How Foreign Entities can Setup Business in India?
In India, business can be setup by following ways:
- Liaison Office
- Branch Office
- Project Office
- Wholly Owned Subsidiary Company
- Joint Venture
- Limited Liability Partnership
Type of business entity depends upon the need. India is considered as the most preferred country by the world startup community. Foreign companies have shown interest to start operations in India and ready to enter into the world’s fastest growing economy to access the best human resource in the world. A foreign nation (other than Entity of Pakistan and Bangladesh) can invest and start a business in India subject to FDI Policy. For investment in India, in the form of equity shares is monitored by the Reserve bank of India.
There are two categories of making investment in India either though automatic route or approval route. Automatic route means where no prior regulatory approval is required for investment in the Indian company. Investment in activities/industries where an automatic route is not permissible can be made with the approval of Reserve Bank of India.
Advantages of Wholly Owned Subsidiary Company Registration in India
- Limited Liability
- Continuity of Existence
- Brand Value
- The scope of expansion
- Foreign Direct Investment in India
Liability of Members and Directors of the private limited company is limited to their shares. It means that if the company suffers from any loss and faces financial distress because of primary business activity, the personal assets of shareholders / Members / Directors will not be at risk of being seized by banks, creditors, and government.
The life of a business is not affected by the status of shareholders and even after the death of the shareholder the private limited company continues to exist.
Company's brand value will get increased because employees feel secure in joining the private limited company, vendor feels secure in offering credit, investor feels secure in investing, the customer feels trust and confidence in brand in buying company product/services because of a sound corporate structure. This all makes big shape of the company and ensure an easy way for Startup Company to become a multinational company. Startup Company starts with zero revenue and rapidly reaches to multibillion dollar company in just a few years just because of high brand value of the company. Always take care of brand value.
Is higher because easy to raise capital from a venture capitalist, angel investor, financial institutions and the advantage of limited liability, The private limited offer more transparency in the company.
100% Foreign Direct Investment (FDI) is allowed in several business activities/industries without any prior approval. Foreign direct investment is not allowed in Proprietorship or Partnership; LLP requires prior Government approval.
Features of Wholly Owned Subsidiary Company in India
- For repatriation dividend no requirement of prior approval.
- Equity, Debt (Foreign and Local) and Internal accruals are the available funding mechanisms.
- Indian Transfer pricing regulations apply on Indian Subsidiary Company.
- For all other applicable laws and purpose of income tax, it is treated as an Indian company.
- In comparison to foreign company it is taxed at lower rate of 30% whereas foreign company is taxed at 40%
- It is subject to 16.995% dividend distribution tax (DDT)
Wholly Owned Indian Subsidiary Company Registration Process in India
1. Digital Signature Certificate (DSC)
All Proposed directors/promoters of the company should have a digital signature and digital signature will be used to file the incorporation form, ROC compliance forms, and Income Tax returns. There is no need of a physical signature to register a company.
2. Director Identification Number (DIN)
As soon as Digital signature is approved, the next step is to apply for DIN (Director Identification Number) by all the proposed directors in the company. DIN application will be certified by the professional; thereafter you will get an approval email from the Registrar of companies that now you are eligible to become director in a company. It takes one working day to approve DIN.
3. Company Name approval
For name availability, we have to make sure that there is no trademark on the same name and no company is already registered on the proposed name. Thereafter we will file a Name approval application to ROC on your behalf.
4. Final Incorporation and CIN
After Name approval from the Registrar of Companies, we will file a final incorporation form with all supporting documents like registered address proof, Declaration from all the directors. We will certify all the required documents of the proposed company by the Practicing Professional.
Then we will file PAN application which will take around one working day.
6. Open your Bank Account and Start business
We will assist you in bank account opening and start business.
7. RBI Compliances for FDI in India
A newly incorporated wholly owned subsidiary company in India has to comply with the RBI compliances by filing necessary forms. Compliances can be done simultaneously with the business.
