How Business can be set up by Foreign Entities in India?
These are the ways to set up your business in India:
- Liaison Office in India
- Branch Office in India
- Project Office in India
- Wholly Owned Subsidiary Company
- Joint Venture
- Limited Liability Partnership (LLP)
Business entity types are directly related to the requirements. The World startup community has considered the India as the most preferred country for startups businesses. Foreign companies are willing to start their business operations in India and to acquire the best human resources in the world they are ready to get into the world’s fastest growing economy. A foreign country (other than Entity of Pakistan and Bangladesh) can invest and begin a business in India subject to Foreign Direct Investment Policy. Reserve bank of India monitors the investment made in the form of equity.
Through these routes (automatic route or approval route) investment can be made in India.
Automatic route means in order to make investment in India;no prior regulatory approval is required. Approval of Reserve Bank of India is required where automatic route is not permissible.
Benefits of Wholly Owned Subsidiary Company Registration in India
Liability of Members and Directors of the private limited company is limited to their shares invested by them. In case where company incurs any loss or faces any financial distress because of its business operation, the personal assets of shareholders / Members / Directors are secured and will not be seized by banks, creditors, and government.
Continuity of Existence of Company
The life of a business is independent of the status of shareholders and it will continue to exist, even after the demise of the shareholders
As employees get security, vendors would be willing to offer credit, investors feel secure while making investments, vendor feels secure in offering credit, investors feel secure in investing, customers lay down their trust and confidence in the company’s brand while purchasing goods and/or services in case of private limited company due to which Company's brand value will get increased and would be able to build a sound corporate structure. All these provide huge and strong shape of the company and ensure an easy way for Startup Company in order to achieve the title of multinational company. Initially Startup Company earns zero revenue and in just few years, it rapidly reaches to multibillion dollar company because of the company’s high brand value.
The scope of expansion
In private limited companies, the scope of expansion is higher because it is easy to raise capital from a venture capitalist, angel investor, financial institutions and the advantage of limited liability, Such companies offer more transparency in the company.
Foreign Direct Investment in India
Many businesses offer 100% Foreign Direct Investment (FDI) without any prior approval. Proprietorship or Partnership do not allow FDI and LLP requires Government approval prior to Foreign Direct Investment.
Characteristics of Wholly Owned Subsidiary Company in India
- There is no requirement of prior approval for repatriation Dividend.
- Available funding mechanisms are Equity, Debt (Foreign and Local) and Internal accruals
- Indian Transfer pricing regulations are applicable on Indian Subsidiary Company.
- For all other applicable laws and purpose of income tax, it is treated as an Indian company.
- Taxation rate are different in comparison to foreign company foreign company is taxed at 40%whereasit is taxed at 30%.
- It is subject to dividend distribution tax (DDT) at the rate of 16.995%.
Registration Process of Wholly Owned Indian Subsidiary Company in India
1. Digital Signature Certificate (DSC)
To file the incorporation form, ROC compliance forms, and Income Tax returns, all the proposed directors/promoters of the company must have a digital signature. To register a company, physical signature is not required.
2. Director Identification Number (DIN)
After the Digital signature is approved, all the proposed directors in the company are required to apply for DIN (Director Identification Number). Certification of Director Identification Number application will be done by the professional; thereafter Registrar of companies will send you an approval email indicating that now you are capable of becoming director in a company. One working day is required to approve DIN.
3. Approval of Company Name
Before finalizing the name of the company, we need to ensure that there is no trademark and no company is registered on the same proposed name. Thereafter Name approval application will be filed to ROC on your behalf.
4. Final Incorporation and Corporate Identification Number
Final incorporation form will be submitted with all supporting documents like registered address proof, Declaration from all the directors once name is approved by the ROC. Certification of the required documents will be done by the Practicing Professional.
5. Permanent Account Number
One working day is required to file the Permanent Account Number Application
6. Open your Bank Account and Start business
Assistance will be provided to you in opening the Bank Account and starting the business.
7. Reserve Bank of India (RBI) Compliances for Foreign Direct Investment in India
All newly incorporated wholly owned subsidiary company in India are required to comply with the RBI compliances by filing necessary forms which can be done simultaneously with the operation of business.
8. Necessary Registrations
GST registration can also be applied by the Wholly Owned Subsidiary Company and Import Export Code (IEC) registration in India is required in case of import export business. Companies would have to apply for Employee State Insurance or Provident Fund registration, where there are more than 10 or 20 employees.
Documents Required for Registration of Wholly Owned Indian Subsidiary Company
From All Directors and Shareholders
- Passport copy of foreign directors (duly notarized by the Indian embassy).
- Scanned copy of incorporation certificate issued by the respective foreign government (LLC/ INC) (duly notarized by the Indian embassy).
