Businesses in India have to comply with a lot of rules and regulations. In this article, we shall see foreign subsidiary company compliances in India.
In India, companies must follow the rules and regulations set up by the government. Regardless of whether Indian or foreign companies own them. The only difference is that foreign-owned companies have more rules and regulations to follow than Indian companies.
What Is a Foreign Subsidiary Company?
Foreign subsidiaries are corporations where at least 50% of the equity shares are owned by corporations incorporated in another foreign nation. In such a situation, the foreign company is referred to as a holding company or parent company.
A company must be incorporated in India in order to be a foreign subsidiary company in India. It makes no difference where the parent company is incorporated.
Compliance is based on many aspects of the business. All compliances must be met according to the type of company that is incorporated, the industry of operations, annual turnover, and the number of employees.
Section 2(42) of the Companies Act, 2013 defines a foreign company as one which must comply with multiple laws and orders, such as:
- Companies Act, 2013 – Income Tax Act, 1961
- GST, 2017 – SEBI rules and regulations
- FEMA (Foreign Exchange Management Act), 1999 – RBI compliances etc.
What Are the Mandatory Registrations for a Foreign Subsidiary in India?
India is a rapidly growing economy and a key destination for foreign investment. A foreign subsidiary in India is subject to various mandatory registrations, including with the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI)https://www.sebi.gov.in/, and the Registrar of Companies (ROC).
The RBI regulates all foreign exchange transactions in India. A foreign subsidiary must register with the RBI within 30 days of incorporation and obtain a Foreign Exchange Identification Number (FEIN). The FEIN is used to track all foreign exchange transactions conducted by the subsidiary, similar to the requirements for a Pvt Limited company.
The SEBI regulates all securities transactions in India. A foreign subsidiary must register with the SEBI within 30 days of incorporation and obtain a Securities Identification Number (SIN). The SIN is used to track all securities transactions conducted by the subsidiary.
The ROC maintains a registry of all companies registered in India. A foreign subsidiary must register with the ROC within 60 days of incorporation. The ROC issues a Certificate of Incorporation, which is required for the subsidiary to obtain a corporate bank account and carry out business in India.
Under sections 380 and 381 of the Companies Act, 2013, the below mandatory compliances need to be met for establishing a Foreign Subsidiary in India:
1. Section 380, Form FC 1: The FC-1 form has to be filed within 30 days of incorporating a subsidiary company in India. The form must be accompanied by requirements from other ministries such as the RBI.
2. FC-3: The company will need to submit this form to the Registrar of Companies in India, depending on where they’re based. The business must include details about what kind of products and services they offer, as well as their finances.
3. Section 381, FC-4: This form is used to report the company’s yearly return. It must be filed within 60 days after the end of the company’s financial year.
4. Financial Transactions: The company must file financial statements, which contain information about remittances of funds, dividends, and income repatriated to India. They must also contain: – Statements on the transfer of funds – Statements of earnings repatriated.
5. Accounts Audit: All accounts of foreign companies must be audited by a registered Chartered Accountant. These accounts are to be arranged in all necessary order while the company makes them available for the examination.
6. Authentication and translation of documents: All the submitted documents must be duly verified and signed by lawyers practising in India and needs to be submitted in English.
Is the Representation of the Company by an Indian Resident Necessary?
Yes, an Indian resident is required for the company to comply with the law. To File tax returns, pay taxes, and comply with other financial regulations, the company must have an Indian representative.
Are There Any Benefits for a Company With a Branch or Subsidiary in India?
Yes, there are definitely benefits for companies with branches or subsidiaries in India. One of the biggest benefits is the vast market that exists in India. As the world’s second-most populous country, India provides a wealth of potential customers for companies looking to expand their reach. Additionally, India has a rapidly growing economy, which presents opportunities for companies to get in on the ground floor of new and exciting markets.
Another benefit of having a branch or subsidiary in India is the availability of skilled labour. India has a large population of highly educated and skilled workers, which can be a significant asset for companies looking to outsource or establish operations in the country.
Finally, India has a number of free trade agreements in place with other countries, which can help to reduce the cost of doing business in the country. For all these reasons, establishing a branch or subsidiary in India can be an excellent way for companies to tap into new markets and take advantage of favorable conditions for doing business, similar to the benefits you gain when you register a company in India.
What Is the Due Process to Revoke Registration as a Foreign Subsidiary in India?
It is a common question asked by foreign companies who are struggling to comply with India’s stringent laws and regulations. Revoking registration as a foreign subsidiary in India is not complicated, but it can be time-consuming.
Foreign Subsidiary Company Compliance
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Here is a brief overview of the steps involved:
- First, the foreign company must submit a written request to the Registrar of Companies (ROC) in India, explaining why they want to revoke their registration
- The ROC will then investigate to confirm that the company has breached one or more of the conditions for registration
- Once the ROC is satisfied that the company has failed to comply with the conditions for registration, it will issue a Show Cause Notice (SCN)
- The foreign company then has an opportunity to reply to the SCN, after which the ROC will make a final decision on whether to revoke the registration or not
- If the ROC decides to revoke the registration, it will inform the company in writing and publish a notice in the Official Gazette of India.
Penalty For Non-Compliance Foreign Subsidiary Company
A non-compliant subsidiary company will be penalised with a fine of not less than ₹1 Lakh, which can be increased to ₹3 lakh. A daily fine of ₹50000 is levied in case of a co-offence. Moreover, all officers will also be punished with imprisonment for a period of up to six months and a fine of up to ₹5 lakh rupees or both.
Conclusion
Businesses looking to set up a subsidiary in India need to be aware of the various compliance requirements. From registration to tax compliance to make sure the business complies with local labour laws. When setting up a foreign subsidiary in India, seeking professional guidance is wise. To get better insight and get your process underway, contact Vakilsearch.
