Functioning of Wholly Owned Indian Subsidiary
Introduction
More foreign companies are entering the Indian market due to its rapid growth and strong future potential. This has attracted more foreign companies to invest in Indian businesses. Hence, this article shall help you understand the various features and functions of a wholly owned Indian subsidiary.
What is a wholly owned Indian Subsidiary?
A wholly-owned Indian subsidiary is a company in India where 100% of shares are held by a foreign parent company. It operates as a separate legal entity but is fully controlled by the parent company, allowing foreign businesses to expand in India while following local laws and regulations.
Benefits of a Wholly Owned Indian Subsidiary
Setting up a Wholly-Owned Indian Subsidiary offers several benefits for foreign companies:
1. Full Control : The parent company owns 100% of the shares, allowing complete control over operations and decision making
2. Limited Liability : The parent company’s liability is limited to its investment, protecting it from debts or financial losses of the subsidiary.
3. Access to the Indian Market : India offers a large and growing consumer base, providing excellent opportunities for expansion and profitability.
4. No Local Partner Required : A wholly-owned subsidiary does not require an Indian partner, ensuring full control and independence.
Functions of a Wholly-Owned Indian Subsidiary
- The parent company controls the subsidiary, but foreign ones have less power. Using existing staff makes operations easier.
- Sharing finances and securing data lowers costs and protects business secrets.
- Setting up takes money, time to build connections, and handling cultural differences.
- The parent company takes all risks, especially with different local laws.
How does a Wholly owned Indian Subsidiary work?
1. Formation of the Subsidiary
- A foreign company registers a Private Limited Company under the Companies Act, 2013.
- The parent company owns 100% shares.
- Needs two directors; one must be an Indian resident.
- RBI and MCA approval may be required.
2. Legal Structure and Compliance
- Recognized as an Indian company despite foreign ownership.
- Must follow Indian tax, labor, and corporate laws.
- Needs to submit financial statements, tax returns, and reports annually.
3. Taxation & Financial Responsibilities
- Taxed under Indian corporate tax laws.
- Must follow GST, Income Tax, and financial regulations.
- Must file returns and pay taxes on Indian income.
4. Management & Control
- Parent company strategizes; subsidiary handles daily operations.
- Must follow Indian corporate laws and hold required meetings.
We help businesses to open Indian subsidiary and ensure compliance by assisting with filing FC-GPR form for foreign investments, simplifying your expansion into India.
Documents required for a Wholly Owned Indian Subsidiary
A. Parent Company Documents:
- Certificate of Incorporation : Proof of the parent company’s legal existence.
- Board Resolution : Approval to set up an Indian subsidiary.
- ID & Address Proof : Passport, utility bill, or bank statement of authorized partners.
- DIN : Unique ID for subsidiary directors.
B. Documents for Indian Entity
- Company Name Approval : MCA approved unique business name.
- MoA & AoA : Define company goals, operations, and management.
- Office Address Proof : Lease agreement, ownership papers, or NOC from the landlord.
- Tax Registrations : Apply for PAN, TAN, and GST
Basic Criteria to Start a Wholly-Owned Indian Subsidiary
Only if you possess the following criteria shall you easily start a Wholly-Owned Indian Subsidiary:
- Minimum Directors : At least 2 directors are required.
- Minimum Shareholders : The company must have at least 2 shareholders.
- Minimum Capital: A minimum paid-up capital of ₹1 lakh is required.
- Foreign Directors Allowed : NRIs, PIOs, Foreign Nationals, and Foreign Citizens can be directors.
- Essential Documents : Directors must have a Digital Signature Certificate (DSC) and Director Identification Number (DIN).
Challenges while setting up a Wholly-owned Indian Subsidiary
- Costly and Takes Time : Setting up a business requires significant money, time, and effort for legal procedures, approvals, and operations.
- Language Difficulties : Communicating with local employees, clients, and authorities can be challenging if there’s a language barrier.
- Understanding Local Rules : Navigating complex legal and tax regulations requires expertise to ensure compliance with local laws.
- Building Business Setup : Setting up offices, hiring staff, and arranging resources can be a lengthy and costly process.
- Facing Local Competitors : Competing with established local businesses requires strong market research and effective strategies.
Conclusion
A wholly owned foreign subsidiary in India can be established if it qualifies for 100% Foreign Direct Investment (FDI) approval. Previously, prior approval from the Reserve Bank of India (RBI) was required, but now, under the Automatic Route, FDI is allowed without needing government or RBI approval.
Suggested Read :
RBI Rules for Foreign Subsidiary Companies
Holding and Subsidiary Company in India
Indian Subsidiary Foreign Shareholder
1. Can a wholly owned subsidiary be a private company?
Yes, a wholly-owned subsidiary can be registered as a private limited company in India.
2. What is the minimum number of members in a wholly-owned subsidiary?
A wholly owned subsidiary must have at least one shareholder, which is the parent company.
3. What is the difference between a subsidiary and a wholly owned subsidiary?
A subsidiary is over 50% owned by the parent company, while a wholly-owned subsidiary is 100% owned.
4. Can a wholly owned subsidiary be a small company?
No, a wholly-owned subsidiary of a foreign company does not qualify as a “small company” under Indian law.
5. What is the tax rate for a wholly owned subsidiary in India?
Tax rate: 25% for turnover up to ₹400 crore, 30% for higher. Concessions may apply.
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