Post Incorporation Compliance for Foreign Subsidiary in India

Setting up a foreign-owned subsidiary in India is only the first step in establishing business operations. After incorporation, the Indian subsidiary must complete several statutory, regulatory and foreign investment compliances under the Companies Act, FEMA/RBI regulations, GST, income tax and other applicable laws.

These post-incorporation requirements include opening the company’s bank account, receiving subscription money, appointment of the first auditor, commencement of business compliance, issue of share certificates, foreign investment reporting and other registrations depending upon the nature of business.

This guide explains the key post incorporation compliance requirements for a foreign subsidiary in India and provides a practical checklist for foreign companies establishing an Indian subsidiary.

Post Incorporation Compliance Checklist for Foreign Subsidiary in India

A foreign-owned subsidiary in India should generally review and complete the following key post-incorporation actions:

1. Open the company’s bank account.
2. Receive subscription money from the foreign shareholder(s).
3. Hold the first Board Meeting.
4. Appoint the first statutory auditor.
5. File the declaration for commencement of business, where applicable.
6. Issue share certificates to the subscribers.
7. Pay applicable stamp duty on share certificates.
8. Complete FEMA/RBI reporting for foreign investment, including FC-GPR, as applicable.
9. Obtain GST registration, IEC and other registrations depending on the nature of business.
10. Set up statutory registers, accounting, tax, payroll and ongoing compliance systems.

Companies Act Compliances After Incorporation

1. Opening of Bank Account and Receipt of Subscription Money

After incorporation, the Indian subsidiary should open its corporate bank account and arrange for receipt of the subscription amount from the shareholders in accordance with the incorporation documents and applicable foreign investment regulations.

For a foreign-owned subsidiary, the subscription money received from non-resident shareholders will also have FEMA reporting implications, which are discussed separately below.

2. First Board Meeting

The first meeting of the Board of Directors should generally be held within 30 days from the date of incorporation. The first Board Meeting typically considers matters such as appointment of the first auditor, disclosure of directors’ interests, opening/operation of bank accounts, issue of share certificates and other initial corporate matters.

Under Section 173 of the Companies Act, the first Board Meeting is required within 30 days of incorporation.

3. Appointment of First Statutory Auditor

The Board of Directors should appoint the first statutory auditor of the company within 30 days from the date of registration. The first auditor normally holds office until the conclusion of the first Annual General Meeting.

If the Board fails to make the appointment within the prescribed period, the matter is required to be placed before the members in accordance with Section 139 of the Companies Act.

4. Declaration for Commencement of Business – Form INC-20A

A company having share capital is required to file a declaration for commencement of business in Form INC-20A within 180 days from the date of incorporation, subject to the applicable provisions of Section 10A of the Companies Act.

Before filing the declaration, the subscribers to the Memorandum should have paid the value of the shares agreed to be taken by them.

The MCA’s current instruction kit also specifies the 180-day timeline for INC-20A.

5. Disclosure of Interest and Director Declarations

At the first Board Meeting and subsequently as required under the Companies Act, directors should make the prescribed disclosures regarding their interests and provide declarations relating to their eligibility/disqualification, wherever applicable.

The company should maintain these disclosures and other statutory records as part of its corporate compliance framework.

6. Issue of Share Certificates

After receipt of the subscription amount and completion of the applicable corporate formalities, the company should issue share certificates to the subscribers within the time prescribed under the Companies Act.

For subscribers to the Memorandum, share certificates are generally required to be delivered within two months from the date of incorporation.

7. Stamp Duty on Share Certificates

Applicable stamp duty should be paid on the issue of share certificates in accordance with the Indian Stamp Act and the relevant rules/rates applicable to the transaction.

8. Statutory Registers and Corporate Records

After incorporation, the company should establish and maintain the statutory registers, minutes books, accounting records and other corporate records required under the Companies Act.

The company should also ensure that its name, CIN, registered office particulars and other prescribed information are appropriately reflected on its business communications and official documents.

For annual ROC filings, Board and shareholder compliances and other recurring requirements, see our guide on Foreign Subsidiary Compliance in India.

FEMA and RBI Compliances After Incorporation

1. Receipt of Foreign Subscription Money

Where the shares of the WOS set up in India are subscribed by a foreign parent or other non-resident shareholder, the subscription amount should be received through an eligible banking channel and in accordance with the applicable FEMA and foreign investment regulations.

The company should coordinate with its Authorised Dealer (AD) Bank and maintain proper supporting documents relating to the remittance, KYC and share issuance.

2. Issue of Shares to Foreign Shareholders

After receipt of the subscription amount, shares should be issued to the foreign shareholder within the applicable statutory and FEMA timelines.

The issue must also comply with applicable FDI sectoral conditions, entry route, pricing guidelines and other foreign investment requirements.

