With the popularity of Make In India, many foreign companies are showing interest in opening a subsidiary company in India. The reason behind this is that India is one of the fastest growing markets and has some of the best human resources. A foreign national (other than citizens of Pakistan and Bangladesh) can invest in India by acquiring shares of a company; however, the same needs to follow FDI policy procedures and conditions.
India’s emerging economy, ease of doing business, and minimal taxation & compliances make it a favourable investment destination for foreign companies. The Indian Government is encouraging foreign investors to start business in India and provides various schemes for manufacturing and service sector businesses. Foreign company subsidiary registration in India is a completely online process, and post-registration compliances for a foreign subsidiary company are also minimal.
What Is a Wholly Owned Subsidiary Company in India by a Foreign Company?
Where a foreign company makes one hundred percent (100%) FDI in India (takes all shares) through the automatic route, the Indian company becomes a wholly owned subsidiary company in India. For example — if XYZ Inc. of America owns 100 percent shares in Shree Pvt. Ltd., then Shree Pvt. Ltd. becomes the subsidiary company.
Types of Business Entities in India
- Private Limited Company
- Public Limited Company
- Unlimited Company
- Limited Liability Partnership (LLP)
- Partnership
- Sole Proprietorship
As a foreign investor making an investment in India, it is very important to choose the right kind of suitable business entity which fulfils its purpose and takes care of liabilities and tax planning. Companies planning to enter the Indian market need to pay special attention to the entry strategy to be taken. We help foreign investors prepare the right entry-level strategy for minimizing taxes and further compliances, and with the registration of a Foreign Company Subsidiary in India.
Conditions to Register an Indian Subsidiary Company
- Minimum 2 directors
- One of the directors should be a resident of India
- The parent company is required to hold 50% of the total equity share capital
- Office premises in India
Other Requirements Post Registration of Foreign Company
- Open a bank account
- Transfer share capital to the bank account
- Intimate RBI regarding receipt of share capital
- Appoint auditor and file INC 20A
Benefits of Incorporating a Wholly Owned Subsidiary in India
Safeguarding Business Secrets
As the foreign company has operational control over the subsidiary company, this offers protection and security to the company’s trade secrets.
Limited Liability of Foreign Company
In a worst-case scenario where the subsidiary company suffers any liability, the incurred liabilities and credit claims won’t be passed on to the parent company. Hence the foreign company has limited liability towards the subsidiary company.
Control over Operations and Strategies
The foreign company can exercise direct operational and strategic control over the subsidiary company. As all control is in the hands of the holding company, there is less chance of losing intellectual property.
Owning the Brand Name
The overall benefit for both companies in forming a wholly owned subsidiary is that the subsidiary can retain its brand name while the parent company is afforded the opportunity to branch out into new markets.
Prerequisites for Forming a Foreign Company Subsidiary in India
- Capital: A minimum share capital requirement of ₹1,00,000 (approx. USD $1,540)
- Shareholders: Minimum two shareholders are required to incorporate a Private Limited Company in India
- Directors / Nationality: Minimum of two directors are required, out of whom one should be a resident of India
Step-by-Step Process for Foreign Subsidiary Registration in India
Setting up a wholly owned subsidiary or foreign subsidiary in India is a structured process governed by the Companies Act, 2013, FEMA regulations, and guidelines issued by the Ministry of Corporate Affairs (MCA).
Step 1: Obtain Digital Signature Certificate (DSC) and Director Identification Number (DIN)
The first step is obtaining a Digital Signature Certificate (DSC) for the proposed directors, which is required to digitally sign all incorporation documents and electronic forms.
Step 2: Reserve the Company Name
After the directors’ credentials are in place, the proposed company name must be approved by the Ministry of Corporate Affairs. Many foreign companies prefer to include their global brand name in the Indian entity’s name to maintain consistency and brand recognition.
Step 3: Prepare the Incorporation Documents
The next stage involves drafting the company’s constitutional documents, namely the Memorandum of Association (MoA) and the Articles of Association (AoA). The Memorandum of Association defines the company’s business objectives and the activities it is authorised to undertake in India. Depending on the country of incorporation, documents executed by the foreign parent company may need to be notarized, apostilled, or consularized.
Step 4: File the SPICe+ Incorporation Application
The Ministry of Corporate Affairs has introduced the SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus) system to streamline registrations. Through this integrated form, the company can simultaneously apply for:
- Company Incorporation
- Director Identification Number (where applicable)
- Permanent Account Number (PAN)
- Tax Deduction and Collection Account Number (TAN)
- GST Registration (where applicable)
- EPFO Registration
- ESIC Registration
- Professional Tax Registration (in applicable states)
- Opening of the company’s bank account with participating banks
The incorporation application is filed electronically along with the MoA, AoA, identity documents, address proofs, and other prescribed declarations.
Step 5: Issue of Certificate of Incorporation
After successful verification of the incorporation documents, the Registrar of Companies issues the Certificate of Incorporation (COI). The Certificate of Incorporation is the official legal proof that the company has been incorporated under the Companies Act, 2013.
