Indian Subsidiary - An Overview

Registering a Subsidiary Company in India: A Comprehensive Guide

Setting up a subsidiary in India offers foreign businesses a significant opportunity to tap into a vast and growing market. This process involves navigating specific legal and regulatory frameworks, primarily governed by the Companies Act, 2013, and regulations set forth by the Reserve Bank of India (RBI) and the Ministry of Corporate Affairs (MCA). Trustra Advisory specializes in assisting foreign companies with the seamless incorporation of their subsidiaries in India, guiding them through every step from initial legal understanding to ongoing compliance.

Partnering with experts for your Indian subsidiary registration is crucial to ensure adherence to all legal requirements and to efficiently unlock India's business potential.

Understanding a Subsidiary Company in India

In India, a subsidiary company is defined under the Companies Act, 2013, primarily based on the concept of 'control'. A company is considered a subsidiary of another (the holding or parent company) if the holding company:

• Controls the composition of the Board of Directors; or
• Exercises or controls more than one-half of the total voting power or controls more than one-half of the paid-up share capital of the subsidiary company.

Unlike the previous notion of a "sister company" which might imply equal footing, a subsidiary is under the direct or indirect control of its parent entity.

Types of Subsidiaries in India

While control is the defining factor, subsidiaries in India often fall into these categories based on ownership:

• Wholly-Owned Subsidiary: In this structure, the parent company holds 100% of the subsidiary's share capital. This is a common structure in sectors where 100% Foreign Direct Investment (FDI) is permitted under the automatic route.
• Majority-Owned Subsidiary: This refers to a subsidiary where the parent company holds more than 50% of the share capital, thereby exercising control.

It's important to note that the ability to establish a subsidiary and the permissible level of foreign ownership are subject to India's FDI policy, which specifies sector-specific limits and conditions, including whether the investment falls under the automatic route or requires prior government approval.

Advantages of Registering an Indian Subsidiary Company

Establishing a subsidiary in India provides several compelling benefits:

• Entry into the Indian Market: It provides a formal and strong presence in India's competitive market, offering direct access to local customers and business opportunities.
• Foreign Direct Investment (FDI): Incorporating a subsidiary is a primary route for foreign companies to invest in India. While many sectors allow 100% FDI under the automatic route (requiring only post-investment reporting), certain strategic sectors may require prior government approval.
• Perpetual Succession: A registered company has a separate legal existence, meaning its operations continue uninterrupted despite changes in ownership, management, or the passing of shareholders.
• Limited Liability: This fundamental corporate principle protects the personal assets of the shareholders and directors from the liabilities and debts of the company. The subsidiary is a separate legal entity responsible for its own obligations.
• Scope for Diversification and Growth: A subsidiary structure facilitates the expansion of business operations within India, contributing to economic activity and introducing new goods and services.
• Separate Legal Identity: The subsidiary is treated as an independent legal entity, capable of entering into contracts, owning property, suing, and being sued in its own name.
• Property Ownership and Rental: As a legal entity, the subsidiary can acquire, hold, and rent property in India for its business activities.

Regulatory Authorities for Indian Subsidiary Company Registration

The registration and compliance of an Indian subsidiary are primarily governed by:

• Ministry of Corporate Affairs (MCA): Responsible for the administration of the Companies Act, 2013, and overseeing the incorporation and regulation of companies through the Registrars of Companies (ROC).
• Reserve Bank of India (RBI): Regulates foreign exchange transactions and foreign investments under the Foreign Exchange Management Act (FEMA). Compliance with RBI guidelines, including reporting of FDI, is mandatory.

Key Requirements for Company Registration in India

For incorporating an Indian subsidiary as a private limited company, the key requirements include:

• Company Name: The name must be unique and not identical or too similar to existing company names or registered trademarks.
• Shareholders: A minimum of two shareholders are required. These can be foreign individuals or entities. The parent company can be a shareholder, holding all or a majority of the shares. There is no requirement for an Indian resident shareholder.
• Share Capital: The Companies Act, 2013, does not prescribe a minimum paid-up share capital for private limited companies. The company can be incorporated with any amount of share capital as decided by the promoters.
• Directors: A minimum of two directors is mandatory. At least one director must be a resident in India, defined as a person who has stayed in India for a total period of not less than 182 days during the financial year. Directors can be foreign nationals, but at least one resident director is essential.
• Registered Address: The company must have a registered office address in India where official communications can be received.
• Meetings: Companies are required to hold Board Meetings and an Annual General Meeting (AGM) as per the provisions of the Companies Act, 2013.
• Auditor: Appointment of a statutory auditor is mandatory for all registered companies.
• Company Secretary: While not all private limited companies require a full-time company secretary, compliance with secretarial standards and filing of annual returns are mandatory and often managed by practicing company secretaries.

