INTRODUCTION
As global markets continue to interconnect, the prospect of expanding operations to India has become an enticing opportunity for businesses seeking growth and diversification. In this article, we will delve into the key considerations, challenges, and strategic approaches involved in setting up a foreign subsidiary in India. From compliance requirements to cultural nuances, join us on a journey through the essential steps and insights crucial for successfully charting the course in the dynamic Indian business environment.
UNDERSTANDING: WHAT IS A FOREIGN SUBSIDIARY COMPANY?
In the intricate realm of international business, a Foreign Subsidiary Company stands as a pivotal structure, bridging the corporate worlds of two distinct countries. Defined by its incorporation in one nation while being owned or controlled by a company from another, the nucleus of this relationship lies in the designation of the parent entity as the Holding Company.
Foreign Subsidiaries are often propelled by the allure of untapped markets, the quest for cost optimization, or the pursuit of favorable tax regimes, these entities serve as strategic instruments for global expansion.
SETTING UP A FOREIGN SUBSIDIARY COMPANY IN INDIA
Establishing a Foreign Subsidiary Company in India involves the creation of a separate legal entity, typically, a Private Limited Company, with foreign ownership. This process requires adherence to Indian laws and regulations, including obtaining necessary approvals from the Ministry of Corporate Affairs (MCA) and other regulatory authorities. Once registered, the Foreign Subsidiary Company can conduct business activities, tap into India's extensive market potential, and navigate the intricate yet rewarding landscape of the Indian business environment.
STEPS FOR INCORPORATION OF A FOREIGN SUBSIDIARY COMPANY IN INDIA
Step 1: Finalizing the name and business objectives of the proposed company to seek approval of the parent holding company by way of a board resolution.
Step 2: Obtaining Digital Signature Certificate (DSC) for the proposed directors.
Step 3: Submission of Name Reservation Application to the Registrar of Companies (ROC) for Name Approval of the proposed company via Form SPICE+ Part A.
It is to be noted that the reserved name shall be valid for a period of 20 days from the date of approval, and the Incorporation Application is required to be submitted within this timeline. Further, in case of failure to submit the Incorporation Application within 20 days, name reservation can be extended.
Step 4: Preparation of Incorporation Application in Form SPICE+ Part B, and other necessary documents including Memorandum of Association (MOA), Article of Association (AOA), application for obtaining Permanent Account Number (PAN) and Tax Deduction & Collection Account Number (TAN) of the proposed company.
Step 5: Preparation of Form AGILE-PRO-S for obtaining Goods and Services Tax Identification Number (GSTIN), Employee's State Insurance Corporation (ESIC) registration, Employee's Provident Fund Origination (EPFO) registration, Professional Tax registration wherever applicable, Declaration for opening a Bank Account, Shops and Establishment (Delhi) registration.
It is to be noted that the Indian Government has made it mandatory for the companies under incorporation to make application for obtaining ESIC and EPFO registration in Form AGILE-PRO-S.
Step 6: Execution of documents referred to in the above steps and obtaining necessary notarization and apostillization, as may be required.
Step 7: Submission of Form SPICE+ Part B and AGILE-PRO-S along with other necessary documents to the ROC.
It is to be noted that the Ministry of Corporate Affairs (MCA) has allowed the companies under incorporation to submit an application for obtaining PAN and TAN in Form SPICE+ Part B.
Step 8: Issuance of Certificate of Incorporation by the ROC and PAN, TAN by the Income Tax Department.
It's crucial to note that the specific steps and requirements may vary based on the type of business, industry, and the chosen legal structure for the subsidiary. These can be highlighted by our expert professionals.
COMPLIANCE GUIDELINES FOR FOREIGN NATIONALS TO CONSIDER WHILE INCORPORATION:
Ensuring compliance with Indian regulations is paramount for foreign nationals seeking to establish a Foreign subsidiary company in India.
IN CASE OF A SUBSCRIBER TO A MEMORANDUM BEING A FOREIGN NATIONAL RESIDING OUTSIDE INDIA
Where the subscriber to the Memorandum of Association (MOA) and Articles of Association (AOA) or the proposed director is a resident of a foreign country, which: -
- is a part of commonwealth, then the MOA, AOA, Proof of Identity (POI), Proof of Address (POA) shall be notarized by a Notary (Public) of that country.
