Meaning of Indian Subsidiary

A sister company, also known as a subsidiary, is under the control of a parent company or holding company. The parent company possesses the authority to govern the subsidiary, whether partially or wholly. In India, the procedure for Indian Subsidiary Registration follows the guidelines of the Companies Act of 2013. As per this act, a subsidiary is characterized by a foreign corporate body or parent entity holding at least 50% of the total share capital. Essentially, the parent company wields substantial influence and control over the subsidiary.

Types of Subsidiaries in India

India recognizes two primary types of subsidiaries:

1. Wholly Owned Subsidiary: In a wholly-owned subsidiary, the parent company holds complete ownership, owning 100% of the subsidiary’s shares. However, it’s vital to understand that wholly owned subsidiaries can only be formed in sectors that permit 100% Foreign Direct Investment (FDI).

2. Joint Venture Subsidiary Company: It is jointly operated by 2 or more companies. For instance, such companies collaborate on various projects & rule the market together. Additionally the ownership & control of subsidiary companies are shared with the parent companies.

3. LLP for Subsidiary Company: It’s a type Subsidiary Company formed as a Partnership. In addition, this type of Subsidiary provides liability protection to its partners, which doesn’t make them personally liable for debts/obligations of the Subsidiary Company.

Before initiating the establishment of a subsidiary in India, obtaining approval from the Reserve Bank of India is a crucial prerequisite. This regulatory step ensures adherence to the country’s foreign investment regulations and safeguards the interests of all stakeholders involved.

Regulatory Authorities for Indian Subsidiary Registration

The Ministry of Corporate Affairs (MCA) holds the pivotal responsibility of formulating and enforcing the comprehensive framework of rules and regulations that govern the intricate processes of company registration and compliance in India. Within this regulatory landscape, the Registrar of Companies (ROC) offices play a crucial role, overseeing and managing the procedural intricacies involved in the incorporation of companies. Their oversight extends to ensuring that companies meticulously adhere to the legal requirements, fostering an environment of accountability and adherence to statutory norms.

Complementing this regulatory structure is the indispensable role played by the Reserve Bank of India (RBI), which assumes a pivotal position in regulating the foreign currency exchange aspects pertinent to Indian subsidiary companies. The RBI’s vigilant oversight is instrumental in ensuring the meticulous adherence of these companies to the intricate financial regulations in place. This extends to overseeing foreign investments, acquisitions, and transactions, safeguarding the financial integrity of Indian subsidiary companies and upholding the overall stability of the financial ecosystem.

In essence, this collaborative triad of the Ministry of Corporate Affairs, Registrar of Companies, and Reserve Bank of India establishes a robust and comprehensive regulatory framework that not only facilitates the seamless registration and functioning of companies in India but also guarantees the strict adherence to legal and financial norms, thereby fostering an environment of transparency, accountability, and financial prudence within the corporate sector.

Advantages of Indian Subsidiary Registration

Indian Subsidiary Registration in India comes with numerous compelling advantages:

1. Entry into the Indian Market: India’s competitive business landscape offers a multitude of investment opportunities that attract foreign entrepreneurs to establish their subsidiary companies in the country.

2. Limited Liability: Limited liability is a significant advantage that encourages individuals to choose company formation. This principle extends to Indian subsidiary companies, safeguarding the personal assets of shareholders and directors. The company bears responsibility for its debts to third parties, shielding the personal assets of its stakeholders.

3. Perpetual Succession: The concept of perpetual succession ensures that a company’s existence remains unaffected by events such as changes in management, transfers of membership, or insolvency. The company operates seamlessly, providing stability and continuity

4. Foreign Direct Investment (FDI) in India: FDI involves investments by foreign companies in Indian private enterprises through share subscriptions or acquisitions. In 2020, the Indian government mandated prior approval for investments from countries sharing a border with India, making the registration of Indian subsidiaries an appealing option for foreign investors.

5. Separate Legal Identity: According to the Companies Act, a company is recognized as a distinct legal entity separate from its shareholders and directors. This legal status empowers the company to engage in agreements with other entities, initiate legal actions, and respond to allegations before the judicial system in its own name.

