All companies incorporated in India must comply with the rules and regulations laid down by the Indian government. Foreign-owned subsidiary companies, however, have additional compliance requirements compared to domestically owned companies.
What is a Foreign Subsidiary Company?
A foreign subsidiary company is a company in which 50% or more of its equity shares are held by a foreign parent company incorporated outside India.
Key points:
- The subsidiary must be incorporated in India.
- The parent company can be from any foreign nation.
- The foreign parent company is referred to as the holding company.
Compliance obligations depend on:
- Type of company incorporated
- Industry of operations
- Annual turnover
- Number of employees
Foreign companies in India are defined under Section 2(42) of the Companies Act, 2013. They must comply with multiple laws and regulations, such as:
- Companies Act, 2013
- Income Tax Act, 1961
- GST Act, 2017
- SEBI regulations
- FEMA (Foreign Exchange Management Act), 1999
- RBI regulations
Essential Compliances for Foreign Subsidiaries
1. Form FC-1 (Section 380)
- Must be filed within 30 days of incorporation.
- Submitted to the Registrar of Companies (ROC) along with supporting documents.
- Requires certifications from regulatory bodies like the RBI.
2. Form FC-3 (Section 380)
- Filed with the ROC depending on the company’s registered location in India.
- Must include:
- Details of business operations
- Financial records of the company
3. Form FC-4 (Section 381)
- Concerns annual returns of the company.
- Must be filed within 60 days from the end of the preceding financial year.
4. Financial Statements
- Submitted within six months from the end of the financial year.
- Must include:
- Statements on transfer of funds
- Earnings repatriated to the parent company
- Related party transactions (sales, purchases, transfer of property)
5. Audit of Accounts
- All accounts must be audited by a Practising Chartered Accountant (CA).
- Accounts should be properly organized and made available for auditing.
6. Authentication and Translation of Documents
- All documents submitted to the ROC must be authenticated by a practising lawyer in India.
- Documents must be translated into English before submission.
Key Takeaways
- Foreign subsidiaries have additional compliance requirements compared to domestic companies.
- Non-compliance can result in penalties and legal issues, so timely and accurate submission of forms and financial statements is crucial.
- A combination of company law, tax law, RBI guidelines, and FEMA regulations governs foreign subsidiary operations in India.
Compliances Under Income Tax and GST for Foreign Subsidiaries
Foreign subsidiary companies in India must comply with a mix of Income Tax, GST, FEMA, and RBI regulations. These compliances can be categorized based on their frequency or the triggering event.
1. Periodic Compliances
These are recurring compliances that a company must meet multiple times a year, such as:
- GST filings (monthly/quarterly depending on turnover)
- TDS filings under the Income Tax Act
- Regular updates under RBI/FEMA regulations (if applicable)
- Other regulatory filings required by SEBI or industry-specific laws
Periodic compliances ensure that the company remains up-to-date with ongoing statutory obligations.
2. Annual Compliances
Annual compliances are mandatory once every year and include:
- Annual GST returns
- Annual TDS returns and Income Tax filings
- Annual financial statements submission
- Compliances under RBI regulations
- Compliances under SEBI regulations (if applicable)
Meeting annual compliances ensures proper reporting of the company’s financial and operational performance for the year.
3. Event-Based Compliances
Event-based compliances are triggered only by specific events or transactions. Examples for foreign subsidiary companies include:
a. FC-TRS (Foreign Company – Transfer of Shares)
- Applicable when shares of the foreign subsidiary are transferred between an Indian resident and a non-resident investor, either by sale or gift.
- Must be reported within 60 days from the transfer.
- Filing responsibility rests with the Indian resident or investee company, regardless of whether they are the transferor or transferee.
b. FC-GPR (Foreign Company – Global Premium Remittance)
- Concerns remittances received by shareholders of a foreign subsidiary company.
- Specifies the mode of transfer of remittance from the company to its shareholders.
Importance of Meeting Compliances
Failing to meet statutory obligations can have severe consequences for foreign subsidiary companies:
Penalties under Companies Act, 2013 (Section 392)
- Company fines: Minimum ₹1 lakh up to ₹3 lakh for contravention under Chapter XXII.
- Continuing offence: Additional ₹50,000 per day for ongoing non-compliance.
- Officers in default: Imprisonment up to 6 months and/or fine of ₹25,000 to ₹5 lakh.
Meeting all compliances ensures smooth operations, avoids legal interference, and maintains the company’s credibility in India.
Disclaimer:
The information provided is for informational purposes only and does not constitute legal advice. No attorney-client relationship is created by using this information. Companies should consult qualified professionals for legal or financial advice.
Frequently Asked Questions (FAQs)
1. What is a foreign subsidiary company in India?
A foreign subsidiary company in India is a company incorporated under the Companies Act, 2013, where a foreign entity holds more than 50% of the share capital or controls the board of directors.
2. What are the key compliances for a foreign subsidiary in India?
Key compliances include company incorporation, FEMA and RBI reporting, ROC filings, annual compliances, income tax returns, GST registration (if applicable), and transfer pricing regulations.
3. Is a foreign subsidiary required to register with the RBI?
Yes, foreign investment in an Indian subsidiary must be reported to the RBI under FEMA through prescribed forms such as FC-GPR and FC-TRS.
4. What annual compliances must a foreign subsidiary company follow?
Annual compliances include filing AOC-4, MGT-7/MGT-7A, holding board and annual general meetings, statutory audits, and maintenance of statutory registers.
5. Is GST registration mandatory for foreign subsidiaries in India?
GST registration is mandatory if the subsidiary supplies taxable goods or services and crosses the applicable threshold or engages in inter-state or export transactions.
6. Are foreign subsidiaries subject to transfer pricing regulations?
Yes, transactions between the Indian subsidiary and its foreign parent or related entities must comply with Indian transfer pricing laws and require documentation and reporting.
7. What tax rates apply to foreign subsidiary companies in India?
Foreign subsidiaries are taxed as domestic companies in India, with applicable corporate tax rates depending on the chosen tax regime and eligibility for incentives.
8. Is statutory audit mandatory for a foreign subsidiary in India?
Yes, every foreign subsidiary incorporated in India must appoint a statutory auditor and get its financial statements audited annually.
9. What FEMA compliances apply to foreign subsidiaries?
FEMA compliances include reporting foreign direct investment, share allotment, downstream investments, and annual filing of FLA (Foreign Liabilities and Assets) Return with the RBI.
10. Can a foreign subsidiary repatriate profits outside India?
Yes, profits can be repatriated after payment of applicable taxes and compliance with RBI and FEMA regulations.
11. What are the penalties for non-compliance by a foreign subsidiary?
Non-compliance can lead to monetary penalties, additional fees, prosecution of directors, and restrictions on business operations.
12. Do foreign subsidiaries need a resident director in India?
Yes, at least one director must be a resident of India as per the Companies Act, 2013.
