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Foreign wholly owned subsidiary

Shridhi Jain (Company Secretary) (1678 Points)

25 April 2011

Dear members,

Pls tell me the procedure to make a foreign entity a wholly owned subsidiary (WOS) of HUF.

I have not found any procedure in FEMA.

Kindly help me.

Thanks in advance.

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6 Replies

Jaideep (Service) (1368 Points)
Replied 25 April 2011

Hi Shridhi,

PFB - steps

Establishment of Wholly Owned Subsidiary

Procedure to be followed:

1. Conduct a Board Meeting:

-- pass a resolution authorizing a director to sign the MOA of WOS

-- Appoint a Attorney/Consultant to incorporate a company as per the host country Laws.

-- Ensure the amount to be invested in WOS as applicable by the Indian company

After Incorporation of WOS:

-- Open a Bank Account in the name of the company (WOS) in the host country

-- Establish Registered Office

-- Indian party Investment 100%, which has been subscribed to the MOA of WOS, shall be deposited in the Account opened in host country.

2. Conduct a Board Meeting:

Pass a resolution for submission of ODA to RBI through AD to remit the funds

Ensure the FEMA regulations have been complied with i.e.

1 Only Private/Public Limited companies are permitted to establish WOS in host country

2 Investment is by way of Equity directly subscribing to the MOA of the subsidiary Company

3 Remittance can be by way of cash or export of goods and services

4 Dividends, royalties etc. should be repatriated to India (to the Indian Company)

5 Investment shall not exceed USD 50 million in a block of three financial years

6 Same core activity shall be carried on by the WOS in the host country

7 The Indian party has earned net profits preceding 3 financial years

8 Investment can be made out of EEFC Account Funds or drawing Forex from AD

9 To submit Form ODA duly completed to the AD for onward transmission to RBI

3. Obligations of Indian Party:

-- Receive share certificate as an evidence of Investment in foreign entity to the satisfaction of RBI

-- Repatriate to India all dues/receivable like dividend, royalties technical fees etc.,

-- Submit to the RBI every year an annual performance report in Form APR in respect of WOS outside India as stipulated by RBI

-- Pledge of shares of WOS as security for availing of funds for itself/WOS from an AD or Public financial institution in india is allowed.

Thanks

Jaideep Pandya

Shridhi Jain (Company Secretary) (1678 Points)
Replied 25 April 2011

Thanks Jaideep.

But does this apply to HUF ? The shares will be transferred in the name of HUF or Karta ?

"After Incorporation of WOS:

-- Open a Bank Account in the name of the company (WOS) in the host country

-- Establish Registered Office

-- Indian party Investment 100%, which has been subscribed to the MOA of WOS, shall be deposited in the Account opened in host country."

Indian party include companies, registered partnership firms and body formed under the Act of Parliament, but how do we know that it includes HUF too ?

Where is this mentioned ?

Jaideep (Service) (1368 Points)
Replied 25 April 2011

No it does not include as it has been specifically excluded by RBI.

Regards

Jaideep Pandya

Shridhi Jain (Company Secretary) (1678 Points)
Replied 26 April 2011

Pls tell me the procedure to be followed for making the foreign company a WOS of HUF.....

Where in FEMA is it mentioned ?

Kindly help me. Its urgent....Your precious suggestions are required.

Jaideep (Service) (1368 Points)
Replied 26 April 2011

Hi,

An Indian Party is a company incorporated in India or a body created under an Act of Parliament or a partnership firm registered under the Indian Partnership Act 1932 and any other entity in India as may be notified by the Reserve Bank. When more than one such company, body or entity makes investment in the foreign entity, such combination will also form an “Indian Party”.

Plz refer regulation 2(k) Notification No. FEMA 120/ RB-2004 dated: July 7, 2004.

Thanks & Regards

Jaideep Pandya