In India, like any other companies which are managed by Indian people and entities, the foreign subsidiaries are also required to maintain strict and perfect compliances with all the Indian regulatory government bodies and authorities. Foreign subsidiaries located in India are essentially required to make maintain additional compliances as compared to those required from Indian-owned Companies. There is a broad category of compliances for the Foreign Subsidiary company in India i.e. Annual, periodic and monthly return.
Foreign subsidiaries are also required to comply with other Indian tax regulations like
- TDS regulations,
- GST regulations,
- ESI regulations
Based on the
industry, state of incorporation, number of employees and sales turnover the
compliance requirement for a foreign subsidiary company varies.
What is a Foreign Subsidiary Company?
A Foreign subsidiary company is a company with the voting
right (that is more than 50%) controlled by another company, usually referred
to as the parent company or the holding company.
Where a parent company owns a foreign subsidiary, the
Foreign Subsidiary Company must follow the laws of the country where it is
incorporated and operates. The foreign subsidiary is required to follow the
applicable laws in India if a foreign subsidiary is incorporated in
What are the major compliances
required for a Foreign Subsidiary Compliances?
The Foreign Subsidiary Company is required to perform the following
three categories of statutory compliances with Indian regulatory authorities –
- Periodic compliances,
- Annual compliances, and
- Event-based compliances.
Additionally, the types and nature of these compliances
depend on the various factors-
- Type of company and its incorporation,
- Industry type and its market size,
- The number of its employees, and
- Annual sales turnover.
Now, In India, the compliance regime has been made very
strict particularly since the promulgation of the new Indian Companies Act of
2013 and all amendments made thereto in the cases of delayed compliances or
failures in statutory compliances advocates for heavy fines, penalties, and
punishments including imprisonment.
- Financial Statements should contain comprehensive information about its Indian business operations demanded by the Schedule III to the Companies Act of 2013 and are to be filed within six months of the end of the financial year of the foreign company.
- Form FC-1: Form FC-1 is to be filed within 30 days of the establishment of the subsidiary anywhere in India, duly accompanied by any necessary certification/authorization required from RBI or other regulatory authorities.
- Form FC-3: Form FC-3 is to be filed with the concerned ROC containing details of the business places and the financial records of the company.
- Audit of Accounts–If the foreign subsidiary is the India-based Subsidiary Company then the accounts related with business operations and transactions in India, should be arranged, checked, and verified by a PCA(Practicing Chartered Accountant) as per the provisions and rules given in the Section 381(1)(a) of the Companies Act of 2013.
Note – Rule-4 of the Companies (Registration of Foreign Companies) Rules of 2014 is also required to comply with.
- Form FC-4: Annual Return in Form FC-4 to be filed with relevant ROC within Sixty days from the end of the financial year.
- All company-related documents (translated or distributed) of the India-based subsidiary of the foreign company, must be in English, duly substantiated by a competent lawyer practicing in India.
- Various Compliances under the concerned ROC, Income Tax Departments and GSTN,
- Compliances as per all rules and regulations associated with the Companies Act of 2013 and under Secretarial Standards.
- Compliances with RBI, FEMA, Transfer Pricing, FDI Authorities, etc.
- Compliances under all rules and regulations associated broadly with SEBI
- Compliances with ESI and PF Regulations, Intellectual Property Laws and concerned statutes and legal acts.
- And, other compliances demanded or deemed necessary.
There are two event-based reporting required to be
made to RBI in detail-
FC-GPR-In FC-GPR, the foreign inward remittance concerning
the issue of share capital to the foreign investor is reported. The form specifies
the various mode of payment for the consideration received from investor
through banking channel, NRE / FCNR, Escrow A/c, Swap, etc. The banking
channels are generally used for such transactions.
While filing the form FC-GPR, following documents are
required to be attached:
- KYC of foreign investor
- Company Secretary Certificate
- Declaration by the authorized representative of the Indian company as per FEMA.
- Valuation certificate from SEBI registered Merchant Banker / Chartered Accountant /Cost accountant or any other person as authorized under FEMA 20(R)
- Foreign Inward Remittance Certificate
- Other documents as applicable on case to case basis.
In FC-TRS, as per the FDI policy, the foreign remittance concerning
the transfer of shares by the way of Gift or by the way of sale held in the Indian
company to/by the foreign investor is reported. The reporting of transfer of
shares between Residents and Non-residents and vice- versa is to be made and should
be reported within 60 days from the date of receipt/date of payment of the
amount of consideration.
The following documents are required to be attached while filing the form:
regulatory approvals and relevant extracts of the transfer agreement,
- For the transfer Consent
letter between donator and receiver,
- Declaration by Non-resident
in the prescribed format
- Consent letter
between buyer and seller or in case of sale/ purchase on the stock exchange,
the contract note should be attached.
- In case of sale
by a non-resident, acknowledgment of FC-GPR/ FC-TRS as applicable for the
capital instruments being sold
- FIRC /Outward
remittance certificate and KYC