Checklist for Incorporation of a Foreign Subsidiary in India

Incorporating a subsidiary company in India will offer the foreign company access to one of the most important markets in the world. However, incorporating a company is not limited only to registering the company with the MCA. Other things like FDI norms, FEMA guidelines, company regulations, tax registrations, and bank registration procedures have to be considered by the foreign parent company too.

In addition to the above, certain additional documents, legalization procedures, guidelines for foreign directors, among others, may be required for overseas businesses.

The following checklist for incorporation of a foreign subsidiary in India includes all the essentials in a practical order. It will be helpful for overseas companies and founders.

1. Confirm Whether a Subsidiary Is the Right Structure

Firstly, consider whether setting up an Indian subsidiary is in line with the foreign company's objectives.

There are various options available to a foreign company when entering India, such as wholly owned subsidiaries, joint ventures, branch offices, liaison offices, or project offices.

An Indian subsidiary is formed by a foreign company as an Indian company having an independent corporate existence. For many foreign companies that intend to have a prolonged stay in India, setting up an Indian private limited company might seem like a reasonable option.

Before proceeding ahead, take into account the following points:

1. Purpose of the Indian business being set up
2. Ownership of the Indian business
3. Restrictions on foreign investment
4. Industry-specific regulations
5. Capital requirement
6. Revenue and operations expected
7. Tax considerations
8. Long-term growth plans

2. Check FDI Eligibility and FEMA Requirements

It is very important to review the Checklist for Incorporation of a Foreign Subsidiary in India to determine whether the proposed investment activity falls within the scope of FDI provisions of India. The foreign investor needs to consider:

1. FDI Policy
2. Sectoral restrictions
3. Automatic /Governmental approval requiremen
4. Prohibited Sectors
5. Entry criteria
6. Pricing/Valuation norms
7. FEMA Reporting Requirement

Business activities are not subject to the same rules of foreign investment. Hence, the proposed activity needs to be reviewed before the incorporation process and before any capital flows into the country.

3. Prepare Documents of the Foreign Parent Company

Normally, the foreign parent company would have to submit corporate documents to register the company in India.

Documents that could possibly be required in certain cases:

1. Certificate of incorporation
2. Constitution documents
3. Resolution of the board authorizing the Indian subsidiary
4. Authorized signatory information
5. Information regarding the registered office
6. Shareholding information
7. Information about the concerned directors/authorized representatives including their identity and addresses

Documents which have been issued abroad can be required to be notarized, apostilled or legalized, as per the requirements in certain countries.

Foreign documents should be made in order before submission.

4. Prepare Documents of Directors and Shareholders

The directors and the shareholders to be appointed should also present their identification and address proofs. The following can be some examples of documents:

1. Passport
2. Proof of Address
3. Picture
4. E-mail ID
5. Contact numbers
6. Statements pertaining to directors
7. Digital Signature Certificate, where necessary

For foreign directors, some additional documents might be required. Names and dates of birth should be consistent across all documents.

5. Appoint the Required Directors

An Indian company is required to adhere to the provisions for its directors.

In case of a foreign-owned Indian company, the directors may be foreign nationals provided that all legal norms are complied with. However, the foreign-owned company needs to ensure compliance with the resident director requirement under Indian company law.

The prospective directors may require a DIN as well as a DSC for incorporation and future MCA filings.

Hence, it is important to take care of director appointments prior to the incorporation application submission.

6. Decide the Company's Name and Business Activities

Check whether the name proposed for your company is registered and complies with the guidelines for naming. Simultaneously, the parent company from abroad needs to declare the intended business activities. The objects of the business shall be declared precisely as what the Indian subsidiary intends to do. If the company subsequently decides to undertake activities other than those initially planned, it will be necessary to amend the company’s articles.

7. Arrange an Indian Registered Office

For an Indian subsidiary, it is essential to have the registered office in India. It needs to prove its office by having proper documentation regarding the registered office address. The documentation may include:

1. Proof of ownership, if any
2. Rent/lease agreement
3. Bill
4. NOC from the owner, if any

The registered office acts as the office address of the company.

8. Complete MCA Incorporation Formalities

Now that your documents and everything else are prepared, you can apply for incorporation using the standard method of MCA.

This procedure normally consists of the following steps:

1. Planning of the name and organizational structure
2. Procuring the necessary DSCs
3. Drafting of the incorporation documents
4. Filing of MCA application forms
5. Submission of the MOA and AOA
6. Submission of the registered office information
7. Approval of incorporation

Should there be any problem with your application, some further clarification may be needed.

9. Obtain PAN and TAN

Following the incorporation of the Indian subsidiary, it will require its Tax ID information.

PAN (Permanent Account Number) is required for a host of financial and tax purposes.

TAN (Tax Deduction and Collection Account Number) is used when the company is required to deduct or collect taxes at source.

Any further registration would be contingent upon the operations of the business, size of the workforce, and turnover.

10. Open the Company's Bank Account

The corporate bank account is necessary for conducting the operations of the subsidiary company and movement of funds.

The bank might require:

1. Certificate of incorporation
2. PAN
3. MOA & AOA
4. Board resolution
5. KYC documentation
6. Information about the directors
7. Details of beneficial ownership
8. Documentation of a foreign parent company

This list can differ depending on various factors, for example, where the shareholders/directors come from.