Step 6: Complete Post-Incorporation Compliance
After incorporation, several statutory formalities must be completed before commencing business operations. The newly incorporated company must open a corporate bank account in India, into which the foreign parent company remits the share capital subscription. Where foreign investment has been made, the company must also complete the prescribed RBI and FEMA reporting, including filing relevant forms on the FIRMS portal. By following these steps carefully and ensuring compliance with both the Companies Act and FEMA regulations, foreign businesses can establish a secure legal entity in India.
Documents Required for a Wholly Owned Indian Subsidiary
Photo
- 2 passport size photographs
Address Proof (Any Two)
- Aadhaar Card
- Driving License
- Voter ID
- Passport
ID Proof
- PAN Card (not mandatory in case of a foreign director)
- Passport (mandatory for a foreign director; must be in English and duly apostilled)
Other Documents (Any One)
- Credit card statement
- Bank passbook
- Telephone bill
- Electricity bill
Note: If the proposed director is in a foreign country, then all documents must be duly apostilled.
What We Offer
- Name Approval
- Certificate of Incorporation
- AOA & MOA
- TAN Registration
Why Choose Us for Foreign Subsidiary Registration in India
Our firm has extensive experience assisting overseas clients from the United States, United Kingdom, Australia, Singapore, Japan, South Korea, the United Arab Emirates, Saudi Arabia, and several other countries. We understand the practical challenges faced by international businesses while entering the Indian market and help foreign nationals to register a company in India seamlessly.
FAQ – Foreign Company Subsidiary Registration
Do foreign companies need to register in India?
Yes, foreign companies operating in India are required to register with the Ministry of Corporate Affairs under the Companies Act, 2013. Registration types may include setting up a wholly-owned subsidiary, a joint venture, or a liaison office, each with specific regulatory requirements. The registration process ensures legal compliance, taxation adherence, and allows foreign companies to establish a formal presence in India. It also facilitates easier business operations, financial transactions, and regulatory reporting. Seeking professional advice and legal assistance is recommended to navigate the complexities of foreign company registration in India.
What are the compliances of foreign subsidiary companies in India?
Foreign subsidiary companies in India must adhere to various compliances, including:
- Company Registration: Complete the registration process with the Ministry of Corporate Affairs
- Tax Compliance: File income tax returns and comply with Goods and Services Tax (GST) regulations
- Annual Filings: Submit annual financial statements and other required documents to regulatory authorities
- Corporate Governance: Adhere to corporate governance norms and ensure compliance with the Companies Act
- FEMA Compliance: Follow Foreign Exchange Management Act regulations for foreign investments and transactions
- Statutory Audits: Conduct regular audits as per Indian auditing standards
- Employment Compliance: Comply with labour and employment laws, including provident fund and gratuity requirements
Seeking professional guidance is advisable for smooth adherence to these compliances.
How are foreign subsidiaries taxed in India?
Foreign subsidiaries in India are subject to taxation based on their residential status. If the subsidiary is considered a resident, it is taxed on its global income. Non-resident subsidiaries are taxed only on income generated within India. The corporate tax rate applies, and foreign companies may also be subject to a branch profit tax. Double Taxation Avoidance Agreements (DTAA) between India and the country of origin may provide relief. Compliance with transfer pricing regulations is essential. Seeking professional advice ensures proper understanding of the taxation framework and helps optimize tax positions for foreign subsidiaries in India.
Can a foreign company directly do business in India?
Yes, a foreign company can directly do business in India by establishing a presence through various structures, such as:
- Wholly Owned Subsidiary: Setting up a separate legal entity in India
- Joint Venture: Partnering with an Indian entity to jointly operate a business
- Branch Office: Opening a branch to engage in specific activities permitted by the Reserve Bank of India
- Liaison Office: Establishing an office for representing the foreign company’s interests without engaging in commercial activities
Each option has specific regulatory requirements, and seeking professional advice is crucial to navigate the legal and procedural complexities of doing business in India as a foreign company.
Can a subsidiary of a foreign company be a small company?
Small company status is determined based on turnover, paid-up capital, and other criteria specified for Indian companies. Foreign subsidiaries, although subject to compliance with Indian laws, are typically considered distinct legal entities. Regulations may evolve, so consulting with legal and financial professionals is advisable for the most current and accurate information regarding the status of foreign subsidiaries in India.
Is salary from a foreign company taxable in India?
Non-residents are generally taxed on income earned or received in India. India has Double Taxation Avoidance Agreements (DTAA) with many countries to prevent dual taxation. The tax liability depends on factors such as residential status, duration of stay, and specific provisions of the DTAA. Tax laws may evolve, so seeking advice from tax professionals and consulting the latest regulations is recommended.
What is the income tax rate for foreign subsidiaries?
Income tax rates for foreign subsidiaries in India are governed by the applicable corporate tax rate, which is the same as that for domestic companies. However, the effective tax rate may vary based on factors like the nature of business, eligibility for tax incentives, and Double Taxation Avoidance Agreements (DTAA) with the country of origin. It’s crucial for foreign subsidiaries to assess their specific circumstances and seek professional advice for accurate and up-to-date information on tax rates.
