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REGISTRATION OF FOREIGN SUBSIDIARY AND TAXATION

Over the last two to three decades, India has emerged as one of the fastest growing economies in the world. The untapped potential that still remains means that India is an attractive option for foreign investors. Over the years we have seen many international corporations commence operations here in just about every industry. Today, the Indian business landscape mirrors that of an international hub. In this article we will discuss how foreign companies can set up a subsidiary in India and what kind of taxation they will be subject to.

What is a foreign subsidiary company?

A foreign subsidiary company is one wherein more than 51% of stake and voting rights held by foreign company. Subsidiaries are subject to the domestic laws of the country in which it is operational, so a foreign subsidiary in India would have to adhere to the Indian laws.

How does one set up a foreign subsidiary company in India?

The most straightforward way for a foreign entity to set up a subsidiary in India is by first establishing a Private Limited Company (PLC). Foreign Direct Investment (FDI) is not permitted in the case of a proprietorship, partnership firm, or one person company. As a result, a PLC offers the simplest route.

To set up a PLC, the following minimum requirements have to be met:

  • At least 2 directors are required to start a PLC, and of these 2, at least 1 needs to have been a resident of India for a period of 182 days.

  • The PLC also must have at least 2 shareholders. Both the shareholders can be Foreigners or Foreign Companies or a combination of both.

  • The minimum capital to register a company is Rs. 2/-.

  • The entity should have acquired an office space to register a proposed company where it will conduct its business.

The following are the documents required:

  • The Indian resident director must provide a photograph, copy of PAN card, copy of either passport or Aadhar card or voter ID, address proof such as utility bill which is not older than 2 months. If he has a Director Identification number, that also must be shared.

  • In case the Foreign Director-Shareholder : Foreign Subsidiary must have 2 Directors from their end and they must provide a photograph, copy of passport, copy of driving license and address proof in their country of residence which is not older than 2 months.

  • In case foreign Company Shareholders : Parent Company Incorporation certificate and Board Resolution to be provided authorizing any one Director to register a Company in India.

Registration of foreign subsidiary:

  • The first step in setting up a subsidiary in India is to reserve the company’s proposed names. In the case of a foreign subsidiary, the parent company can use its own name with the addition of ‘India’ at the end of the name. The proposed name will be subject to approval from the Central Registration Center.

  • A subsidiary needs to procure a Digital Signature Certificate (DSC) which is needed for the directors of the company. This is needed for compliance purposes and to file the incorporation application digitally.

  • To file the incorporation application, the following documents should be submitted:

  • ID proof and address proof of the applicant.

  • INC 9, Declaration related to acceptance of Deposit.

  • Memorandum and Articles of Association.

  • PAN undertaking.

  • Registered office address proof and 'No Objection' letter for using the office space.

  • Incorporation certificate of Parent company along with Board Resolution.

These documents are required to be self-attested by Indian nationals. With respect to foreigners or foreign company, all the documents including foreign Director ID proof and address proof are to be notarized and appostalised or Notarization and a signature from the Indian Embassy is to be obtained.

Steps after Company is formed:

Foreign Company should follow following steps:

  1. Open a Current account with any bank in India.

  2. Transfer minimum capital to the bank account of the company.

  3. File form 'FCGPR' with Reserve Bank of India within 30 days of receipt of money.

  4. File for commencement of business and formally start the business.

  5. Conduct the first board meeting within 30 days of registration and file for appointment of Auditor.

  6. Obtain Registrations like Non-STPI, shops and establishment based on nature of business.

Taxation

Foreign subsidiaries are subject to income tax in India. The corporate tax for foreign subsidiary engaged in manufacturing activity will be taxed at 15%, other business units will be charged at 25% of corporate tax.

Foreign Subsidiaries should close books of accounts on every March 31st and file return with Income Tax Department on or before 30th November of every year.

For further information on this please write to vighnesh@bclindia.in and to read more articles visit https://www.setupcompany.online/blog

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