Setting up a Subsidiary in India

To set up a subsidiary company in India, foreign entities must navigate a structured process governed by the Companies Act of 2013. Here’s a detailed overview of the steps, types of subsidiaries, and requirements involved.

Types of Subsidiaries

1. Wholly-Owned Subsidiary: The parent company owns 100% of the subsidiary’s shares. This type can only be established in sectors that allow 100% Foreign Direct Investment (FDI).
2. Partially Owned Subsidiary: The parent company holds at least 50% of the subsidiary’s shares, allowing for significant influence and control.

Steps to Set Up a Subsidiary

1. Obtain Necessary Approvals: Before establishing a subsidiary, approval from the Reserve Bank of India (RBI) is required to comply with foreign investment regulations.
2. Director Identification Number (DIN): Each director of the subsidiary must obtain a DIN, which can be done online.
3. Digital Signature Certificate (DSC): This is required for the directors and designated shareholders to facilitate e-filing.
4. Name Reservation: Choose a unique name for the subsidiary and apply for its approval through the Ministry of Corporate Affairs (MCA) online portal.
5. Prepare Legal Documents: Draft the Memorandum of Association (MoA) and Articles of Association (AoA), which outline the company’s objectives and regulations.
6. Incorporation Application: Submit the incorporation documents, including MoA, AoA, and other required forms, using the SPICe+ form on the MCA portal.
7. Registration Fees: Pay the necessary registration fees based on the subsidiary’s authorized capital.
8. Certificate of Incorporation: Upon approval of the documents, the Registrar of Companies (RoC) will issue a Certificate of Incorporation, confirming the subsidiary’s registration.
9. Tax Registrations: Apply for a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) from the Income Tax Department, and register for Goods and Services Tax (GST) if applicable.
10. Open a Bank Account: Finally, open a bank account in the name of the subsidiary.

Compliance and Regulations

Subsidiaries in India must adhere to various regulations, including taxation policies. They are treated as Indian companies and must comply with Indian laws, including the need for GST registration if engaging in taxable activities.

Tax Incentives

Foreign subsidiaries may benefit from concessional tax rates in specific sectors, such as shipping and air transportation. However, certain sectors require prior government approval for foreign investments, including defense and telecommunications.By following these steps, foreign companies can successfully establish a subsidiary in India, enabling them to tap into one of the world’s largest markets while ensuring compliance with local regulations.