, Foreign Subsidiary in India Registration ~ CS GAURAV SHARMA

November 25, 2023

Foreign Subsidiary in India Registration

Meaning of Foreign Company Subsidiary

  • foreign subsidiary company is one whose majority stakes are held by another company (parent company).
  • The subsidiary carries the name, brand identity, or value of the parent company.
  • Purpose: Expand the business of the parent company with a separate localized operational structure.
  • Funding: Can be wholly owned (100% stakes held by parent) or partially owned (more than 50% stakes held by parent).
  • Foreign Company Subsidiaries in India receive funding from their foreign parents, constituting Foreign Direct Investment (FDI).

FDI Limits and Routes for Foreign Subsidiaries

  • FDI is generally allowed under the automatic route for most sectors.
  • Exception: Countries sharing land borders with India (e.g., Pakistan, Bangladesh, Bhutan, Nepal, China, Afghanistan) require prior approval from the central government for FDI.

Requirements for Setting Up a Foreign Company Subsidiary

  1. Minimum Shareholder and Shareholding:
    • Must have a minimum of two shareholders.
    • Majority shareholder must be the parent company (more than 50% shareholding).
    • If parent's shareholding is 100%, two Indian residents must be appointed as nominee shareholders.
  2. Minimum Directors:
    • Must have at least two directors (up to 15 max).
    • At least one director must be an Indian resident.
  3. Registered Office:
    • Must have a registered office in India.
  4. ROC Approved Name:
    • Usually, registered with the parent's name suffixed by "India" or an entirely different name.
    • Name must be approved by the ROC before incorporation.
  5. Document Legalization:
    • Documents from foreign origin must be legalized based on country of origin.
    • Commonwealth group or Hague Convention countries have specific legalization processes.

Documents Required for Foreign Subsidiary Company Incorporation

  1. Holding Company Documents:
    • Certificate of incorporation
    • Registered address proof in India
    • Memorandum of Association
    • Articles of Association
    • Shareholding and director's details
    • Board resolution and power of attorney for the Indian authorized representative.
  2. Promoters' Documents:
    • Color photo
    • Passport (for foreign promoters) and Aadhar (for Indians)
    • PAN declaration
    • Consent to act as a director (Form DIR2)
    • Digital signature of the authorized Indian representative.

Foreign Subsidiary Company Incorporation Process

  1. Documentation:
    • Prepare and legalize all required documents.
  2. Board Resolution:
    • Pass a board resolution in the holding company, legalized immediately.
  3. Name Approval:
    • Apply online on the MCA website with a nominal fee for proposed names.
    • Submit legalized board approval.
  4. Application for Incorporation:
    • Fill out the application online on the MCA website.
    • Digitally upload all legalized documents.
    • Submit with the required application fee.
  5. Verification and Registration:
    • ROC verifies details and, upon successful verification, registers the company.
    • Issues a certificate of incorporation, providing a legal identity to the subsidiary in India.

Tax Implications for Foreign Subsidiaries in India

  • Tax Regime: Combines elements of residential and source-based taxation.
  • Income Tax: Subsidiaries are taxed at the regular rate (currently 22%).
  • Dividend Distribution Tax: Abolished; dividends taxed in the hands of shareholders.
  • Transfer Pricing: Follows arms-length principle to prevent profit shifting.
  • Repatriation of Profits: No withholding tax on dividends to foreign shareholders; withholding tax on repatriation of post-tax profits.

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