Subsidiary of foreign company in india
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
02 January 2013
please tell me the laws relating to subsidiary of foreign company in India such as formation tax implications etc.
02 January 2013
There Are various laws which will need to be complied wit, but i think it will be better if you can ask specific things
Eg.
1. Income Tax
2. Company Law Etc
Eg.
1. Income Tax
2. Company Law Etc
26 July 2025
Certainly! Here's a clear and structured overview of the **laws, procedures, and tax implications** related to setting up and operating a **subsidiary of a foreign company in India**, based on applicable Indian laws:
---
## 🇮🇳📘 **1. Legal Framework for Foreign Subsidiary in India**
A **foreign company** can set up a **wholly owned subsidiary (WOS)** or a **joint venture (JV)** in India under the **Companies Act, 2013**.
### ✅ **Key Routes for Entry:**
* **Incorporate an Indian Company** as a:
* **Private Limited Company** (most common)
* **Public Limited Company**
* The company can be **100% foreign-owned**, subject to **FDI (Foreign Direct Investment) rules** under FEMA.
---
## 🏛️ **2. Laws & Regulations Involved**
| Area | Law |
| ---------------------- | --------------------------------- |
| Company registration | Companies Act, 2013 |
| Foreign investment | FEMA, 1999 and FDI Policy (DPIIT) |
| Taxation | Income Tax Act, 1961 |
| Transfer pricing | Income Tax Act + CBDT Guidelines |
| Reporting & disclosure | RBI Regulations, MCA Compliance |
---
## 🏗️ **3. Procedure to Set Up a Foreign Subsidiary in India**
### Step-by-step:
1. **Choose business structure** – Private Limited Company (most common).
2. **Obtain DSC and DIN** for proposed directors.
3. **Name reservation** via RUN (Reserve Unique Name) on MCA portal.
4. **Draft & file incorporation documents** (SPICe+ form), including:
* MoA, AoA
* Declaration by directors
* Proof of registered office
* Board resolution from foreign parent
5. **PAN, TAN, GST registration** post incorporation.
6. **Open bank account in India** and **bring in share capital** from foreign parent.
7. **File FDI reporting** to RBI via **SMF portal** (FC-GPR form).
> ✅ Time to incorporate: \~2–3 weeks
---
## 💸 **4. FDI Rules**
* **100% FDI** is allowed under **automatic route** in most sectors.
* In **sensitive sectors** (e.g., defence, telecom, insurance), **government approval** is required.
* Compliances include:
* Reporting of inward remittance
* Filing **Form FC-GPR** within **30 days** of share allotment
* Compliance with **sectoral caps** and **pricing guidelines**
---
## 🧾 **5. Tax Implications**
| Tax Area | Description |
| ----------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------- |
| **Corporate Tax** | Applicable at **22% + surcharge/cess** (effective \~25.17%) for domestic companies (including foreign subsidiaries), if no exemptions claimed |
| **MAT (Minimum Alternate Tax)** | Applies if taxable income is very low due to exemptions – currently at **15% + surcharge/cess** |
| **Dividend Distribution Tax (DDT)** | Abolished since FY 2020-21 – dividends taxed in hands of recipient |
| **TDS on remittances** | Any payments (like royalties, technical services, interest) to the foreign parent may attract **withholding tax** under sec 195 |
| **Transfer Pricing** | All cross-border transactions must comply with **arm's length pricing** under Indian TP regulations |
| **GST** | Registration mandatory if turnover crosses ₹40 lakhs (or lower thresholds for services); compliance includes monthly returns |
---
## 🌐 **6. Annual Compliance for Foreign Subsidiary**
| Compliance | Description |
| ---------------- | ------------------------------------------------------------------- |
| ROC Filings | AOC-4 (Financials), MGT-7 (Annual Return), ADT-1 (Auditor) |
| RBI Reporting | Annual Return on Foreign Liabilities and Assets (FLA), FC-GPR, etc. |
| Income Tax | Filing of Income Tax Return (ITR-6), Tax Audit (if applicable) |
| Transfer Pricing | 3CEB report, TP study report if cross-border transactions exist |
---
## 🚨 **7. Key Regulatory Points to Remember**
* **At least one director must be an Indian resident** (staying in India ≥ 120 days in the previous year).
* Maintain **statutory books, audit**, and **regulatory compliance**.
* **Arm’s length pricing** is essential for all intercompany transactions.
* Non-compliance with FEMA can result in **penalties and compounding**.
---
## ✅ **Conclusion:**
Setting up a **foreign subsidiary in India** is a **well-regulated and accessible process**, especially in sectors under the **automatic route**. However, **FEMA compliance**, **RBI reporting**, and **transfer pricing** require careful attention.
