Compliances for Foreign Subsidiary Company in India?

Compliances for Foreign Subsidiary Company in India

A company where 50% or more of its equity shares are owned by a foreign company is a foreign subsidiary company. The foreign company in such a case is called the holding company or the parent company.

Compliances are based on the company that is incorporated. Hence, it is necessary to understand what compliances are supposed to be met according to the type of the company, the operations of the industry, annual turnover, number of employees, etc.

Foreign subsidiary companies are obligated to ensure conformity with the provisions outlined in the Income Tax Act, Companies Act, Transfer Pricing Guidelines, and FEMA guidelines.

What are the compliances for Foreign Subsidiary Companies in India?

Compliance for foreign subsidiaries encompasses tasks such as filing income tax returns with the relevant tax authority, submitting annual returns to the Ministry of Corporate Affairs, and fulfilling other regulatory obligations, including submissions to entities like the Reserve Bank of India or the Securities and Exchange Board of India (SEBI).

Every company, including foreign subsidiaries, must adhere to additional Indian tax regulations such as TDS, GST, PF, ESI, and various others. The compliance obligations for a foreign subsidiary firm will vary depending on factors such as the industry, state of incorporation, employee count, and sales turnover.

Foreign Direct Investment of up to 100% is permissible in Indian private limited and limited companies across a majority of sectors. The volume of FDI in India has experienced substantial growth in recent years, attributable to a thriving economy and a favourable climate for foreign investors.

Compliances for Corporate Governance in India

Foreign subsidiaries operating within India are obligated to adhere to corporate governance regulations that govern the constitution of the board of directors, shareholder assemblies, and yearly submissions. These regulations are detailed below:

Composition of the Board: Foreign subsidiary companies are mandated to establish a board of directors consisting of a minimum of two directors, with one of them being a resident of India. The board is required to convene a minimum of four meetings annually, and comprehensive records of these meetings must be maintained in accordance with the applicable legal provisions.

Shareholder Meetings: Foreign subsidiary companies are required to conduct an annual general meeting (AGM) for shareholders, during which the annual financial statements are presented and directors are appointed or reappointed. Shareholders possess the right to receive prior notice of the AGM, partake in the meeting, and cast votes on the proposed resolutions.

Annual Compliances: Foreign subsidiary companies are obligated to submit various documents to the Ministry of Corporate Affairs. These documents encompass the annual financial statements, director's report, and auditor's report. A certified auditor must audit the annual financial statements, and the accompanying auditor's report must be filed concurrently with the financial statements.

FEMA Compliance: Foreign subsidiary companies operating in India are required to conform to the foreign exchange regulations stipulated by the Foreign Exchange Management Act, 1999. This act oversees the movement of foreign currency into and out of India. Adherence to these regulations entails securing requisite approvals, maintaining accurate records, and abiding by specified transaction thresholds.

Employment and Labour Laws

Foreign subsidiary companies operating within India must adhere to an array of employment and labor laws that delineate the rights and responsibilities of both employers and employees. These encompass:

Minimum Wages: The Minimum Wages Act of 1948 delineates the minimum remuneration that must be remitted to employees across diverse sectors and occupations. Employers are mandated to pay wages that align with either the state or central government's prescribed minimum wage, depending on which is higher.

Employee Benefits: The Employees' Provident Funds and Miscellaneous Provisions Act of 1952 necessitates employers to allocate a portion of their employees' earnings to the Employees' Provident Fund (EPF) and other pertinent social security schemes. Employers are also obliged to furnish employees with supplementary benefits such as medical coverage, gratuity, and maternity leave, in accordance with applicable legislations.

Workplace Safety: The Factories Act of 1948 and related statutes impose an obligation on employers to ensure a secure and healthful work environment for their staff. Adherence to diverse safety benchmarks encompassing workplace layout, construction, and upkeep is essential.

Anti-Discrimination and Harassment: In accordance with the Indian Constitution and various labor laws, bias predicated on gender, religion, caste, or race is proscribed. Employers are mandated to afford equal prospects to all personnel and proscribe workplace sexual harassment as stipulated in the Sexual Harassment of Women at Workplace (Prevention, Prohibition, and Redressal) Act of 2013.

Taxation Compliances

Foreign subsidiary companies operating in India bear a range of tax responsibilities, encompassing compliance with income tax, goods and services tax (GST), and transfer pricing regulations. These encompass:

Income Tax: Foreign subsidiary companies are obligated to remit income tax on the profits garnered within India. The tax rate for foreign entities stands at 40%, augmented by a surcharge and education cess. Furthermore, foreign firms are subject to withholding tax for various disbursements made to them by Indian residents, which encompass dividends, interest, and royalties.

Goods and Services Tax (GST): Foreign subsidiary companies involved in the supply of goods or services within India are necessitated to enroll in the Goods and Services Tax (GST) framework.

Transfer Pricing Regulations: Transfer pricing stipulations within India necessitate that transactions between a foreign subsidiary company and its affiliated entities (inclusive of the parent company) transpire at an arm's length standard. If the transaction deviates from an arm's length standard, Indian tax authorities possess the authority to amend prices and levy taxes on the subsidiary company accordingly.

Conclusion

To incorporate a foreign subsidiary company in India, it is important to meet all the requirements and comply with all the rules and regulations issued by the Indian government. There are many compliances to be followed such as Tax compliances, corporate law compliances, labour laws compliances etc for the purpose of establishing a foreign subsidiary company in India. 
Consult with professional utilities to know about the compliances for Foreign Subsidiary companies in india.

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What are the compliances of the subsidiary company?

To start a Foreign Subsidiary company there are various compliances to be followed such as following the RBI guidelines, FEMA Act, Company incorporation guidelines, labour laws in India etc.

What are the conditions for a subsidiary company?

For a foreign subsidiary company it is important to get at least 50% of the equity from another company which is set up in foreign.

What documents are required for foreign subsidiary company?

The documents required for setting up foreign subsidiary company are DSC, DIN, Aadhar Card, Passport, proof of address of the registered office, utility bills, bank statements etc.

Is a foreign subsidiary a company owned?

A foreign subsidiary is a company that is majority owned or controlled by a company in another country.

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