3. Filing of Form FC-GPR

When an Indian company issues equity instruments to a person resident outside India, the transaction is generally required to be reported in Form FC-GPR through the RBI’s FIRMS reporting framework.

Form FC-GPR is generally required to be filed within 30 days from the date of issue of the equity instruments, along with the prescribed documents and certifications.

4. Annual Return on Foreign Liabilities and Assets – FLA Return

An Indian company that has received foreign direct investment and has foreign assets or liabilities, as applicable, is required to review its obligation to file the Annual Return on Foreign Liabilities and Assets (FLA Return).

The FLA Return is ordinarily filed with the Reserve Bank of India by 15 July every year, based on the financial information of the preceding financial year. RBI confirms that Indian companies receiving FDI are covered by the FLA reporting framework and that the annual return is submitted through the FLAIR portal.

5. Form FC-TRS – Where Shares Are Subsequently Transferred

Form FC-TRS is relevant where equity instruments are subsequently transferred between a resident and a non-resident, subject to the applicable FEMA provisions.

Important: FEMA reporting requirements depend on the nature of investment, investor jurisdiction, sector, entry route and transaction structure. Companies should verify the applicable requirements before issuing or transferring shares to non-resident investors.

DGFT and Import Export Code (IEC) Compliance

Obtaining Import Export Code (IEC)

Where the Indian subsidiary proposes to undertake import or export transactions, it should examine whether an Import Export Code (IEC) is required under the applicable DGFT framework.

IEC is generally relevant for businesses engaged in import or export activities and should be obtained before undertaking transactions for which it is required.

Updating IEC Details

After obtaining IEC, the company should ensure that its registered particulars remain accurate and are updated whenever required under the applicable DGFT rules.

Any material change in the company’s registered details, such as address, authorised signatory or other relevant particulars, should be reviewed for necessary amendment in the IEC records.

IEC requirements depend on the nature of the transaction and business activity. A subsidiary that does not undertake import or export activities may not require IEC merely because it is foreign-owned.

GST Compliance After Incorporation

GST Registration

A foreign-owned subsidiary in India is not required to obtain GST registration merely because it has been incorporated or because its shareholder is a foreign company.

GST registration should be examined based on the nature of supplies, place of supply, turnover, inter-State transactions and other applicable registration provisions under the GST law.

Where registration becomes applicable, the company should obtain GST registration and ensure that the registered business particulars are correctly reflected on the GST portal.

GST Returns and Tax Payment

Once registered, the company should comply with the applicable GST return filing and tax payment requirements based on its registration profile and nature of transactions.

Depending upon the business model, the company may be required to report outward supplies, input tax credit, tax liability and other prescribed information through the applicable GST returns.

Input Tax Credit and Documentation

The company should maintain proper tax invoices and supporting records for claiming eligible input tax credit.

Input tax credit should be claimed only where the prescribed conditions under the GST law are satisfied and should be reconciled with the company’s books and GST records.

GST obligations vary depending upon the subsidiary’s activities and transaction structure. Companies should determine the applicable registration, invoicing, return filing and tax payment requirements before commencing taxable operations.

Income Tax, TDS and Transfer Pricing Compliance

PAN, TAN and Tax Registration Review

After incorporation, the Indian subsidiary should ensure that its PAN, TAN and other applicable tax registrations are correctly obtained and activated.

The company should also establish appropriate processes for accounting, tax payment, withholding tax and statutory reporting from the beginning of operations.

Tax Deduction at Source (TDS)

Where the subsidiary makes payments on which tax is required to be deducted under the Income-tax Act, appropriate TDS should be deducted, deposited and reported within the prescribed timelines.

This may include payments such as salary, professional fees, rent, contractual payments, interest and certain payments to non-residents, depending on the nature of the transaction.

Corporate Income Tax Compliance

The Indian subsidiary is generally taxable in India on its income and should maintain proper books of account, compute advance tax where applicable and file its corporate income tax return within the prescribed timelines.

Tax positions should be reviewed early, particularly where the subsidiary has cross-border transactions, expatriate employees, royalty, management service charges, interest payments or other related-party arrangements.

Transfer Pricing Compliance

Where the Indian subsidiary enters into international transactions with its foreign parent or other associated enterprises, the transactions should comply with the applicable Indian transfer pricing provisions.

Typical transactions may include:

• provision or receipt of services;
• purchase or sale of goods;
• royalty or licence fees;
• management charges;
• inter-company loans or guarantees;
• reimbursement of expenses; and
• other related-party transactions.

The company should maintain appropriate supporting agreements, invoices and transfer pricing documentation, wherever applicable.

Tax and transfer pricing obligations depend on the nature and value of transactions. Foreign-owned subsidiaries should review these requirements before commencing regular cross-border dealings with group companies.