Foreign subsidiaries are companies which are set-up by Foreign Direct Investment into India. If a Non resident, Foreign company is setting up a step down subsidiary, the same is called a Foreign subsidiary in India. Taxation (both direct & Indirect) and general compliances are at par with domestically incorporated entities. In-fact the residential status of such foreign subsidiaries is Indian and foreign capital is the only distinct element with foreign subsidiaries.
Following are some important points to note and processes to follow:
A. Minimum number of persons required for incorporation
At least two persons are required as directors (out of which one shall be a resident director). The Indian entity will also require a minimum of two members/shareholders for incorporation.
In case there is single parent entity, in order to meet the requirement of a minimum two shareholders, one share can be held by another shareholder (another entity or individual/director) on behalf of the foreign parent company.
B. Obtaining Digital Signature (DSC)
All the proposed directors and members/shareholders are required to obtain Digital Signatures. Following are the requirements for obtaining such DSCs:
1. Pan card of the applicant (compulsory in case of Indian national).
2. Address proof (Any one of the following):
Latest electricity bill, latest telephone bill, latest bank statement, driving license, water bill, voter identity card, gas connection or property tax, house hold register.
3. Passport Size Photograph
Please note that the DSC shall be issued upon successful verification of applicant. The applicant shall require completing his/her mobile and video verification as per the instructions received by the applicant on mobile and email from DSC issuing authorities.
C. Obtaining director identification number (DIN)
The proposed directors are also required to obtain for Director Identification Number (DIN).
Following are the requirements for obtaining DIN of an individual:
1. Pan card (compulsory in case of Indian national).
2. Passport of the applicant
3. Address proof:
Latest electricity bill, latest telephone bill, latest bank statement, mobile bill (Anyone)
4. Proof of Identity:
Passport, driving license, voter identity card (Anyone)
D. Making application for obtaining the name approval under SPICe+ Part A Name Reservation
Following are the requirements for obtaining the name approval:
(a) Maximum 2 names can be given at the time for approval of Registrar of Companies. A name which is similar to any existing company in India shall not be allowed/approved by the Registrar of Companies.
(b) Main objects of the company under incorporation to be included in the memorandum of association.
(c) A copy of Board Resolution from parent entity for setting-up a subsidiary entity in India shall be required in a specific format along with registration certificate of parent company (duly notarized).
(d) The form shall be filed electronically along with government fees to the Registrar of Companies.
The name approval should be available within 2-3 working days. The name approval given by Registrar of Companies is valid only for 20 days from the date of approval.
E. Memorandum of Association (MOA) and Article of Association (AOA)
Preparation of Memorandum and Articles of association of the Company in confirmation with table A for MOA and table F for AOA of the company under incorporation.
Generally the total capital infusion should be based on the operating expenses of the company for the initial 6-12 months, the company may be set up with an initial capital requirement. Additional capital, whenever required, may be brought up by way of issuing shares in the company.
F. Preparation and requirements for SPICe+ Part B
Form SPICe+ Part B is required to be filed with the following compulsory attachments:
(a) Form INC 9 – Declaration from the subscribers to the memorandum/ first director
(b) Form DIR-2 signed by the proposed directors of the company under incorporation
(c) Copies of the utility bills for registered office address (proof of evidence of any utility service like telephone, gas, electricity etc. depicting the address of the premises not older than two months is required to be attached).
(d) No Objection Certificate – Proof that the company is permitted to use the address as the registered office of the company (authorization from the owner or occupant of the premises along with proof of ownership or occupancy and it is mandatory if registered office is owned by any other entity/ person)
(e) Undertaking for non-obtaining of PAN by foreign national in the prescribed format.
(f) Application for obtaining Permanent Account Number (PAN) and Tax Deduction Account number (TAN) shall be filed along with SPICe+ Part B for the Indian entity.
After submission of all documents, concerned Registrar of Companies (ROC), shall inspect all documents and in case of no discrepancies in documents, a Certificate of Incorporation (COI) shall be issued within 3-4 working days.
A declaration, that the ultimate beneficial owner of the Indian Entity is not an entity established in any country which is sharing land border with India, or the beneficial owner is not an individual who is a national of such foreign country, is required.
G. Preparation and requirements for AGILE-PRO
Form AGILE-PRO shall be submitted to ROC along with form SPICe+ Part B. As per changes made by Indian Government, it is now become mandatory to obtain Employees State Insurance Corporation (ESIC) registration, Employees Provident Fund (EPF) registration, Professional tax Registration, wherever applicable, Shops and Establishment Act Registration and to apply for bank account of company along with Incorporation of company.
Form AGILE-PRO is required to be filed with the following compulsory attachments:
a. Proof of Identity of Authorized Signatory for opening of Bank Account.
b. Proof of Address of Authorized Signatory for opening of Bank Account.
c. Specimen Signature of Authorized Signatory for Employees provident fund registration.
d. Passport size photographs for all directors.
e. Mobile number and email address for all directors.
H. Further the Company is also required to file a declaration in Form INC 20A with the Registrar of Companies within a period of 180 days from the date of the Incorporation of the Company for Commencement of the Business.
Form INC 20A is required to be filed with the following compulsory attachments:
• Subscribers Proof of payment for value of shares
• Certificate of registration issued by RBI (is any)
After submission of Form INC 20A all the requirements shall be complied, and a Company can commence its business.
I. RBI/ FEMA compliances
As per RBI/FEMA compliances the Company is also required to file form FC-GPR with Reserve Bank of India within a period of 30 days from the date of allotment of shares to the Subscribers of Memorandum.
J. Intimation and assistance in completing all compliances in time
Note: – All the KYC documents of a foreign national and other documents which will be executed outside India should be notarized/apostilled stamped in the country where the documents shall be signed. If any document is not in English language, it shall be translated into English language and shall be certified by a certified professional.
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About the author : CA Paramnoor Singh is an India entry strategist & Cross border tax expert who assists global entities to set-up in India. He has over 15 years of experience handling global corporations, SMEs and start-ups with their India businesses. In case you require any further details on the above, our team will be happy to assist you with your queries. Please feel free to directly contact me at paramnoor.singh@r-arora.com
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