- is party to the Hague Apostille Convention, 1961, then the MOA, AOA, POI and POA shall be Notarized by a Notary (Public) of that country and be duly apostilled in accordance with the said Convention.
- is neither a party of Commonwealth nor a party to the Hague Apostille Convention, 1961, then the MOA, AOA, POI and POA shall be duly authenticated by a Diplomatic or Consular Officer empowered in this behalf.
Further, in the case of a foreign national, residing outside India, who is on a visit to India and intends to incorporate a company in India, in such a case the incorporation shall be allowed if, he/ she is having a valid Business Visa.
It is to be noted that if the Person is of Indian Origin or Overseas Citizen of India, the requirement of a Business Visa shall not be applicable.
In case any of such document is not in English language, then the applicant is required to translate it into English and get it authenticated by a practicing professional.
REQUIREMENT OF SECURITY CLEARANCE
In case of a person seeking appointment as a Director in an Indian Company, who is a national of a country which shares a land border with India, must obtain necessary security clearance from the Ministry of Home Affairs, Government of India and the clearance shall be required before applying for the incorporation of the company.
SETTING UP OF THE REGISTERED OFFICE
The Company shall within a period of 30 days from its incorporation and at all times thereafter, have a registered office capable of receiving and acknowledging all communications and notices as may be addressed to it.
The verification of the registered office shall be filed in Form INC-22 within a period of 30 days from the incorporation, along with the requisite fee, and there shall be attached to the said form the following documents, namely: -
- Proof of Registered Office address (Conveyance/Lease deed/Rent Agreement etc. along with the rent receipts) along with standard NOC in case of Leased or rented property
- Copies of the utility bills (not older than two months)
- Photograph of Registered Office showing external building and inside office also showing therein at least one director/ KMP who has affixed his/her Digital Signature to this form.
Further, in case, the documents mentioned above in point (a) and (b) are submitted along with the Incorporation Application in Form SPICE+ Part B, separate verification of the registered office in Form INC-22 shall not be required.
OPENING OF BANK ACCOUNT IN INDIA
Once, the Foreign Subsidiary Company is incorporated and has received the necessary approval from the ROC by way of issuance of Certificate of Incorporation, it must open a bank account in India.
Further, the Share Capital amount as agreed by the first subscribers to the Memorandum shall be deposited by the first subscribers in the bank account of the Foreign Subsidiary Company in India.
FILING OF DECLARATION FOR COMMENCEMENT OF BUSINESS
The Foreign Subsidiary Company is required to file a Declaration of commencement of business in Form INC-20A with the ROC within a period of 180 days from the date of its Incorporation.
The Company is not allowed to undertake any business activity and exercise any borrowing powers without filing of Form INC-20A.
Form INC-20A is required to be filed with the following compulsory attachments: -
- Photograph of Registered Office showing the external building and inside office also showing therein at least one Director/ KMP.
- Certificate of Registration issued by the RBI (Only in case of Non-Banking Financial Companies) / from other regulator.
- Notification of declaration as a Nidhi Company.
- A copy of proof of receipt of Share Capital amount in the bank account of the company (Generally, Bank Statement).
- Other Attachments, if any.
Upon submission of Form INC-20A, all the requirements are deemed to have been complied with, and the Company is now allowed to conduct its business operations.
FILING OF FOREIGN CURRENCY GROSS PROVISIONAL RETURN (FC-GPR)
As per the prevailing laws in India, the company is required to file Form FC-GPR with the Reserve Bank of India (RBI).
Form FC-GPR is submitted through the RBI Firms portal, which serves as a platform for filing Foreign Investment Returns. This portal accommodates reporting of various forms of foreign investments.
The Investee Company is required to report the transaction of issuing its securities to the non-resident investor within a period of 30 days from the date of remittance by filing Form FC-GPR.
Certain documents are required for the purpose of filing Form FC-GPR. We can share the same, on request.
CONCLUSION
In recent years, the Indian Government has implemented several reforms with a view to simplify and expedite the incorporation process for subsidiaries of foreign companies in India. Beneficial initiatives like the introduction of a single-window clearance system, digitalization of documentation procedures, and easing the timeline for approval of incorporation forms, contributing to a more efficient and transparent setup process.
The proactive approach towards the promotion of increasing foreign direct investment, coupled with the availability of comprehensive information and support services, enhances the overall ease of doing business and encourages International Companies to explore the diverse opportunities within the Indian market.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
