Table of Contents

Setting Up an Indian Subsidiary: Registration Steps, FDI Rules & Compliance

1. Introduction

Setting up a subsidiary in India is a significant step for foreign companies aiming to expand operations and tap into one of the world’s largest and fastest-growing markets. This guide provides a detailed roadmap on how to incorporate a subsidiary company in India, covering legal requirements, compliance obligations, and taxation policies.

2. Understanding an Indian Subsidiary Company

2.1 Definition

A subsidiary company is a corporate entity in which a foreign parent company owns at least 50% of the total share capital. The parent company holds control over the subsidiary’s management and operations.

2.2 Types of Subsidiaries

2.2.1 Wholly-Owned Subsidiary

• The parent company holds 100% of the subsidiary’s shares.

• Allowed only in sectors permitting 100% Foreign Direct Investment (FDI).

2.2.2 Joint Venture Subsidiary

• The parent company owns at least 50% of the subsidiary’s shares.

• Requires a joint agreement between the foreign and Indian entities.

3. Advantages of Establishing an Indian Subsidiary

3.1 Market Expansion

• Provides direct access to the Indian market.

• Enables foreign businesses to leverage local opportunities.

3.2 100% FDI Allowance

• Most sectors allow automatic approval for 100% FDI.

• Sectors requiring prior approval include mining, defence, telecom, broadcasting, pharmaceuticals, etc.

3.3 Limited Liability

• Protects parent company’s assets from subsidiary liabilities.

3.4 Perpetual Succession

• Ensures continuous existence despite changes in ownership or management.

3.5 Separate Legal Identity

• Enables independent operations, property ownership, and legal actions.

4. Regulatory Authorities and Compliance Requirements

4.1 Governing Bodies

• Ministry of Corporate Affairs (MCA): Regulates incorporation and compliance.

• Registrar of Companies (ROC): Manages company incorporation and record-keeping.

• Reserve Bank of India (RBI): Oversees foreign exchange regulations.

• Income Tax Department: Handles taxation requirements.

4.2 Compliance Requirements

• Foreign Exchange Management Act (FEMA), 1999

• Companies Act, 2013

• Annual Filings with MCA and ROC

• Income Tax Returns and Statutory Audits

• SEBI Regulations for Listed Subsidiaries

5. Step-by-Step Process to Register a Subsidiary Company in India

5.1 Determine the Business Structure

• Choose between Private Limited Company or Limited Liability Partnership (LLP).

5.2 Obtain Digital Signature Certificate (DSC)

• Required for filing online applications.

• Issued by government-certified agencies.

5.3 Apply for Director Identification Number (DIN)

• Mandatory for all directors of the company.

• Issued by the MCA.

5.4 Name Approval Process

• The subsidiary’s name should be unique and include ‘India’.

• Approval from MCA is required.

5.5 Drafting Memorandum and Articles of Association (MoA & AoA)

• Defines the company’s objectives and internal governance.

5.6 Filing Incorporation Documents

• Submit SPICe+ form with required documents to ROC.

• Includes MoA, AoA, DSC, and address proof.

5.7 Payment of Registration Fees

• Fee varies based on authorized capital.

5.8 Obtain Certificate of Incorporation (COI)

• Issued by ROC upon successful verification.

5.9 Apply for PAN and TAN

• Required for tax-related transactions.

• Issued by the Income Tax Department.

5.10 Open a Bank Account

• A corporate bank account in the company’s name is mandatory.

5.11 GST Registration

• Required if the company is involved in taxable sales.

5.12 Compliance with Other Regulations

• Ensure adherence to FEMA, RBI, SEBI, and tax laws.

6. Taxation of Indian Subsidiary Companies

6.1 Corporate Tax

• Standard corporate tax rate: 25.17%.

• 40% tax on other income for foreign companies.

6.2 Dividend Distribution Tax

• Abolished in 2020, dividends now taxed in the hands of shareholders.

6.3 GST Compliance

• Monthly and annual GST returns required.

7. Annual Compliance Requirements

• Annual General Meeting (AGM): Mandatory for all companies.

• Statutory Audits: Conducted by an external auditor.

• Income Tax Return Filing: Annual submission required.

• FEMA Compliances: Foreign currency transactions to be reported.

8. Foreign Direct Investment (FDI) Regulations

8.1 100% FDI Allowed Sectors

• IT and software development

• Manufacturing

• E-commerce (B2B)

8.2 Sectors Requiring Prior Approval

• Private security agencies

• Civil aviation

• Print media

9. Case Study: Successful Foreign Subsidiary in India

Example: Amazon India

• Entered as a wholly-owned subsidiary.

• Leveraged 100% FDI in e-commerce B2B.

• Localized supply chain strategy ensured success.

 

A Subsidiary Company registration / incorporation is ideal for businesses looking to expand in India. However, it comes with increased compliance and regulatory requirements. With expert assistance from Return Filings, you can ensure a smooth registration and compliance process for your Subsidiary Company. For professional assistance, reach out to us on email: info@returnfilings.com or on whatsapp: https://wa.me/919910123091.

10. Conclusion

Setting up a subsidiary company in India involves multiple legal, compliance, and regulatory steps. By following the outlined process and leveraging expert assistance, foreign companies can establish a successful and compliant business entity in India. At Return Filings, we specialize in assisting foreign businesses in setting up subsidiaries seamlessly while ensuring compliance with all statutory obligations.

frequently asked questions (faq's) related to setting up an indian subsidiary

Q What is a subsidiary company in India?+

Q What are the types of subsidiaries in India?+

Q What are the advantages of registering a subsidiary company in India?+

Q What are the types of Subsidiary companies that can be registered in India?+

Q Who regulates the registration of Indian subsidiary companies?+

Q Are there any specific requirements for company names in India?+

Q How many shareholders are required for an Indian subsidiary company?+

Q Is there a minimum capital requirement for company registration in India?+

Q How many directors are required for an Indian subsidiary company?+

Q What is the significance of a registered address for an Indian subsidiary company?+

Q How long does it take to register a subsidiary in India?+

Q Can the company be opened remotely?+

Q What are the minimum requirements for registering a company in India?+

Q Can foreign entities establish wholly-owned Indian subsidiaries?+

Q What sectors in India require prior approval for foreign investments?+

Q What is an Annual General Meeting (AGM)?+

Q What are the compliance requirements for a subsidiary company in India?+

Q What is the significance of perpetual succession for Indian subsidiary companies?+

Q Can Indian subsidiary companies purchase or rent properties in India?+

Q What are the taxation policies for Indian subsidiary companies?+

Q What is the Foreign Exchange Management Act (FEMA)?+

Q What is the surcharge for Indian subsidiary companies with certain income levels?+

Q Are concessional tax rates available for specific sectors in India?+

Q How can Return Filings assist with Indian subsidiary company registration?+

Q How do I register a wholly owned subsidiary in India?+

Q What are the advantages and disadvantages of setting up a subsidiary in India?+

Q What is the difference between a branch office and a subsidiary company in India?+

Q How much does it cost to register a subsidiary company in India?+

Q What are the compliance requirements for a foreign subsidiary in India?+

Q How do I transfer funds to my Indian subsidiary from the parent company?+

Q Can a foreign company be the sole shareholder of an Indian subsidiary?+

Q What is the process for closing down a subsidiary company in India?+

Q How do I appoint directors for my Indian subsidiary company?+