Summary: Foreign companies can establish a business in India through subsidiaries, holding companies, joint ventures, mergers, or by setting up project or liaison offices. Key compliance requirements include ROC mandates such as appointing a resident director, apostilling foreign documents, conducting meetings via video conferencing, issuing share capital within prescribed timelines, and dematerializing shares. FEMA regulations require filing FCGPR forms for share capital issuance, FLA forms for foreign liabilities and assets, and APR forms for investments outside India. Income tax and transfer pricing compliance include filing SFT forms for significant share capital transactions, preparing transfer pricing studies to ensure arm’s length pricing, and submitting Form 3CEB for audited transfer pricing compliance. Adhering to these regulations ensures smooth operations for foreign entities entering the Indian market.
Following are the ways in which a foreign Company can setup business in India:
1) By creating Subsidiary Company or Holding Company
2) By Creating a Joint Venture
3) By Merging or amalgamating with an Indian Company
4) By setting up Project or Liaison office in India
In this article, we’ll discuss what all points to be taken in care while setting up a subsidiary or holding Company by foreign company setting up business in India:
ROC Compliances to be taken care
1) Requirement of at least one resident Director- Under Companies Act, 2013 a Company is required to have atleast one resident director of India. Resident director shall be considered as resident if has stayed in India for atleast 182 days in the previous year.
2) Apostilling of documents- While submitting the documents to Registrar of Companies or Income Tax or any other authority in India, documents issued by the foreign country are required to be apostilled by the issuing country.
Example: Documents of Foreign director like driving license, Tax identification documents, Bills are required to be apostilled by issuing Country. Further, in case subsidiary or Holding Company is setup in India, then documents of the foreign company like Certificate of Incorporation, MOA & AOA are required to be apostilled by issuing country.
3) Video Conferencing- Most Important point to be taken care is that the all the meetings like Board meeting, Annual General meeting, Extraordinary General meeting needs to be conducted through video conferencing. Meeting has to be recorded & kept in records for future references.
4) Issue of Share Capital- Foreign Company needs to infuse the Capital as per the time prescribed by the board making the offer.
5) Dematerialization of shares- A Company which is holding or subsidiary of foreign Company mandatorily required to get dematerialization of its shares.
Rest ROC compliances remain the same as for a domestic Company.
FEMA Compliances to be taken care of
As foreign exchange is involved, FEMA plays an important role in structuring of transactions. Following are the most important compliances needs to be taken care:
6) Filing of FCGPR Form- FCGPR needs to be filed when Share capital is issued by the Indian Company. It has to be filed within 30 days of allotment of Share capital.
7) Filing of FLA form- FLA stands for foreign liabilities & assets. It is to filed when Company in India holds foreign assets & liabilities. Example when Indian is a holding or Subsidiary Company of a foreign Company. FLA Form has to be filed by 15th July of the succeeding year.
8) Filing of APR form- APR stands for Annual Performance Report. It needs to be filed by residents holding investments outside India like Indian Company having subsidiary Company outside India. It needs to be filed by 31st December of succeeding year.
Income Tax & Transfer Pricing Compliances
9) Filing of Statement of Financial Transactions (SFT) form- On issue of Share Capital of more than by Rs. 10 Lakhs, Indian Company needs to file form SFT by 31st May of Succeeding year.
An Important to noted here is that on issue of share capital by Indian Company to Foreign Company, Foreign Company needs to obtain PAN in India. Post obtaining of PAN, SFT form can be validated on Income Tax Portal.
10) Preparation of Transfer Pricing (TP) Study- In Case of issue of share capital & any transaction involving loans, sales, purchase falling under transfer pricing provisions, a TP study needs to be prepared to ensure all the transactions are occurring on Arm’s Length Price by following the methods prescribed for Transfer Pricing.
11) Filing of Form 3CEB- Form 3CEB is to filed wherever transfer Pricing is involved. Post preparation of Transfer pricing study as mentioned in Point 10) above, Form 3CEB needs to be filed by the Indian Company ensuring transactions are at Arm’s length Price & audited by the Auditor.
Rest Income Tax compliances & provisions remains the same as for domestic Company.
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About the Author: Author is CA Vidhu Duggal helping in advisory on domestic & International taxation issues. She is also founder of Vidhu Duggal & Company. Chartered Accountants, a Chartered Accountancy firm with its head office at New Delhi and can be reached at vidhuduggal94@gmail.com or+91-9268747482.
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