Foreign company as defined under Section 2(42) of the Companies Act, 2013 is:

“(42) “foreign company” means any company or body corporate incorporated outside India which—

(a) Has a place of business in India whether by itself or through an agent, physically or through electronic mode; and

(b) Conducts any business activity in India in any other manner. ”

There are various options available to foreign companies to register in India providing multiple ways to carry out its operation. These are mentioned as under-

• By opening a foreign subsidiary company.
• By opening a branch office or Liaison Office or Project office
• Through a joint venture.
• By merging with other India based companies.
• Through acquisitions.

Whatever the mode of operation a foreign company opts for to operate in India, it must follow a proper procedure and compliances prescribed by the government. Here we are discussing about the most viable option of opening a foreign subsidiary company in India.

Foreign Subsidiary Company in India:

Opening a foreign subsidiary company in India means doing company registration wherein a parent or holding company that owns 50% or more equity shares of such a company, providing the parent company with most of the major role in the decision making process and other important operations.

A foreign subsidiary can be a wholly-owned subsidiary i.e 100% shares held by a foreign company or partly owned subsidiary company.

A foreign subsidiary company must follow the provisions and laws provided under the following acts and statutes to be compliant with the Indian laws. These statutes are as follows-

• The Companies Act, 2013
• Central Goods and Services Tax (CGST) Act, 2017 and other GST rules and statutes
• The Foreign Exchange Management Act (FEMA), 1999
• Income Tax Act, 1961
• Reserve Bank of India (RBI) guidelines
• Securities and Exchange Board of India (SEBI) Act, 1992, guideline, compliances, and rules.

List of Compliances for Foreign Subsidiary Company in India:

Prerequisite for foreign company registration in India is the completion of a number of compliances to legalize its operation in India. Some of these compliances are to be completed on annual basis, some are to be completed on monthly basis and some of them are event-based. Regardless of the time of its completion, all these compliances are mandatory to be completed by a foreign subsidiary company. The compliances are-

• Mandatory forms to be filed by a foreign subsidiary company in India under Section 380 and Section 381 of the Companies Act, 2013:

1. Form FC-1: It is an important form to be filed as part of compliances for the foreign subsidiary company within thirty days of incorporation accompanied with other required files and attachments as mentioned in the guidelines provided by the RBI. It must get the authorization and certification from the RBI, certifying bodies and agencies.
2. Form FC-3: This form is essential to be filed with the Registrar of Companies (ROC) for providing the details regarding the financial records and statements as well as the details of the place of business of the foreign subsidiary company.
3. Form FC-4: This form is to be filed for showing the annual returns of the foreign company or the parent company. It must be filed within sixty days of the end of the preceding fiscal year to avoid any penalties and fine.

• Financial Statements under Schedule 11 of the Companies Act, 2013: The schedule states that each and every foreign subsidiary company incorporated in India is mandated to prepare and file the financial statements for the business operations of the company.

These are to be filed with the Registrar of Companies (ROC), depending upon the place of registration of the subsidiary company within six months from the last financial year.

It is mandatory to include the following documents and information in the financial statements-

1. Statements related to the transferred funds between the parent company and related parties and the Indian subsidiary company.
2. Statements related to profits and repatriation of income earned in India
3. Statements related to the transactions made to the concerned parties
4. Books of accounts of the parent company properly scrutinized and verified by a practicing Chartered Accountant in India.

• Filing forms as per the guidelines provided by the Reserve Bank of India and FEMA: The foreign subsidiary India is required to file some forms as and when required depending on the course of action and transaction. Such forms are event-based compliances and must be mandatorily filed-

1. Form FC-GPR: The concerning form is filed specifying the mode of remittance when the same is paid to shareholders of the foreign subsidiary company.
2. Form FC-TRS: This form is filed when the shares of the foreign subsidiary company are transferred to the foreign investor by an Indian resident and vice-versa. The transaction must be shown within sixty days of making the transfer as per the policies under the Foreign Direct Investment (FDI).

• Other mandatory compliances to be fulfilled by the foreign subsidiary company: There are some other compliances apart from the above-mentioned compliances that must be completed by a foreign subsidiary company in India which are-

1. Compliances as per the provisions in SEBI Act
2. Filing the Tax Deducted at Source (TDS) and Income Tax Returns as per the Income Tax Act, 1961
3. Annual compliances with the Registrar of Companies (ROC)
4. GST Return Filing

Things to remember while doing the compliances:

The foreign subsidiary while doing the various compliances as per the rules and regulations must keep the following points in mind hassle-free procedure-

1. Authenticating the documents: All the important documents for submission to the ROC must be authorized by a practicing lawyer or audited by a practicing chartered accountant in India, as per requirement.
2. Language and translation in the documents: Before the submission, it must be checked that the documents must be in English language. Any translated document must be validated by a practicing lawyer in India.

Penalties for non-compliance by Foreign Subsidiary Company:

In case of any non-compliance of the mandated rules and regulations by a foreign subsidiary company in India, a penalty or fine is levied as follows-

1. A penalty or fine not less than Rs. 1 Lakh is levied on the company at fault for non-compliance. It can be extended to up to Rs. 3 Lakh depending on the severity.
2. If the foreign subsidiary company continues to be at fault for non-compliance a fine of Rs. 50000 is charged per day.
3. Also, every officer in the company may be punished with imprisonment for a period that can be extended up to six months or a fine of Rs. 25000 extendable up to Rs. 5 Lakh or both.