A foreign subsidiary company is a business entity that is owned and controlled by a foreign company, also known as the parent or holding company. Establishing a subsidiary company allows foreign investors to enter new markets while complying with local business laws and regulations. This article provides a guide on the process, compliance, and registration of a foreign subsidiary company in India.
What is a Subsidiary Company?
A subsidiary company is a business entity that is controlled by another company, referred to as the parent or holding company. The parent company holds a majority stake (more than 50%) in the subsidiary, giving it control over decision-making and operations.
Subsidiary Company Meaning
A subsidiary company operates independently but must adhere to the strategic decisions made by its parent company. The subsidiary may have different management, branding, and business objectives, but financials are often consolidated with the holding company.
Holding and Subsidiary Company
A holding company is a business entity that owns controlling shares in one or more subsidiary companies. While the holding company does not usually engage in business operations, it manages and oversees the subsidiaries.
Process of Registering a Foreign Subsidiary Company in India
Step 1: Choose the Type of Company
Foreign investors can register a subsidiary under the following structures:
-Private Limited Company Registration – A commonly chosen structure for foreign subsidiaries.
-One Person Company (OPC) Registration – Suitable for single owners.
-Section 8 Company Registration – A non-profit company suitable for charitable purposes.
Step 2: Obtain Digital Signature Certificate (DSC)
To apply for incorporation, directors must obtain a DSC from certified authorities.
Step 3: Apply for Director Identification Number (DIN)
All directors need to acquire a DIN from the Ministry of Corporate Affairs (MCA).
Step 4: Name Approval via RUN (Reserve Unique Name)
The company name should be unique and comply with the Companies Act, 2013 regulations. The application is made through the MCA portal.
Step 5: Drafting of Memorandum of Association (MOA) & Articles of Association (AOA)
The MOA defines the company's objectives, while the AOA outlines operational rules.
Step 6: Filing the Incorporation Application
The company submits SPICe+ Form on the MCA portal along with required documents.
Step 7: Obtain Certificate of Incorporation
Once approved, the company receives a Certificate of Incorporation (COI), confirming its legal existence.
Regulatory Compliance for Foreign Subsidiary Companies
1. AD Code Registration
-AD Code Registration is required for businesses involved in import/export to facilitate smooth transactions.
-The code is issued by authorized banks and must be registered with the Customs Department.
2. GST Registration
-Companies with a turnover above ₹40 lakhs (₹10 lakhs for special category states) need to register under Goods and Services Tax (GST).
-A GSTIN is issued upon successful GST registration.
3. GST Cancellation
-A company may apply for GST cancellation in case of business closure or turnover reduction.
-The cancellation process includes filing final returns and clearing liabilities.
4. Annual Compliance for a Subsidiary Company
Foreign subsidiaries must comply with annual filing requirements, including:
-Filing Financial Statements (AOC-4)
-Annual Returns (MGT-7)
-Statutory Audit & Tax Filings
Subsidiary Company Examples
Many multinational corporations establish foreign subsidiaries to expand their global presence. Some well-known examples include:
-Google India Pvt. Ltd. – A subsidiary of Alphabet Inc. (USA).
-Amazon India Pvt. Ltd. – A subsidiary of Amazon.com Inc. (USA).
-Nestlé India Ltd. – A subsidiary of Nestlé S.A. (Switzerland).
-Coca-Cola India Pvt. Ltd. – A subsidiary of The Coca-Cola Company (USA).
These companies operate independently but are ultimately controlled by their parent organizations.
Conclusion
Setting up a foreign subsidiary company in India provides global businesses with access to a vast market while complying with legal and regulatory requirements. The registration process involves obtaining necessary approvals like company registration, GST registration, and AD code registration. The difference between holding and subsidiary companies, along with annual compliance, ensures smooth operations.
For businesses looking to expand globally, establishing a foreign subsidiary is a strategic and profitable move.
FAQs
1. Can a foreign company fully own a subsidiary in India?
Ans. Yes, foreign companies can own 100% shares in certain industries under automatic route FDI policy. However, some sectors require government approval.
2. What is the minimum capital requirement for a foreign subsidiary?
Ans. There is no minimum capital requirement for setting up a private limited subsidiary in India.
3. How long does it take to register a foreign subsidiary in India?
Ans. The process usually takes 15-30 days, depending on documentation and approvals.
4. Do foreign subsidiaries need GST registration?
Ans. Yes, whether the turnover exceeds the prescribed threshold or if the company engages in taxable activities.
5. What are the tax implications for a foreign subsidiary?
Ans. Foreign subsidiaries are taxed in India based on their profits. They may also benefit from Double Taxation Avoidance Agreements (DTAA).
6. Can a foreign subsidiary apply for GST cancellation?
Ans. Yes, a company can cancel its GST registration by applying to the GST portal, subject to clearance of dues.