6. Property Ownership and Rental: As a legal entity, a subsidiary company has the authority and right to purchase or rent properties in India for its business activities. Acquiring such properties in the company’s name aligns with the principle of perpetual succession and helps prevent potential conflicts among company members.

7. Scope of Diversification: Establishing an Indian subsidiary company provides a strategic avenue for foreign businesses to expand operations, contributing to the growth of the Indian economy. It also introduces a variety of goods and services, fostering healthy competition.

Compliance Requirements for Indian Subsidiary Registration

Ensuring the establishment of a legally sound and valid Indian subsidiary company necessitates strict adherence to specific regulatory requirements, including:

1. Foreign Exchange Management Act (FEMA): Foreign companies operating in India must meticulously comply with the laws and regulations governing foreign exchange, as stipulated by the Foreign Exchange Management Act, 1999.

2. Companies Act, 2013: All Indian subsidiary companies are obligated to adhere to the provisions outlined in the Companies Act, 2013, ensuring compliance with the statutory framework governing corporate entities.

3. Reserve Bank of India (RBI) Compliances: Indian subsidiary companies are subject to various foreign exchange management compliances mandated by the Reserve Bank of India (RBI), contributing to the overall regulatory landscape.

4. Income Tax Act, 1961: Annual filing of income tax returns is a mandatory requirement for Indian subsidiaries, with compliance under the provisions of the Income Tax Act, 1961. The current corporate tax rate in India stands at 25%.

5. Annual Returns: Companies are obligated to submit annual returns to both the Ministry of Corporate Affairs (MCA) and the Registrar of Companies, reinforcing transparency and adherence to regulatory standards.

6. SEBI (Listing Obligations and Disclosure Regulations): Should the subsidiary opt to list its securities on a stock exchange, strict compliance with the Securities and Exchange Board of India (SEBI) regulations, specifically the Listing Obligations and Disclosure Regulations, becomes imperative.

The confluence of these regulatory frameworks ensures that an Indian subsidiary company operates within the bounds of legality and remains compliant with the diverse aspects of corporate governance, financial transparency, and regulatory obligations.

Taxation of Indian Subsidiary Companies

Indian subsidiary companies are governed by distinct taxation policies, characterized by the following key features:

1. Income Tax Applicability: Taxes are imposed on all income generated within or outside India, encompassing dividends received from foreign subsidiaries.

2. Tax Rates for Foreign Subsidiaries: Tax rates for foreign subsidiaries in India vary, with a rate of 50% for royalties received for technical services from the government or any Indian entity, and a rate of 40% for other forms of income.

3. Surcharge Rates: Surcharge rates are applied based on the company’s income:

• A 2% surcharge is levied if the income falls between Rs. 1 Crore and Rs. 10 Crores.
• For incomes exceeding Rs. 10 Crores, a higher surcharge of 5% is imposed.

4. Health and Education Cess: Additionally, a 4% health and education cess are added to the total tax amount, contributing to social welfare initiatives.

5. Concessional Tax Rates: Specific sectors, including but not limited to oil exploration, air transportation, and shipping businesses, benefit from concessional tax rates, providing favorable conditions for entities operating in these industries.

These taxation policies create a comprehensive framework for Indian subsidiary companies, reflecting the nuanced regulatory landscape and sector-specific considerations. Understanding and navigating these tax regulations is essential for ensuring compliance and optimizing the financial performance of such subsidiaries in the Indian business environment.

Requirements and Key Facts about Company Registration in India

The registration process for a company in India is intricately governed by the Companies Act of 2013, a comprehensive legal framework that delineates pre-incorporation and post-incorporation requisites. When embarking on the journey of registering a company in India, it is imperative to consider the following key elements:

1. Company Name: Selecting a unique and distinct name for your business is paramount. The chosen name must stand apart from existing businesses’ names or trademarks.

2. Shareholders: The parent company can hold 100% of the shares, or a combination of two foreign nationals can serve as shareholders. Notably, there is no mandatory requirement for an Indian resident to be a shareholder.

3. Share Capital: India does not impose a minimum capital requirement for company registration, providing flexibility for businesses in determining their capital structure.

4. Directors: A minimum of two directors is mandatory, with at least one director being an Indian resident. Additionally, nominee directorship services can be availed if needed.

