Comprehensive Guide to Setting Up a Subsidiary Company in India

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. Additional Resources

For further reading, explore:

• Understanding RBI Compliance for Foreign Businesses in India
• Step-by-Step Guide to FDI in India
• International Tax Advisory: Optimize Global Tax Compliance & Savings
• Import Export Code (IEC): Essential Guide for Hassle-Free Global Trade

11. 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 (FAQs) related to Subsidiary Company of a Foreign Company registration in India

A. General Information about Subsidiary Companies

1. What is a subsidiary company in India?

A subsidiary company is a company whose control is held by another company, known as the parent or holding company. The holding company owns a majority of the subsidiary’s shares or controls its board of directors.  

2. What are the types of subsidiaries in India?

Subsidiaries can be classified based on the extent of control:

2. • Wholly-owned subsidiary: The parent company owns 100% of the subsidiary’s shares.  
   • Majority-owned subsidiary: The parent company owns more than 50% of the subsidiary’s shares.
   • Partially-owned subsidiary: The parent company owns a significant portion of the shares but not a majority. Control may be exercised through other means.
3. What are the advantages of registering a subsidiary company in India?

Advantages include:

3. • Limited Liability: The subsidiary has a separate legal identity, limiting the parent company’s liability to its investment in the subsidiary.
   • Market Access: A subsidiary allows foreign companies to establish a presence in the Indian market.  
   • Operational Flexibility: The subsidiary can operate with a degree of independence while still benefiting from the parent company’s resources and expertise.  
   • Brand Building: A subsidiary can establish a local brand identity.
   • Access to Funding: Indian subsidiaries can raise funds locally.
   • Compliance with Local Laws: A subsidiary helps ensure compliance with Indian regulations.  
4. What are the types of Subsidiary companies that can be registered in India?

Foreign companies can establish various types of subsidiaries in India, including:

4. • Private Limited Company: A common choice for subsidiaries, offering limited liability and flexibility.  
   • Public Limited Company: Suitable if the subsidiary plans to raise capital from the public.  
   • Limited Liability Partnership (LLP): Offers a blend of limited liability and partnership structure.

B. Regulatory Aspects and Registration

5. Who regulates the registration of Indian subsidiary companies?

The Ministry of Corporate Affairs (MCA) through the Registrar of Companies (RoC) regulates the registration and administration of companies in India, including subsidiaries.  

6. Are there any specific requirements for company names in India?

Yes, the name must be unique and comply with the Companies Act, 2013, guidelines. It cannot be similar to existing company names or suggestive of government patronage. The name must end with “Private Limited” or “Limited” depending on the type of company.  

7. How many shareholders are required for an Indian subsidiary company?

A private limited company requires a minimum of two shareholders, while a public limited company requires a minimum of seven.  

8. Is there a minimum capital requirement for company registration in India?

While the Companies Act, 2013, removed the concept of minimum paid-up capital, it is advisable to have an adequate authorized capital based on the business needs.

9. How many directors are required for an Indian subsidiary company?

A private limited company requires a minimum of two directors, and a public limited company requires a minimum of three. At least one director must be an Indian resident.  

10. What is the significance of a registered address for an Indian subsidiary company?

The registered address is the official address of the company for all legal and communication purposes. All official correspondence and notices are sent to this address.  

11. How long does it take to register a subsidiary in India?

The registration process typically takes a few weeks, depending on the completeness of documentation and MCA processing times.  

12. Can the company be opened remotely?

Yes, the company registration process is primarily online through the MCA portal. Physical presence is usually not required.  

13. What are the minimum requirements for registering a company in India?

Key requirements include:

13. • Unique company name.
    • Minimum number of shareholders and directors.
    • Registered office address in India.
    • PAN card for directors and shareholders (Indian nationals).
    • DIN (Director Identification Number) for directors.  
    • Preparation of Memorandum of Association (MoA) and Articles of Association (AoA).
    • Digital Signature Certificates (DSC) for directors.  
14. Can foreign entities establish wholly-owned Indian subsidiaries?

Yes, foreign entities can establish wholly-owned subsidiaries in India, subject to FDI regulations and sectoral caps.  

15. What sectors in India require prior approval for foreign investments?

Certain sectors require prior government approval for foreign investment, including sectors related to national security, atomic energy, and others as specified by the government. The DPIIT website provides the most up-to-date list.

C. Compliance and Governance

16. What is an Annual General Meeting (AGM)?

An AGM is a yearly meeting of shareholders to discuss the company’s performance, approve financial statements, and appoint directors and auditors.  

17. What are the compliance requirements for a subsidiary company in India?

Compliance requirements include:

17. • Annual filing of returns (MGT-7, AOC-4) with the MCA.
    • Maintaining financial records and conducting audits.
    • Conducting board meetings and AGMs.
    • Complying with tax regulations (income tax, GST, etc.).  
    • Adhering to other applicable laws and regulations.
18. What is the significance of perpetual succession for Indian subsidiary companies?

Perpetual succession means the company continues to exist even if there are changes in its shareholders or directors. This provides stability and continuity for the business.  

19. Can Indian subsidiary companies purchase or rent properties in India?

Yes, as a separate legal entity, an Indian subsidiary can purchase or rent property in its own name.

D. Taxation and FEMA

21. What are the taxation policies for Indian subsidiary companies?

Indian subsidiaries are subject to corporate income tax on their profits. They must also comply with GST regulations and other applicable tax laws. The tax rates can vary based on certain criteria like turnover, etc. Consult a tax professional for specific details.  

22. What is the Foreign Exchange Management Act (FEMA)?

FEMA regulates foreign exchange transactions in India, including FDI. Subsidiaries with foreign parent companies must comply with FEMA regulations regarding fund transfers, repatriation of profits, and other cross-border transactions.  

23. What is the surcharge for Indian subsidiary companies with certain income levels?

A surcharge may be levied on corporate income tax depending on the company’s income level. Consult a tax professional for current rates.  

24. Are concessional tax rates available for specific sectors in India?

Yes, the government offers concessional tax rates for certain sectors to promote investment. Check with a tax advisor for the latest applicable rates.

E. Return Filings Assistance

25. How can Return Filings assist with Indian subsidiary company registration?

Return Filings can provide professional assistance with:

25. • Company name reservation.
    • Document preparation and filing.
    • Obtaining DSC and DIN.
    • Liaisoning with the MCA and RoC.
    • Post-registration compliance.

F. Other generally asked questions related to subsidiary company registration):

           26.   How do I register a wholly owned subsidiary in India?

            Covered in the registration process details

27. What are the advantages and disadvantages of setting up a subsidiary in India?

Discussed in the advantages section

28. What is the difference between a branch office and a subsidiary company in India?

A branch office is an extension of the foreign company, while a subsidiary is a separate legal entity.

29. How much does it cost to register a subsidiary company in India?

Costs vary depending on professional fees, stamp duty, and other expenses.

30. What are the compliance requirements for a foreign subsidiary in India?

Covered in the compliance section.

31. How do I transfer funds to my Indian subsidiary from the parent company?

Subject to FEMA regulations.

32. Can a foreign company be the sole shareholder of an Indian subsidiary?

Yes, it can be a wholly-owned subsidiary.

33. What is the process for closing down a subsidiary company in India?

Involves a winding-up process as per the Companies Act.

34. How do I appoint directors for my Indian subsidiary company?

As per the company’s AoA and the Companies Act.