50% of the total equity capital
Benefits & Advantages
- Foreign Direct Investment in India
- Limited liability of foreign directors and shareholders
- Friendly business laws and developing economy make it less risky to enter the market and expand the business.
- Perpetual Succession
- Allowed to buy property in India
- Borrowing of funds from Indian financial institutions is possible for wholly owned subsidiaries
- Prior approval for repatriation of dividend for these companies is not required
- Subsidiary Company holds the same status as any Indian Company
- Indian transfer pricing system is applicable to these subsidiary company
- The tax rate for Indian subsidiaries will be 30% while a foreign company has to pay tax as per rate of 40%.
- India has recently removed the Dividend Distribution Tax (DDT) and adopt the classical system of dividend taxation under which the companies would not be required to pay DDT. The dividend shall be taxed only in the hands of the recipients at their applicable rate.
Compliances of an Indian Subsidiary Company
- Guidelines issued under FEMA, 1999
- Annual returns with Registrar of Company (RoC)
- Annual Income Tax returns
- Annual reporting and filing with Reserve Bank of India (RBI)
- Any future guidelines/restrictions of Indian Ministry of Corporate Affairs
- Filing with Securities and Exchange Board of India (SEBI)
STEP 1: Attestation of all the documents signed by the proposed director and shareholder by the Indian Embassy present in their country along with their passport and address proof.
It can be apostilled according to Hague Convention (Convention abolishing the requirement of legalization for foreign public documents)
In case the foreign national is already in India under business visa with all the original documents then in that situation it can be attested in India.
STEP 2: Application for setting up offices through Form FNC-1 to RBI along with the attested documents.
STEP 3: Issuance of Digital Signature Certificate of directors, shareholders and promoters.
STEP 4: Application for reservation of name of the company, DIN (Director Identification Number), incorporation of a company, PAN/TAN through SPICe (Simplified Proforma for Incorporating a Company Electronically) form.
STEP 5: Registrar of Company will issue “Certificate of Incorporation”.
STEP 6: Opening of a bank account as the foreign direct investment must reach within 180 days of incorporation of the company with advance intimation to Banker.
- Name approval in RUN (Reserve your unique Name)
- 2 Directors DIN
- 2 Directors DSC
- Filing of E-forms with the Registrar of Companies (ROC)
- MOA + AOA
- Company PAN Card
- Company TAN/TDS Number
- Issue of Incorporation Certificate
- Consultation with our Experts
- Documents of resident Indian designated director/ shareholder
1. PAN Card
2. Identity Proof (Voter ID Card/Driving License/Passport)
3. Address Proof (Bank Statement/Electricity/Telephone Bill)
- Attested copy of passports and address proof of foreign directors/promoters.
- Attested original documents (signed by the proposed director and shareholder) by the Indian Embassy present in their country.
- Business Visa of foreign director/shareholders if present in India
- Copy of FIPB/ RBI approvals
- List and signed declarations of directors/ shareholders/ promoters
- Board resolution approving incorporation of company in India
- Name of Nominee if the incorporation is of wholly owned subsidiary
- Proof of address of registered office of the company along with the NOC from the owner of premises
- Latest utility bills
- Memorandum of Association/ Charter document of parent company
- Articles of Association
- Power of Attorney in the favour of authorized representative in India
- Audited Financial Statement (Preceding Financial Year) of parent company
- Foreign Inward Remittance Certificate (FIRC)
- Registered valuer approved valuation certificate of the company
This convention had concluded on October 5, 1961 and as per the objective of this convention “the States signatory to the present Convention, desiring to abolish the requirement of diplomatic or consular legalization for foreign public documents, have resolved to conclude a Convention to this effect and have agreed upon terms of this convention”
The RBI has notified sectors in which FDI is allowed after prior approval:
- Petroleum sector (except for the private sector oil refining), Natural gas/LNG Pipelines
- Investing companies in Infrastructure & Service Sector
- Defence and strategic industries
- Atomic minerals
- Print media
- Postal services
- Courier services
- Establishment or operation of a satellite
- Development of integrated township
- Tea sector
- Asset Reconstruction Companies.
The Competition Act, 2002 promotes the free and fair competition in India under the body named as Competition Commission of India.
Yes, this is possible under Indians rules and guidelines of the related authorities.
No, as per the guidelines for a Subsidiary Company of foreign entity one Indian and one foreign director is the requirement of establishment.
A joint venture is formed by an agreement between two or more entities for a specific business purpose while a subsidiary company have separate legal entity which is incorporated under Companies Act, 2013.
Yes, public company can have a private subsidiary.
- There is no dividend distribution tax as per the Finance Act, 2020.
- Prior approval for repatriation dividend for these companies is not required.
- Subsidiary Company holds the same status as any Indian Company.
- Indian transfer pricing system is applicable to these countries.
- The tax rate for these companies will be 30% while a foreign company has to pay tax as per rate of 40%.
The Government has notified sectors in which FDI is absolutely prohibited:
- Atomic Energy
- Lottery business which includes government lottery and online lottery (even foreign collaboration, franchise, trademark, brand name, management contract is prohibited)
- Gambling and in betting including the casinos (even foreign collaboration, franchise, trademark, brand name, management contract is prohibited)
- Business of chit funds
- Nidhi Company
- Trading in transferable development rights
- Real estate business or the construction of farmhouse (except development of roads or bridges, city, and regional infrastructure, townships, etc.)
- Manufacturing of cigars, cheroots, cigarillos, and cigarettes of tobacco or of tobacco substitutes
- Activity/sector which is not opened to private sector investment.
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