11. Complete Capital Infusion and FDI Reporting

Where foreign investments are concerned, the company needs to abide by FEMA and FDI regulations for receipt of funds. Some of them are:

1. Receipt of funds through approved banking channels
2. Adherence to pricing regulations
3. Issuance of shares under the guidelines set out
4. Proper documentation of investments made
5. Relevant RBI reporting

The company’s approved professional needs to determine what the applicable reporting regulations are for this particular investment. It is crucial at this stage to have good documentation because errors in foreign investment reporting may lead to non-compliance issues in future.

12. Check GST and Other Tax Registrations

GST registration is not automatically required by all companies immediately after their incorporation. This would depend on the type of work being done by the company and the GST law requirements.

In accordance with the functions performed by the business, there could also be considerations related to:

1. GST registration
2. Professional tax registration
3. Import Export Code (IEC) registration
4. Shops and Establishments registration
5. Registration specific to States
6. Registration specific to industry sectors
7. Registration related to employees

These must be verified in the light of what the Indian subsidiary actually does.

13. Complete Post-Incorporation Compliance

Incorporation is only the beginning of the compliance process for the firm.

The subsidiary must maintain:

1. Statutory Books and Records
2. Accounting Books
3. Minutes of Board Meetings
4. Annual Accounts
5. Income Tax Returns
6. MCA Returns
7. GST returns (if applicable)
8. Payroll/employee related records
9. FEMA/FDI Books

The list of compliance activities may depend on the nature of the business entity, its financial dealings, its employees, and the legal requirements applicable to the business.

14. Foreign Subsidiary Incorporation Checklist

Prior to completing the entire procedure, the foreign parent company may find this practical checklist helpful:

• Selection of the proper business form under Indian law

• Assessment of FDI eligibility and restrictions in particular sectors

• Confirmation of intended business operations in India

• Preparation of documentation for the foreign parent company

• Notarization, Apostille/Legalization of documents, if required

• Appointment of directors and shareholders in India

• Obtaining DSC/DIN if required

• Choosing the Indian Registered Office

• Completing incorporation procedures before MCA

• Obtaining the Certificate of Incorporation

• Arranging PAN/TAN

• Opening a corporate bank account in India

• Completing the procedure of foreign investment in India

• Completing FDI/FEMA reporting, if required

• Arranging GST registration and other registrations

• Accounting/book-keeping set up

• Payroll/Employment set up, if required

• Establishing a statutory compliance calendar

This checklist is designed to assist foreign companies in organizing the incorporation process and setting priorities before initiating Indian operations.

Common Mistakes Foreign Companies Should Avoid

Most foreign companies venturing into India are only concerned with the incorporation process without considering the need for compliance activities.

These may include:

1. Selecting an entity without verifying the FDI guidelines
2. Providing insufficient foreign documentation
3. Failure to apostille or legalize
4. Specifying vague business objectives
5. Failing to report foreign investments
6. Assuming the immediate need for GST registration
7. Maintaining inadequate records of accounts
8. Failing to submit MCA and/or tax returns annually
9. Ignoring related party transactions
10. Assuming that the incorporation process is the end of compliance activities

The best way to undertake compliance activities is to prepare a compliance strategy even before starting the operational activities of the subsidiary.

Why Professional Support Can Help

An Indian subsidiary will require compliance in a number of related fields. These include company registration, FDI/FEMA guidelines, taxation, accounting, and banking.

Seeking professional guidance will help the foreign company in:

1. Choosing an appropriate form of incorporation
2. Preparing the documentation for company incorporation
3. Managing MCA filings
4. Assessing FDI and FEMA guidelines
5. Arranging for tax filings
6. Implementing accounting procedures
7. Maintaining compliance over time
8. Minimizing the risk of missing any filings

This is particularly useful for UK-based firms and non-resident founders who are operating from abroad.

Conclusion

It is possible that a foreign subsidiary may make for a strong foundation for any international business trying to venture into India. However, incorporating such a subsidiary in India would require much more than obtaining a Certificate of Incorporation.

Compliance with FDI and FEMA regulations, documentation for the foreign entity, tax registrations, banking, capital investment, and filing of statutory returns – all this would have to be done in an expert manner.

Preparation of the Checklist for Incorporation of Foreign Subsidiary in India would make sure that the parent company abroad plans the process efficiently.

Looking forward to starting operations through a foreign subsidiary in India? Take advantage of the services provided by VenturEasy for company incorporation, FDI/FEMA compliance, tax registration, accounting, and statutory compliance.

FAQs

1. Can a foreign company establish a subsidiary in India?

Yes. An alien corporation may establish a subsidiary in India in accordance with the laws of companies, FDI policy, FEMA, and sectoral regulations.

2. What documents are required for incorporating a foreign subsidiary in India?

The usual papers include the constitution papers, articles of incorporation of the foreign parent company, the resolutions from the board, identification papers of the shareholders and directors, registered office papers, etc.

3. Is FDI approval required for every foreign subsidiary?

Wrong. The right way depends on the industry, foreign investment, and regulations governing foreign direct investment. Some foreign investments follow the automatic route, whereas some require government approval.

4. Does a foreign subsidiary need an Indian resident director?

An Indian company is expected to adhere to the provisions related to resident directors under the Companies Act. Ensure you know the appointment requirements beforehand.

5. What happens after the foreign subsidiary is incorporated?

Depending upon the nature of the business activity, the firm might be required to take care of various activities related to banks, raising of capital, FDI/FEMA registration, tax compliance, and many more.