A foreign subsidiary is a company that is owned or controlled by a parent company in another country. The subsidiary company operates in the country where it is incorporated, and it must comply with the laws of that country. The subsidiary company does not have to follow the laws of the parent company’s country.
In India, foreign subsidiaries are subject to certain RBI compliances. This is because the investment that flows from the foreign country is considered to be Foreign Direct Investment (FDI). FDI is allowed in Limited Liability Partnerships (LLPs) subject to RBI approval. However, FDI is not allowed in Proprietorship firms, Partnership firms, and One Person Companies (OPCs).
Therefore, the best entity type for NRIs and Foreign nationals to start a subsidiary company in India is a Private Limited Company. This is the easiest and fastest way to set up a subsidiary in India.
Here are some of the benefits of setting up a foreign subsidiary in India:
- Access to the Indian market: India is a large and growing market with a population of over 1.3 billion people. Setting up a subsidiary in India gives you access to this large and growing market.
- Lower costs: The cost of doing business in India is lower than in many other countries. This can save you money on things like labor, rent, and taxes.
- Increased efficiency: By setting up a subsidiary in India, you can take advantage of the country’s skilled workforce and efficient infrastructure. This can help you to improve your efficiency and productivity.
If you are considering setting up a foreign subsidiary in India, there are a few things you need to do:
- Choose the right entity type: As mentioned above, the best entity type for NRIs and Foreign nationals to start a subsidiary company in India is a Private Limited Company.
- Get RBI approval: If you are investing more than $100,000 in your subsidiary company, you will need to get RBI approval.
- Register your company: Once you have RBI approval, you can register your company with the Registrar of Companies (ROC).
- Get a PAN and TAN: You will need to get a PAN and TAN for your company.
- Open a bank account: You will need to open a bank account for your company.
- Hire employees: If you need to hire employees, you will need to comply with Indian labor laws.
- Pay taxes: You will need to pay taxes on your company’s income.
The benefits of foreign subsidiary companies:
- Access to new markets: A foreign subsidiary can help a company to expand into new markets and reach new customers. This can be a great way to grow the company’s sales and revenue.
- More affordable options for manufacturing: In some countries, the cost of manufacturing is lower than in the company’s home country. This can help the company to reduce its production costs and make its products more competitive.
- Access to technical skills: Some countries have a strong pool of technical talent. This can be helpful for companies that need to develop new products or services or that need to improve their manufacturing processes.
- Access to local knowledge: A foreign subsidiary can help a company to gain a better understanding of the local market. This can be helpful for companies that are trying to tailor their products and services to the needs of local customers.
Overall, a foreign subsidiary can offer a number of benefits for companies that are looking to expand their operations internationally. However, it is important to carefully consider the costs and risks involved before setting up a foreign subsidiary.
Checklist for the incorporation of a foreign subsidiary in India:
Basic Requirements
- At least two shareholders, with a maximum of 200 shareholders. Shares can be held by individuals or entities.
- At least two directors, with a maximum of 15 directors. At least one director must be a resident of India.
- Directors and shareholders can be the same person.
- An Indian address that will serve as the company’s registered address.
Documents Required
- From the parent entity:
- Incorporation certificate
- Memorandum of Association (MOA) and Articles of Association (AOA)
- Board resolution
- For each director and shareholder:
- Permanent Account Number (PAN) card* (mandatory for Indians and others if held)
- Passport* (for NRI, Foreigners and Indians if held)
- Address proof (any one of the following, not more than 2 months old):
- Bank statement
- Phone bill
- Mobile bill
- Electricity bill
*Note – For NRI & Foreigners Documents issued by foreign authorities or signed outside India must be notarized & apostilled)
- For proposed registered office address:
- No Objection Certificate (NOC) from premises owner*
- Rent agreement*
- Utility bill*
The process of incorporating a foreign subsidiary in India:
- Apply for a Digital Signature Certificate (DSC) and Director Identification Number (DIN).
- Pass a board resolution of the foreign company.
- Apply for name reservation.
- Draft and file the Memorandum of Association (MOA) and Articles of Association (AOA) to register the private limited company.
- Apply for PAN and TAN of the company.
- Receive the Certificate of Incorporation along with PAN and TAN.
Key deliverables for incorporating a foreign subsidiary in India:
- Digital Signature Certificate (DSC) of directors and shareholders: A DSC is a secure electronic signature that is used to sign digital documents. It is required for filing documents with the Ministry of Corporate Affairs (MCA). Each director and shareholder of a foreign subsidiary must have a DSC.
- Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) number: A PAN is a 10-digit alphanumeric number that is issued by the Income Tax Department. It is required for all financial transactions in India. A foreign subsidiary must have a PAN. A TAN is a 10-digit alphanumeric number that is issued by the Income Tax Department. It is required for all businesses that are required to deduct tax at source. A foreign subsidiary must have a TAN.
- Certificate of Incorporation (COI): A COI is a document that is issued by the Registrar of Companies (ROC). It is proof that the company has been incorporated and is a legal entity. A foreign subsidiary must have a COI.
- Memorandum of Association (MOA) and Articles of Association (AOA) of the company: The MOA and AOA are the governing documents of the foreign subsidiary. They set out the company’s objectives, structure, and management. The MOA and AOA must be filed with the ROC.
What do you want to know?
DSC (Digital Signature Certificate) is an instrument (pen drive) issued by the certifying authorities by which you can sign e-documents. To file the incorporation related documents and other filings with MCA or income tax department DSC is mandatory.
DIN (Director Identification Number) is a mandatory document for all the directors of a company. It is an 8-digit unique identification number allocated to a director. This has a lifetime validity.
“India” can be used by foreign company which is incorporating its subsidiary company in India. The original name of the holding company as it is may be allowed with the addition of word “India” or name of any Indian state or city, if otherwise available. The words “Global” “International” can be used in the name of an Indian company.
Once the foreign subsidiary is incorporated, the following processes needs to be followed.
- Commencement of business certificate
- FC-GPR filing for the for the foreign investment that has come to India
- Applying for required licenses and registration which is completely depending upon the nature and scale of the business.