How to Register a Subsidiary Company in India: Step-by-Step

The incorporation process for a foreign subsidiary in India is largely online and involves the following steps:

1. Obtain Digital Signature Certificate (DSC): Proposed directors require DSCs for online document submission.
2. Apply for Director Identification Number (DIN): Each proposed director must obtain a DIN from the MCA.
3. Name Approval: File an application with the MCA for the approval of the proposed company name.
4. Draft Memorandum of Association (MoA) and Articles of Association (AoA): These constitutional documents outline the company's objects and internal regulations.
5. File Incorporation Documents: Submit the MoA, AoA, and other necessary forms (primarily through the SPICe+ form) with the jurisdictional Registrar of Companies (ROC) via the MCA portal.
6. Payment of Registration Fees: Pay the requisite government fees based on the authorized capital.
7. Obtain Certificate of Incorporation (COI): Upon successful verification, the ROC issues the COI, marking the legal birth of the company.
8. Apply for PAN and TAN: Obtain the Permanent Account Number and Tax Deduction and Collection Account Number from the Income Tax Department.
9. Open Bank Account: Open a corporate bank account in the name of the newly incorporated subsidiary.
10. FEMA Compliance (Post-incorporation): Report the details of the foreign investment received to the RBI through an Authorized Dealer Category-I bank.

Annual Compliance Requirements for Indian Subsidiary Registration

Once incorporated, an Indian subsidiary, being a domestic company, must adhere to various annual compliance obligations under the Companies Act, 2013, Income Tax Act, 1961, and GST laws:

• Annual Filings with ROC: File annual financial statements in Form AOC-4 and the annual return in Form MGT-7/MGT-7A (depending on the company type and turnover) within the prescribed due dates following the AGM.
• Holding of Meetings: Convene Board Meetings at specified intervals and hold the Annual General Meeting within the due date.
• Income Tax Returns: File the corporate income tax return annually by the due date (typically September 30th or October 31st, depending on audit requirements).
• Statutory Audit: Get the financial statements audited by a practicing Chartered Accountant.
• GST Compliance: If applicable based on turnover, register for GST and file monthly or quarterly GST returns (GSTR-1, GSTR-3B) and an annual return (GSTR-9).
• Other Periodic Filings: Comply with other requirements such as filing Form DIR-3 KYC for directors annually, and Form MSME-1 for reporting dues to micro and small enterprises (if applicable).
• Mandatory ISD Registration: From April 1, 2025, companies with multiple GST registrations under the same PAN receiving common input services must obtain mandatory Input Service Distributor (ISD) registration and file GSTR-6 monthly.
• E-Invoicing Updates: Businesses with an Annual Aggregate Turnover (AATO) exceeding ₹10 crore are required to report e-invoices within 30 days of invoice issuance, effective from April 1, 2025.

Taxation of Indian Subsidiary Companies

An Indian subsidiary is taxed as a domestic company. The corporate tax rates for domestic companies vary based on turnover and whether they opt for certain concessional regimes.

• Normal Tax Rate: For companies with a turnover of up to ₹400 crore in a preceding financial year, a concessional rate of 25% may apply. For other domestic companies, the rate is 30%.
• Concessional Tax Regimes: Lower tax rates of 22% (with no specific incentives) or 15% (for new manufacturing companies) are available if certain conditions are met.
• Surcharge and Cess: Applicable surcharge based on income slab and a Health and Education Cess of 4% are levied on the income tax liability.

Foreign companies' income in India (not through a domestic subsidiary) is taxed at a rate of 40%, with applicable surcharge and cess. Specific rates may apply to certain types of income like royalties and fees for technical services under old agreements or tax treaties.

FDI in Private Limited Companies

India's FDI policy permits 100% Foreign Direct Investment under the automatic route in most sectors, allowing foreign entities to establish wholly-owned subsidiaries without prior government approval. However, certain sectors are under the government approval route, requiring permission before investing. These include areas like broadcasting content, print media, and specific activities in telecommunications, defense, and pharmaceuticals.

For establishing a private limited company:

• Minimum of 2 shareholders (can be foreign individuals or entities).
• Minimum of 2 directors (at least one must be an Indian resident director).
• No minimum paid-up capital requirement.

Navigating these requirements is crucial for successful incorporation and operation in India.

Legal documents and information relevant to setting up and operating a subsidiary company in India: