Setting up Foreign Subsidiary Company in India

A foreign investor can commence business in India through various structures, including:

A foreign company can set up a Wholly Owned Subsidiary (WOS) in India , where 100% of the equity is owned by the foreign entity, or a subsidiary company with more than 50% stake. More, a foreign company can partner with an Indian business entity to form a joint venture, allowing shared ownership, management, and control, which leverages local market knowledge and resources. Establishing a branch office in India enables a foreign company to conduct activities such as export/import of goods, consultancy services, R&D, and representation, though manufacturing is not permitted. A liaison office, also known as a representative office, allows a foreign company to promote its business and act as a communication channel without engaging in direct commercial activities. For specific projects, especially in infrastructure and construction, a foreign company can set up a project office. Foreign investors can also establish Limited Liability Partnerships (LLPs) in India, benefiting from limited liability while directly managing the business, with FDI in LLPs allowed under the automatic route in sectors where 100% FDI is permitted. Additionally, foreign investors can invest directly in existing Indian companies through equity shares, convertible preference shares, or convertible debentures, either via the automatic route or the government route, depending on the sector and investment percentage. Each of these options has specific regulatory, tax, and operational implications, and the choice will depend on the investor's business strategy and compliance considerations.

What is Wholly Owned Subsidiary (WOS) Company and how it is different from Subsidiary Company?

Single window form as SPICe+ for Company Registration in India

Ministry of Corporate Affairs (MCA) indeed streamlines and simplifies the process of Foreign subsidiary company registration in India. SPICe+ integrates multiple services such as PAN, TAN, Director Identification Number (DIN), and GST registration, Professional Tax Registration, Shop & Establishments among others, into a single form. This consolidation reduces the time and effort previously required to obtain these essential registrations separately, especially for nascent companies.

AGILE PRO form complements SPICe+ by facilitating the application for

-Goods and Services Tax Identification Number (GSTIN),

-Employees' State Insurance Corporation (ESIC),

-Employees' Provident Fund Organisation (EPFO) registrations

-Professional Tax Registration for Maharashtra, Karnataka & West Bengal

-Shop & Establishment Registration for Delhi

simultaneously with the Company Registration of the company online.

By combining these services and processes into unified forms, the MCA aims to promote ease of doing business in India and support the growth of new businesses by reducing administrative burdens and streamlining regulatory compliance.

Foreign investors have many options for commencing business in India, depending on their preferences and the nature of their operations:

Indian Company:

- Joint Venture: Collaborate with Indian partners to form a company jointly.

- Wholly Owned Subsidiary: Establish a company where the foreign investor owns 100% of the shares.

- Both options can be in the form of a Private Limited or Public Limited Company, complying with the Companies Act, 2013.

Foreign Company:

- Liaison Office : Set up an office to represent the parent company in India, primarily for liaison purposes.

- Branch Office : Establish a branch office to conduct specific activities such as export/import, research, consultancy, etc., on behalf of the parent company.

- Project Office : Open an office for activities as per a specific contract to execute a project.

Limited Liability Partnership (LLP):

- LLP: Establish an LLP according to the provisions of the LLP Act, 2008.

- FDI is permitted under the automatic route in LLPs operating in sectors/activities where 100% FDI is allowed without any FDI-linked performance conditions.

Learn more here Benefits of LLP Registration and its Annual Compliances

These options allow flexibility for foreign investors to choose the most suitable business structure based on their business goals, investment preferences, and regulatory MCA, RBI, SEBI, IRDA requirements in India.

Sectoral caps and requisite approvals

Incorporation of a company in India is subject to sectoral caps and requisite approvals, as per the regulations and guidelines set by the government for different sectors. Sectoral caps refer to the maximum percentage of foreign investment allowed in various sectors of the economy. Requisite approvals may include permissions from regulatory bodies such as the Reserve Bank of India (RBI) or sector-specific authorities or FIPB. However, it is important to note that round-tripping—where an Indian resident's investment in a foreign entity is reinvested back into India—is not allowed. Each of these options has specific regulatory, tax, and operational implications, and the choice will depend on the investor's business strategy and compliance considerations.

Reserve Bank of India (RBI) Guidelines:

RBI guidelines govern the establishment of Liaison Offices (LO), Branch Offices (BO), and Project Offices (PO) of foreign entities in India, outline the eligibility criteria, permitted activities, reporting requirements, and other operational aspects for foreign offices in India.

Also as per the Companies Act, 2013, only a resident Indian with a PAN (Permanent Account Number) can be appointed as an agent or representative for receiving notices and communications in India on behalf of a foreign company, requirement ensures proper legal representation and compliance with Indian laws.

What are the key differences between Private/Public, OPC & LLP ?

Key Points before Registration with Foreign Individuals

• Resident Director: Sec 149(3) - Every company should have at least one director who has stayed in India for a total period of not less than 182 days in the financial year.
• Company may appoint more than fifteen directors after passing a special resolution, further provided that such class or classes of companies as may be prescribed shall have at least one woman director (Rule 3 of The Companies (Appointment and Qualification of Directors) Rules, 2014).

ESIC & EPFO mandatory for Subsidiary Company in India ?

As part of ongoing efforts to improve India’s ranking in the Doing Business Report 2021, the Ministry of Labour & Employment has integrated the registration processes for GST, EPFO, ESIC, and Profession Tax for Maharashtra with company incorporation, reform, completed in collaboration with the Ministry of Corporate Affairs (MCA), mandates that new Public, Private Limited Companies, and One Person Companies must register for ESIC and EPFO through the MCA's Spice+ and AGILE-PRO e-forms from February 15, 2020. Consequently, the Shram Suvidha Portal stopped handling these registrations for new companies on the same date, as indicated on both the Shram Suvidha Portal and the Ministry of Labour and Employment's website.

From February 15, 2020, new companies are required to obtain EPFO and ESIC registration numbers via the MCA portal during their incorporation process only. Despite this change, these companies must still comply with the provisions of the Employees' Provident Funds and Miscellaneous Provisions (EPF & MP) Act, 1952, and the Employees' State Insurance (ESI) Act, 1948 once they exceed the respective employment threshold limits defined by these acts.

Eligibility Criteria for Setting Up Business Structures in India

Liaison Office (LO):

• The foreign parent company must have a profit-making track record during the immediately preceding three financial years in the home country.
• The parent company must have a net worth of not less than $50,000 or its equivalent.

Branch Office (BO):

• The foreign parent company must have a profit-making track record during the immediately preceding five financial years in the home country.
• The parent company must have a net worth of not less than $100,000 or its equivalent.

Project Office (PO):

• No specific financial criteria are required for setting up a project office.

Remittance Guidelines for Business Structures in India

Liaison Office (LO):

- Not Applicable (NA)

Branch Office (BO):

- Permitted to remit profits net of applicable taxes upon submission of requisite documents.

Project Office (PO):

- Intermittent remittances by companies pending winding-up are permitted, subject to the satisfaction of the AD Category 1 bank.

Business Registration Process in India

1. Check Name Availability:

- Verify the availability of the company name or registered trademark for incorporation. Reserve the name through the online service Spice Part-A on the MCA website. Alternatively, apply for the name through SPICe+ Part A & B together.

How to Choose a Company Name in India for Registration ?

2. Obtain Digital Signature Certificate (DSC):

- Obtain a Digital Signature Certificate for at least one proposed designated director of the company. DIN for proposed directors can only be applied for through form SPICe+.

Note: Mandatory for foreign subscribers/directors. Ensure that all necessary documents are properly notarized and apostilled/legalized as required for the DIN, DSC & Company Registration process.

3. Fill and Submit Form INC 32 (SPICe+):

- Complete and submit Form INC 32 (SPICe+) to the Registrar of Companies (CRC) for the Private Limited Company Registration. PAN and TAN will be auto-generated based on details filed in the SPICe+ form.

4. Filing of eMoA and eAoA:

- File the electronic Memorandum of Association (eMoA - INC 33) and electronic Articles of Association (eAoA - INC 34) in SPICe+. For foreign subscribers, physical MoA and AoA need to be executed and attached along with proper Notarization & Apostilling/Legalization of Documents.

5. SPICe+ Upload and Fee Payment:

- Confirm SPICe+ upload and make the necessary fee payment as Stamp duty need to pay and MOA fees are NIL upto the capital of 15 lacs by the initiative of "Ease of doing business in India" by Modi Government.

6. Verification and Scrutiny by CRC:

- The Central Registration Centre (CRC) verifies and scrutinizes all documents and forms. It may suggest changes to be made in the attachments or form itself. Make necessary changes accordingly.

7. Obtain Certificate of Incorporation (CoI):

- Once approved, obtain the Certificate of Incorporation (CoI). Corporate Identification Number (CIN), Permanent Account Number (PAN), and Tax Deduction and Collection Account Number (TAN) are allotted at the time of registration along with other Registration such as Professional tax, Shop & Establishment etc if any.

8. Filing Declaration and Verification:

- A company with share capital must file a declaration of receipt of subscription amount and verification of registered office within 182 days of incorporation and prior to commencement of business.

Why to Incorporate a Company in India or making any FDI ?

India continues to be one of the world's fastest-growing economies, attracting significant foreign direct investment (FDI). In the fiscal year 2023-24, the total FDI inflows reached $971.521 billion (from April 2000 to December 2023), with FDI equity inflows standing at $666.477 billion during the same period. These figures, sourced from the Department of Promotion of Industry and Internal Trade, Government of India, underscore the country's appeal as an investment destination.

In response to economic challenges, Hon'ble Prime Minister Shri Narendra Modi announced a special economic and comprehensive package exceeding $270 billion, equivalent to 10% of India’s GDP, as part of the Atmanirbhar Bharat Abhiyan (Self-reliant India) initiative. Sourced from the Prime Minister's Office and Ministry of Finance, this package aims to bolster various sectors and stimulate economic growth.

Despite global uncertainties, India is projected to witness an estimated GDP growth rate of 7.6% in the fiscal year 2023-24, as per data from the Ministry of Finance. This positive outlook reflects India's resilience and potential for sustained economic expansion, offering promising opportunities for investors and businesses alike.

Source: investindia

Learn here FEMA/ RBI Compliance Checklist for Indian Companies with FDI