5. Registered Address: Every company in India must have a registered address officially recorded in government records. Virtual office address services are available to fulfill this requirement efficiently.

6. Annual General Meeting (AGM): As per the Companies Act, every Indian company must conduct at least one annual general meeting, in addition to two board meetings within the year.

7. Company Secretary: Mandatory filing of three secretarial returns annually is overseen by a company secretary.

In terms of taxation, companies in India encounter the following considerations:

1. Professional and Government Fees: Incurrence of professional fees, including government fees for the registration process.

2. Profit Tax Rate: Post-incorporation, companies are subjected to a profit tax rate of approximately 25.36%.

3. GST (Goods and Services Tax): Applicability to domestic sales, with monthly GST returns and an annual tax return mandated.

Ensuring compliance with India’s unique requirements is crucial, encompassing:

• Annual Compliance: Mandatory statutory audits, even for smaller companies, necessitate the appointment of a statutory auditor and the submission of annual filings.

Navigating these multifaceted requirements is indispensable for the successful establishment and operation of a company in India, aligning with the stipulations of the Companies Act of 2013.

Procedure for Indian Subsidiary Registration

Establishing an Indian subsidiary company involves a comprehensive series of steps and compliance measures. Below is a detailed guide outlining the step-by-step process for Indian Subsidiary Registration in India:

1. Determine the Type of Company: Decide on the specific type of subsidiary company you intend to establish.

2. Obtain Digital Signature Certificate (DSC): Since the registration process is conducted online, secure a Digital Signature Certificate (DSC) for the proposed directors of the company. This certificate is essential for electronically signing the necessary documents during the registration process.

3. Apply for Director Identification Number (DIN): Directors of the subsidiary company must obtain a Director Identification Number (DIN) from the Ministry of Corporate Affairs (MCA). This is achieved by submitting the DIN application online.

4. Name Approval: Choose a distinctive name for your subsidiary company and apply for its approval through the MCA’s online portal. Ensure that the chosen name complies with the naming guidelines provided by the MCA.

5. Draft Memorandum of Association (MoA) and Articles of Association (AoA): Prepare the legal documents, MoA and AoA, which delineate the company’s objectives, rules, and regulations, following the guidelines of the Companies Act 2013.

6. File Incorporation Documents: Once the chosen name is approved, file the incorporation documents, including MoA, AoA, and other required forms, with the Registrar of Companies (ROC) through the MCA’s online portal. The SPICe+ form is typically used for the incorporation process on the Ministry of Corporate Affairs portal.

7. Payment of Registration Fees: Pay the applicable registration fees to the ROC based on the authorized capital of the subsidiary company.

8. Obtain a Certificate of Incorporation (COI): If all submitted documents and information are in order, the ROC will issue a Certificate of Incorporation, officially confirming the registration of the subsidiary company.

9. Apply for Permanent Account Number (PAN) and Tax Registration: After obtaining the COI, apply for a Permanent Account Number and a Tax Deduction and Collection Account Number from the Income Tax Department for the subsidiary company.

10. Open Bank Account: Conclude the process by opening a bank account in the name of the subsidiary company in India.

11. Compliance with Other Regulations: Apart from the company registration process, ensure compliance with other relevant regulations.

12. Obtain a GST Number: Goods and Services Tax (GST) registration is required after completing the aforementioned steps, particularly if the company engages in various business activities. Every Indian company must apply for a GST number for taxation purposes.

13. Initiating Business Operations: Once all the preceding steps are completed, the subsidiary company can commence its business operations. This marks the culmination of the comprehensive process of registering and initiating operations for an Indian subsidiary company.

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We simplify the entire registration process, guiding you through key steps such as choosing a distinctive name, acquiring vital Director Identification Numbers (DIN) and Digital Signature Certificates (DSC). Additionally, we offer assistance with PAN and TAN applications and facilitate the establishment of a dedicated company bank account.

Our proficient team is dedicated to ensuring strict adherence to regulatory standards, encompassing compliance with the Foreign Exchange Management Act (FEMA), Companies Act, 2013, Reserve Bank of India (RBI) regulations, and the Income Tax Act, 1961. With MrTaxpert as your partner, you can initiate and grow your Indian subsidiary business confidently and efficiently.