Incorporating a subsidiary involves various procedures from tax purposes to locally compliant workforces. This blog post will outline the steps and costs involved in incorporating a foreign subsidiary/WOS in India.
Foreign Subsidiaries Vs. Wholly Owned Subsidiaries
If you’re expanding to India, you can either create a foreign subsidiary or a wholly-owned subsidiary (WOS). Both options have their pros and cons, but it’s important to understand the key differences between them before making a decision about incorporation of Foreign Subsidiary.
A foreign subsidiary is a company registered in a foreign country but is majority-owned by another company. If your business is based in the US and you want to expand into India, you’d form an Indian subsidiary. It’s a separate legal entity, even though it works under the direction of the parent company. The subsidiary can enter into contracts, own property, and sue in its own right.
A WOS is a company that is owned 100% by another company. If you expand your business into India and decide to establish a WOS, this would mean that your Indian operation would be entirely owned and controlled by your U.S.-based business. While this offers complete control over the subsidiary, it also means that the parent company is fully liable for any debts or losses incurred by the WOS.
How to Incorporate an Overseas Company Procedures and Costs
It’s a big deal to start a foreign subsidiary. There are many things to think about, from the jurisdiction to the cost of incorporating.
The first step is to decide where you would like to incorporate in India. There are many factors to consider when making this decision, including the country’s taxation regime, corporate law, and business environment.
Once you have selected the location of operation, you will need to obtain a certificate of good standing from your home country. It certifies that your company is in good legal standing and is registered with the appropriate authorities.
Next, prepare the necessary paperwork for incorporation. Articles of incorporation, filings with local authorities, and registration with the local chamber of commerce are included. Depending on the jurisdiction, incorporation can cost several thousand rupees.
As soon as your company becomes incorporated, you need to apply for an Indian bank account and a business license. You will also need to comply with Indian employment laws and regulations.
For your brand-new, unregistered business, you can select from a selection of company name search in the Vakilsearch company name generator.
Handling Cash Flow when Eligible for Foreign Tax Credits
Suppose you are looking to set up a foreign subsidiary in India. In that case, it is important to consider how you will handle the cash flow. One issue to be aware of is that you may be eligible for tax credits.
Foreign tax credits can help reduce the amount of taxes you owe, but they can also complicate your cash flow. If you expect to receive foreign tax credits, make sure you plan and have a system in place to track them. This will help you avoid any surprises down the road.
Establishing Financial Reporting Procedures
When incorporating a foreign subsidiary in India, it is important to establish financial reporting procedures. It will ensure that accurate and timely financial information is reported to the parent company. There are a few things to consider when establishing these procedures:
- Who will be responsible for preparing the financial reports? The controller or CFO of the subsidiary should be responsible for preparing the reports.
- How often will the reports be prepared? Monthly or quarterly reports are generally required.
- What format will the reports be in? Reports should be prepared in a format that is easy to understand and reconcile with the parent company’s accounting records.
- What information will be included in the reports? The reports should include balance sheets, income statements, and cash flow information.
- How will the reports be delivered? Reports can be delivered electronically or by mail.
Informing Your Board and Shareholders of an International Acquisition
When you’re looking to incorporate a foreign subsidiary in India, it’s important to keep your board and shareholders informed of the acquisition. Here are some things to consider when doing so:
- Make sure you have all the necessary information about the acquisition. This includes understanding the business and cultural environment of India.
- Clearly communicate the rationale behind the acquisition to your board and shareholders. They need to understand why this is a good move for the company.
- Be transparent about the risks involved in the acquisition. There are always risks when venturing into new territory, so it’s important to be upfront about them.
- Have a solid plan in place for how the subsidiary will be integrated into the company. This includes everything from financial concerns to cultural differences.
- Keep your shareholders updated on the progress of the acquisition and integration process. They’ll want to know how things are going and if there are any bumps in the road.
Conclusion
To find out more about this process, contact Vakilsearch. It’s important to figure out the company’s goals, the political landscape of the target country, and any financial risks involved before incorporating a foreign subsidiary. A foreign subsidiary is a great way to expand into new markets with careful planning and diligence.
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