Setting up Wholly-owned subsidiary outside India:

With increasing globalization and better business growth opportunities, many Indian companies are doing business outside India. They are investing abroad by opening a branch office or subsidiary company or wholly-owned subsidiary (WOS) company. This overseas investment by Indian businesses and entrepreneurs can be observed as an important base for promoting business globally.

Setting up a WOS outside India comes packed with multiple benefits, which are-

1. Building the business as an internationally recognized brand.
2. Opportunities for growth and development of the company.
3. Reduction in costs or cost-effectiveness due by saving on import duty.
4. Ease of doing business in India as well as abroad.

Routes to set up Wholly-owned subsidiary outside India:

A company registered in India can set up WOS outside India through one of the two available routes. These routes are-

1. Approval Route: In some business operations and proposals, a company before opening a WOS outside India requires prior approval from the Reserve Bank of India i.e. the regulating authority.
2. Automatic Route: Under this route one does not require any prior approval from the government authority and the Reserve Bank of India, before setting up a WOS outside India.

Sources of Investment and funding to set-up WOS outside India:

As discussed above under the automatic route, any Indian company does not require prior approval to open a WOS outside India from the regulatory authority, Reserve Bank of India. The Overseas Direct Investments (ODI) can be made by the Indian party without approval. However, for making any remittances towards such investments, the Indian company must approach a bank which is in Authorized Dealer Category-I. Here, Indian Company means the following-

1. Any company registration in India.
2. A company formulated under the Companies Act, 2013.
3. A Limited Liability Partnership firm registered under the Limited Liability Partnership (LLP) Act, 2008.
4. A partnership firm set-up under the Indian Partnership Act, 1932.
5. Any organization incorporated under the Act of parliament.
6. Any organization or institution in India as per the notification of the Reserve Bank of India (RBI).

Permissible operations for investment in WOS outside India:

Most of the sectors and activities are permissible to be carried on by Indian companies abroad under the automatic route. And the can make overseas investments in these sectors without a hassle and open a WOS outside India to carry them on. However, some sectors where overseas investments are not permitted or prohibited are-

1. Banking sector
2. Real estate sector

It must be noted that any bank operating in India can set up WOS outside India or a joint venture, only after a clearance under the Banking Regulation Act, 1949.

The Indian companies that are engaged in the financial sector can make overseas investments in financial activities abroad. For the purpose of making such investments, they are required to follow certain norms are criteria, which are-

1. It must be registered under the regulatory authority in India that regulates the financial services and operations.
2. It must fulfill all the norms and conditions related to the adequacy of capital that has been prescribed by the regulatory authority in India.
3. It must have accrued a net profit in the past three fiscal years from operating in the financial sector.
4. It must have obtained prior approval from the concerned regulatory authorities in both India and abroad for making the venture in the financial services.

Procedure for investment in WOS outside India under automatic route:

The following process must be fulfilled by the Indian company that wants to open a WOS outside India through the automatic route of investment-

1. Form ODI is to be filed through online mode with the Authorized Dealer Category-I bank.
2. The prescribed documents must be duly attached with the form. These documents are-
3. Certified copy of Board Resolution
4. Valuation report as per norms of valuation
5. Certificate from Statutory Auditors.
6. The company then, in the final step must approach the authorized bank for making the remittances against the investment in WOS outside India.

RBI Approval Route for Investment in WOS outside India:

The other route for making investments abroad is the approval of the Reserve Bank of India. This is called the approval route and is used by those Indian companies that are not allowed to invest through the automatic route. For the purpose of approval from RBI to open WOS outside India or other braches, one must follow the following process-

1. Filing the ODI form online with specific applications for approval.
2. The prescribed documents must be attached with the form through the authorized dealer category-I bank to the RBI.
3. An application must be made to the Foreign Exchange Department in the Overseas Investment Division.

While approving such proposals the RBI considers the following points and factors-

1. Contribution of such investments to the external trade sector of India and other related benefits.
2. Viability of prima facie of the WOS outside India.
3. Experience and sector of expertise of the Indian company for operating the wholly-owned subsidiary.
4. Track records of business and its financial stability of both the Indian company and foreign organization.

It is to be noted that any trusts and societies that operate in the manufacturing, health or educational sector and are registered in India are allowed to open WOS outside India and make investments with RBIs prior approval.

Compliances to be fulfilled by Indian Company for opening WOS outside India:

The following compliance checklist must be fulfilled by the Indian company making an overseas investment or opening a WOS outside India:

1. For making investments:
2. Filing Form Overseas Direct Investment (ODI)
3. Obtaining Unique Identification Number (UIN) from the Authorized Dealer Category-I bank.
4. Reporting any changes in details: Any decisions taken regarding the WOS outside India must be reported to the concerned authorities within 30 days of approval of investment with respect to-
5. Activities diversification
6. Alterations made in the shareholding patterns
7. Opening any sub- subsidiaries under the WOS

All such changes as per the local laws must also be reported to the host country where the WOS outside India has been set up.

3. Post making the investments, the Indian company must ensure submitting the share certificates to the authorized dealer bank within sixty days.
4. Annual filing: The following forms and documents must be filed by the WOS outside India on annual basis-
5. Annual Performance Report in Form ODI, Part II on or before 31^st December of each year.
6. Annual Returns on Foreign Assets and Liabilities (FLA) on or before 15^th July each year.