- A Resolution from Limited Liability Company / INC for opening a subsidiary company in India. (Duly notarized by the Indian embassy).
- Scanned copy of Voter's Identity Card/Passport/Driver's License & Permanent Account Number of Indian director.
- All directors and shareholder’s Passport-sized photograph.
For Proposed Registered Office (Residential or commercial)
- Any Utility bills
- Scan copy of Rent agreement with No Objection Certificate from owner
Income Tax Norms applicable to Wholly Owned Subsidiary Company in India
As the wholly owned subsidiary company is registered in India, therefore it is a tax resident and are required to pay tax in India on its global income irrespective of the fact whether the tax by the parent company in the home country on its profits has been paid or not. As per section 92A of the Income Tax Act, if the Indian Subsidiary Company is an `associated enterprise’ than on the international transactions the provisions concerning arm length pricing will be applicable.
In order to globalize economic activities, tax policies are being reformed by the India. Corporate tax rate is 40% for foreign companies and 30% for domestic companies and LLP in India. The net tax rate comes out to be lower due to various exemption and deductions. Various Special Economic Zones have been set up to make industry globally competitive and tax holidays are available there. Moreover, Infrastructure Sector Projects also enjoy Special tax treatment/holidays. A user friendly tax administration has been introduced by the authority, as there is an electronic filing of documents.
Norms for Transfer Pricing
Transfer pricing regulations are applicable to Wholly Owned Subsidiary Company in India. Comparison of transaction price of associated company or holding company with the industry margin results in Simple Transfer Pricing and to arrive at the Arm's length price, the difference between them would be taxed
Norms for FDI (Foreign Direct Investment)
FDI is allowed through automatic route in almost all sectors including service sector, except few sectors where Foreign Direct Investment is not permitted beyond a limit.
Under this route, no prior approval of RBI is required, except the information which is required to be provided to RBI.
Government Approvals is required to be obtained in certain cases. In other words, on the recommendations of the Foreign Investment Promotion Board (FIPB), Governmental Approval is required where FDI is not covered under the 'Automatic Route'.
FDI Restricted Sectors
FDI is not permitted in following areas:
- Atomic Energy
- Atomic Minerals
- Postal Service
- Gambling and Betting
- basic Agriculture or plantations activities or Agriculture (excluding Floriculture, Horticulture
- Seeds Development
- Animal Husbandry
- Cultivation of Vegetables, Mushrooms etc. under controlled conditions and services related to agro and allied sectors) and
- Plantations (other than Tea plantations).
Annual Compliances for Indian Subsidiary Company
It becomes mandatory for the Indian Subsidiary Companies to comply with Income Tax Act, Companies Act, transfer pricing guidelines and FEMA guidelines. They are required to file their income tax return with the Income Tax Department, annual return with the Registrar of Companies and other mandatory filings with the Reserve Bank of India or Securities & Exchange Board of India (SEBI) from time to time. Other regulations such as TDS regulations, GST regulations and ESI regulations etc are also need to be complied with by the Indian Subsidiary Company. Such requirements are also based on the industry type, number of employees and turnover they are earning.
Post Wholly Owned Subsidiary Company Registration Requirements
Steps to be followed after registration:
Step1: Subscription amount must be remitted in India from the foreign country bank account to the bank account in India within the period of 2 months of incorporation.
Step 2: The next step includes obtaining Foreign Inward Remittance Certificate (FIRC) & KYC documents from the Bank.
Step 3: Filing of Advance Reporting form within the period of 30 days of receipt of funds along with KYC &Foreign Inward Remittance Certificate (FIRC) with the Reserve bank of India.
Step 4: After this, share allotment immediately after reporting and time to time follow up from bank.
Step 6: Share certificates issuance
Frequently Asked Questions about Indian Subsidiary
Registration of Indian Subsidiary does not require your presence as it is a 100% online process. For document signature, We will send our personnel to your home or office.
The internal constitution of the company is defined in Article of Association, and mission, vision, business objective of the company is defined under Memorandum of Association.
Hiring CA/CS is not required. We will offer you annual compliance package will offered to you through which you will get the right advice from our professionals.
Minimum 7 business days are required for the same.
Company name should be different and unique, and name should describe the objective of the companies per Companies Act, 2013.
ID proof (like Aadhar/ Indian Passport / Driving License/ ID issued by any government agency, Utility bills as address proof, a copy, Permanent Account Number Card (for Indian Nationals) and Passport (for foreign nationals) must be provided by all the proposed directors. No-objection Certificate is also required to be submitted by the owner to the registered office premises.
Certifying authority issues the Digital Signature Certificate which is used to sign the electronic documents. Every proposed director in a company must have a valid Director Identification Number.
A registration certificate remains valid throughout the life of business which is issued by the registrar of company.