How can a Foreign Company set up a Indian Subsidiary Company in India?

As India is one of the fastest-growing economies in the world, many foreign companies and ventures are showing keen interest in starting their operations in our country. A Foreign national (except those holding citizenship of Bangladesh or Pakistan) or any company incorporated outside India is to allowed to make investment and can have their own subsidiary company in India. They can do so by acquiring shares subject to FDI Norms of India. However, there is a minimum requirement of at least one Indian director who must be an Indian citizen and the other one can be a foreign director which is required to incorporate an Indian Subsidiary Company.

Brief introduction of Indian Subsidiary Company

An Indian Subsidiary company means in which a foreign entity/company or parent company owns at least 50% of the total share capital. The parent company will be the one which will have whole or partial control over the subsidiary company. Subsidiary Companies will have to follow the legal rules as applicable in such a country where they are set up. Hence, if the subsidiary company is incorporated in India, it will be known as the Indian Subsidiary Company and will have to follow the laws as applicable in India.

In India, subsidiary Company is governed by the provisions of Companies Act, 2013

Advantages of Indian Subsidiary Registration in India

The following benefits give rise to form a Subsidiary Company in India:

1. Helps in bringing foreign direct investment in India as Government of India has also approved 100% involvement of FDI in fastest growing industries and thus doesn’t require any approval.
2. The liability of all the members and the directors are limited to the amount of their shareholding in the company. Hence, no member or director is personally responsible for any loss or financial distress in the company.
3. Any changes due to any death, exit, bankruptcy or transfer etc. doesn’t affect the existence of the company
4. An Indian Subsidiary company enjoys all such benefits which is applicable a normal Private Company.
5. An Indian Subsidiary Company can also raise capital from various investors, financial institutions, venture capitalists etc.
6. Since the Indian Subsidiary Company is an independent entity, it is allowed to buy properties in India

Features of Indian Subsidiary Companies

Some of the features of Indian Subsidiary Companies are as follows:

1. No requirement of beforehand approval for the repatriation dividend
2. Transfer pricing system rules and regulations are applicable to Indian Subsidiary Companies
3. As per the Union Budge of 2020, the dividend distribution tax rate is NIL
4. Indian Subsidiary Company is regulated as any other Indian Company where all the Indian laws and Tax laws are applicable.

Minimum Requirements to register Indian Subsidiary Company

Following must be kept in mind before proceeding for the subsidiary company registration in India:

1. A minimum of 2 directors are required to form the company where at least one of the director must be a resident in India
2. No minimum capital is required now to set up a Indian Subsidiary Company
3. A Minimum of 2 shareholders are required which can be either individuals or any entity or can be a combination of both
4. The Foreign or the Parent Company must hold at least 50% of the entire share capital
5. Director identification number is mandatory for all the directors

Documents Requirement for Indian Subsidiary Company Registration

The documents for Indian Subsidiary Company Registration are required from its Indian members and directors, Foreign members and directors. Apart from the members, other important documents are also required. We have categorized the documentation as follows:

1. Documents Requirement from Indian Nationals
   • Copy of PAN Card
   • Address Proof like Bank Statement (not older than 2 months)
   • Identify proof like Driving License, Voter ID or Aadhar Card
2. Documents Requirement from Foreign National
   • Copy of Passport
   • Copy of Address Proof (It must be certified by Indian Consulate)
   • A Copy of Identity Proof (it must be certified by Indian Consulate)
3. Other Important Documents
   • Digital Signature Certificate of all the Directors and members
   • Directors Identification Number of all Directors
   • Memorandum of Association and Article of Association of the Company
   • Certificate of Incorporation of the Parent Company issued by the Foreign Government
   • Office address proof for Indian office like Telephone Bill, Water Bill or Electricity Bill (not older than 2 months)
   • NOC from the landlord or the owner who owns the property of the place of business
   • A Resolution from Foreign Company stating about opening the Indian Subsidiary and mentioning the name of the Authorized Representative

Process of Indian Subsidiary Company Registration

The process of registering an Indian Subsidiary Company is similar to that of Private Limited Company Registration. Following is the step by step process to register an Indian Subsidiary Company.

Step 1: Apply for Digital Signature Certificate (DSC):Since the process is completely online, hence all those authorized signatories/directors who needs to sign the online incorporation documents must apply for Digital Signature Certificate.

Step 2: Apply for Director Identification Number (DIN): DIN can be applied along with the company registration application form i.e. SPICe+. However, maximum 3 Directors can obtain DIN along with SPICE+.
In case the subscriber is already holding a valid active DIN, the proof of identity and residence need not be attached.

Step 3: Apply for Name Approval through SPICe Plus Form – Part A: For the name approval step, now you need to apply it through SPICe Plus form only with the Ministry of Corporate Affairs. Please note that a minimum of 2 names at the time of incorporation are proposed.

Step 4: Submitting Final Incorporation Documents: The Part B of SPICe Plus needs to be filled up and all the required information has to be given. Apart from that Memorandum of Association (MOA) and Articles of association (AOA) of the Company in prescribed format needs to be submitted. Moreover, declaration of all the subscribers and first directors in Form INC-9 needs to be provided.
It is important to note here that minimum of 50% of the equity share capital will be owned by the parent company.
In addition to the SPICe+ form, a person can now also apply for GSTIN, EPFO, ESIC, Professional Tax etc. through a web form called AGILE-PRO (INC-35) Once you are done with all this, convert the form into pdf format and upload on the MCA website.

Step 5: Receiving Certificate of Incorporation and opening of Bank Account: After approval of incorporation documents, you will receive your Certificate of Incorporation, Company Identification Number (CIN) along with PAN and TAN of your company.

Annual Compliances of Indian Subsidiary Company

An Indian Subsidiary Company needs to comply as per the rules and regulations of the following laws and Acts.

1. Compliances as per the provisions of Companies Act, 2013
2. Comply with the guidelines as issued by Ministry of Corporate Affairs
3. Compliances as per the rules of Income Tax Act, 1961
4. Guidelines as per FEMA Act
5. Annual Return filing with the Registrar of Companies
6. Return of Income Tax
7. Filings with the Reserve Bank of India
8. Filing with the Securities and Exchange Board of India (SEBI)

Get more information about the legal compliances of Indian Subsidiary Company from wlegal experts at Legal Window