---
Would you like:
* A **checklist** for incorporating a foreign subsidiary?
* A **comparison** between Liaison Office, Branch Office, and Subsidiary?
* Help with **drafting resolutions or agreements**?
Let me know — happy to assist!
---
## 🇮🇳📘 **1. Legal Framework for Foreign Subsidiary in India**
A **foreign company** can set up a **wholly owned subsidiary (WOS)** or a **joint venture (JV)** in India under the **Companies Act, 2013**.
### ✅ **Key Routes for Entry:**
* **Incorporate an Indian Company** as a:
* **Private Limited Company** (most common)
* **Public Limited Company**
* The company can be **100% foreign-owned**, subject to **FDI (Foreign Direct Investment) rules** under FEMA.
---
## 🏛️ **2. Laws & Regulations Involved**
| Area | Law |
| ---------------------- | --------------------------------- |
| Company registration | Companies Act, 2013 |
| Foreign investment | FEMA, 1999 and FDI Policy (DPIIT) |
| Taxation | Income Tax Act, 1961 |
| Transfer pricing | Income Tax Act + CBDT Guidelines |
| Reporting & disclosure | RBI Regulations, MCA Compliance |
---
## 🏗️ **3. Procedure to Set Up a Foreign Subsidiary in India**
### Step-by-step:
1. **Choose business structure** – Private Limited Company (most common).
2. **Obtain DSC and DIN** for proposed directors.
3. **Name reservation** via RUN (Reserve Unique Name) on MCA portal.
4. **Draft & file incorporation documents** (SPICe+ form), including:
* MoA, AoA
* Declaration by directors
* Proof of registered office
* Board resolution from foreign parent
5. **PAN, TAN, GST registration** post incorporation.
6. **Open bank account in India** and **bring in share capital** from foreign parent.
7. **File FDI reporting** to RBI via **SMF portal** (FC-GPR form).
> ✅ Time to incorporate: \~2–3 weeks
---
## 💸 **4. FDI Rules**
* **100% FDI** is allowed under **automatic route** in most sectors.
* In **sensitive sectors** (e.g., defence, telecom, insurance), **government approval** is required.
* Compliances include:
* Reporting of inward remittance
* Filing **Form FC-GPR** within **30 days** of share allotment
* Compliance with **sectoral caps** and **pricing guidelines**
---
## 🧾 **5. Tax Implications**
| Tax Area | Description |
| ----------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------- |
| **Corporate Tax** | Applicable at **22% + surcharge/cess** (effective \~25.17%) for domestic companies (including foreign subsidiaries), if no exemptions claimed |
| **MAT (Minimum Alternate Tax)** | Applies if taxable income is very low due to exemptions – currently at **15% + surcharge/cess** |
| **Dividend Distribution Tax (DDT)** | Abolished since FY 2020-21 – dividends taxed in hands of recipient |
| **TDS on remittances** | Any payments (like royalties, technical services, interest) to the foreign parent may attract **withholding tax** under sec 195 |
| **Transfer Pricing** | All cross-border transactions must comply with **arm's length pricing** under Indian TP regulations |
| **GST** | Registration mandatory if turnover crosses ₹40 lakhs (or lower thresholds for services); compliance includes monthly returns |
---
## 🌐 **6. Annual Compliance for Foreign Subsidiary**
| Compliance | Description |
| ---------------- | ------------------------------------------------------------------- |
| ROC Filings | AOC-4 (Financials), MGT-7 (Annual Return), ADT-1 (Auditor) |
| RBI Reporting | Annual Return on Foreign Liabilities and Assets (FLA), FC-GPR, etc. |
| Income Tax | Filing of Income Tax Return (ITR-6), Tax Audit (if applicable) |
| Transfer Pricing | 3CEB report, TP study report if cross-border transactions exist |
---
## 🚨 **7. Key Regulatory Points to Remember**
* **At least one director must be an Indian resident** (staying in India ≥ 120 days in the previous year).
* Maintain **statutory books, audit**, and **regulatory compliance**.
* **Arm’s length pricing** is essential for all intercompany transactions.
* Non-compliance with FEMA can result in **penalties and compounding**.
---
## ✅ **Conclusion:**
Setting up a **foreign subsidiary in India** is a **well-regulated and accessible process**, especially in sectors under the **automatic route**. However, **FEMA compliance**, **RBI reporting**, and **transfer pricing** require careful attention.
---
Would you like:
* A **checklist** for incorporating a foreign subsidiary?
* A **comparison** between Liaison Office, Branch Office, and Subsidiary?
* Help with **drafting resolutions or agreements**?
Let me know — happy to assist!
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