8. Necessary Registrations
Wholly Owned Subsidiary Company can apply for other mandatory registrations such as GST registration, in case of import export business then it is required to apply for IEC registration in India. In case there are employees more than 10 or 20 then they would have to apply for ESI or PF registration.
Documents Required for Wholly Owned Indian Subsidiary Company Registration
From All Directors and Shareholders
- A copy of Passport of foreign directors (duly notarized by the Indian embassy).
- Scanned copy of incorporation certificate issued by the respective foreign government (LLC/ INC) (duly notarized by the Indian embassy).
- A Resolution from LLC / INC for opening a subsidiary company in India. (Duly notarized by the Indian embassy).
- Scanned copy of Voter's ID/Passport/Driver's License & PAN of Indian director.
- Passport-sized photograph of all directors and shareholder.
For Proposed Registered Office (Residential or commercial)
- Any Utility bills
- Scan copy of Rent agreement with NOC from owner
Income Tax Norms for Wholly Owned Subsidiary Company in India
Every wholly owned subsidiary company registered in India is a tax resident and they would have to pay tax in India on its global income no matter whether the tax have been paid of its parent company in the home country on its profits. If the Indian Subsidiary company is an `associated enterprise’ as per section 92A of the Income Tax Act than the provisions concerning arm length pricing on its international transactions will be applicable.
To facilitate globalization of economic activities India is reforming its tax policies. In India for foreign companies, corporate tax rate is 40% and for domestic companies and LLP tax rate is 30%. On account of various deductions and exemptions available under the tax laws, net tax rate is lower. Special Economic Zones set up to make industry globally competitive, tax holidays are available there. Special tax treatment/holidays are enjoyed by Infrastructure Sector Projects. As there is an electronic filing of documents, a user friendly tax administration has been introduced by the authority.
Transfer Pricing Norms
Transfer pricing regulations are applicable on Wholly Owned Subsidiary Company in India. Simply transfer pricing is the comparison of transaction price of associated or holding company with the industry margin and the difference would be taxed to arrive at the Arm's length price.
FDI (Foreign Direct Investment) Norms
In almost all sectors including service sector, FDI is allowed under automatic route, except few sectors where FDI is not permitted beyond a ceiling.
- Automatic Route
For FDI, under the Automatic Route, prior approval of RBI is not required only information is required to be given to RBI.
- Approval Route
In certain cases of FDI, government Approvals might be required. On the recommendations of the Foreign Investment Promotion Board (FIPB), FDI not covered under the 'Automatic Route' requires Governmental Approval.
FDI Restricted Sectors
FDI is not permitted in following areas:
- Atomic Energy
- Atomic Minerals
- Postal Service
- Gambling and Betting
- basic Agriculture or plantations activities or Agriculture (excluding Floriculture, Horticulture
- Seeds Development
- Animal Husbandry
- Cultivation of Vegetables, Mushrooms etc. under controlled conditions and services related to agro and allied sectors) and
- Plantations (other than Tea plantations).
Indian Subsidiary Company Annual Compliances
Indian Subsidiary Companies are required to comply with Income Tax Act, Companies Act, transfer pricing guidelines and FEMA guidelines. From time to time, they had to file income tax return with the Income Tax Department, annual return with the Registrar of Companies and other mandatory filings with the Reserve Bank of India or Securities & Exchange Board of India (SEBI). They would also have to comply with other regulations such as TDS regulations, GST regulations and ESI regulations etc. The requirement is also based on the type of industry, number of employees and turnover.
Post Wholly Owned Subsidiary Company Registration Requirements
Here are the steps which will be followed after registration:
Step1: Subscription amount remittance in India within the period of 2 months of incorporation from the foreign country bank account to the bank account in India.
Step 2: The next step is to obtain FIRC & KYC docs from the Bank.
Step 3: Filing of Advance Reporting form along with KYC & FIRC with the RBI within the period of 30 days of receipt of funds.
Step 4: After this, share allotment immediately after reporting and time to time follow up from bank.
Step 6: Issuance of share certificates