What is a Subsidiary?
A subsidiary company is a company owned and controlled by another company. The owning company is called a parent company or sometimes a holding company.
A foreign subsidiary company is a partially or wholly-owned company that is a part of a larger corporation. The larger corporation must be headquartered in another country. The foreign subsidiary company works according to the laws of the country in which they are located.
The Parent company may be the majority shareholder of the subsidiary company or have a greater representation on its board of directors.
Bookkeeping of all the financial records of the foreign subsidiary company will be tracked by the parent company. It is mandatory for these foreign subsidiary companies to obey the laws of the country they are operating in.
Minimum Requirements :
- Directors – A minimum of two directors are required to incorporate a private limited company in India. Both directors need to be individuals among which at least one needs to be a resident of India. *A resident of India is a person who has stayed in India for at least 182 days in the previous year.
- Shareholders – A minimum of 2 shareholders are required to form a Private limited company as per the Companies Act 2013, There is no specific condition for the residential status of Shareholders. *Shareholders can either be individuals or entities or a combination of both.
Features of Foreign company in India:
Generally, foreign companies incorporate Private limited companies in India as it is a closely held company and enjoys the privileges given by the Companies Act 2013.
- Funding in the Subsidiary company by the parent company will be in the form of Capital or Loan.
- The registered business office would be in India.
- 100% FDI (Foreign Direct Investment) based on the regulatory of RBI Compliances
- A foreign company can participate in the local Economic Opportunities through a Subsidiary Company.
- The best part for Plan for Global Expansion.
- Expansion of Recognition of Brand.
- Easy access to New markets for Products and Services.
Foreign Subsidiary Compliance
It is mandatory for foreign subsidiary companies to maintain compliance as per Income Tax Act, Companies Act, transfer pricing guidelines, and FEMA guidelines.
Maintaining compliance for a foreign subsidiary company includes
- Filing of Income-tax return with the Income Tax Department
- Annual returns need to be filed with the Ministry of Corporate Affairs
- Filings with Reserve Bank of India or Securities & Exchange Board of India (SEBI).
Other Indian tax regulations that foreign subsidiaries have to comply with include
- TDS regulations
- GST regulations
- PF regulations
- ESI regulations
The compliance requirement varies based on the industry, state of incorporation, number of employees, and sales turnover.
Note: All documents submitted towards the registration of a foreign subsidiary company must be translated into English
A foreign subsidiary company has to follow quite a few compliances pertaining to the laws governing the company registrations in India. It is a partially or wholly-owned company that is a part of a larger corporation whose headquarters is located outside of India. These companies also have advantages of their own.
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