What is a Foreign Subsidiary Company? And Foreign Subsidiary Company Compliance in India

Foreign Subsidiary Compliance in India under the Income Tax Act

• Annual Compliance : Includes GST & TDS reporting, RBI & SEBI regulations, and yearly financial statements.
• Event-Based Compliance : Required only when a specific business action is taken.
• Periodic Compliance : Recurring requirements, such as quarterly or biennial filings.

Benefits enjoyed by a Foreign Subsidiary Company in India

Listing down a few advantages of a Foreign Subsidiary Company set up in India:

• Access to a Large Market : Expands business reach in India, attracting more customers and increasing revenue.
• Local Expertise : Uses local suppliers and skilled workers to improve business efficiency.
• Better Brand Recognition : Builds trust and loyalty by having a strong presence in India.
• Cost Savings : Saves money by using local resources and benefiting from exchange rates.
• Operational Efficiency : Being close to customers and suppliers boosts efficiency and growth.
• More Control & Variability : Gives the parent company better control over business operations.

Role of FDI in a Foreign Subsidiary Company

Foreign Direct Investment (FDI) allows an Indian company to issue shares or convertible debentures through:

• Bank Transfers : Payments via regular banking channels.
• NRE/FCNR Accounts : Debit from a foreign investor’s bank account in India.
• Conversion of Dues : Royalties, technical fees, or loans (ECB) can be converted into shares.
• FIPB Approval : Import dues, pre incorporation costs, and share swaps may be converted into shares.
• Escrow Accounts : Funds held in an RBI approved escrow account can be used for share purchases.

Steps to Set Up a Foreign Subsidiary in India

Follow these simple steps to Set Up a Foreign Subsidiary in India:

• Choose the Right Company Type : Select between Private Limited Company, LLP, or Branch Office based on business needs.
• Get Approval & Register : Most sectors allow automatic approval, but some require RBI or FIPB approval. Register with the Registrar of Companies (ROC).
• Obtain Licenses & Permits : Get industry specific licenses for import, export, manufacturing, or operations.
• Comply with Tax & Labour Laws : Register for GST, corporate tax, PAN, and TAN as per Indian laws.
• Maintain Compliance : File annual reports, tax returns, and other required documents to stay legally compliant.

RBI Regulations and FEMA Guidelines

Here is the rewritten content in a structured, point wise format:

• The transfer of shares in a foreign subsidiary company between an Indian resident and a non-resident investor (either way) falls under this regulation.
• Such a transfer can occur through a sale or a gift.
• The transaction must be recorded in compliance with foreign direct investment (FDI) regulations within 60 days of the transfer date.
• The responsibility for submitting the required form lies with either:
  • The investee company, or
  • The Indian resident involved in the transaction.
• This rule applies whether the Indian resident is the transferor or the transferee.
• FC-GPR pertains to remittances received by shareholders of a foreign subsidiary company.
• The form details the method of remittance from the company to its shareholders.

Conclusion

All businesses in India must follow government rules, whether owned by Indians or foreigners. The only difference is that foreign owned companies have more rules to follow than Indian owned ones.

Suggested Read :

Shareholding rights of subsidiary company

Branch Office and Indian Subsidiary

Holding and Subsidiary Company in India

How to start a Subsidiary Company in India?

Documents required for Indian Subsidiary Registration

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