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Incorporating a Subsidiary of Foreign Company

FDI (Foreign Direct Investment) Policy in India in the last decade has become very liberal and encourage foreign investment.

There are many entry modes by which a foreign company can establish an entity in India. The choice of business form entirely depends upon the end goals to be achieved. There are majorly 3 options for foreign companies entering into India:

  1. Establish a Liaison office (LO)
  2. Establishing a Branch office (BO);
  3. Establishing a subsidiary / Joint Ventures (JV).

In this article, we will focus on establishing a subsidiary of foreign company in India.

Incorporating a company in India has been made handy and faster as compared to traditional time. There are lot of initiatives being taken by ministry to allow Indian & Foreign Subscribers to incorporate a company in India at a minimum cost and time. Some initiatives towards ease of doing business are as under:

Online Filings – New web forms facilitate on-screen filing and real time data validation for seamless incorporation of companies.

Faster processing of applications – With almost every filing been done online and in a real time manner, new web forms enable the investor to incorporate a company within 5-6 days.

Minimum Fees – Ministry vide notification G.S.R. no. 180 (E) dated 06.03.2019 has amended the Rule 38(2) of the Companies (Incorporation) Rules, 2014. With the issue of this notification, zero fee is to be charged by MCA for all incorporations with authorized capital up to INR 15, 00,000.

No Requirement of Paid up Capital – Ministry of Corporate Affairs has provided exemption to private companies through Companies (Amendment) Act, 2015, wherein the requirement for minimum paid up capital was removed.

No Requirement of DIN – Now a days, DIN is only allotted to the person wo are going to be a director in any new company or is already a director in an existing company. So for incorporating a new company, DIN is not required to be applied separately, it is suo moto provided by MCA on an application of incorporation of company.

No Requirement of Physical Presence in India – No requirement of physical presence in India for any of the subscriber. Documents can be apostilled and attached with form without having the requirement of visiting any place.

No cap on percentage of ownership – Your ownership percentage would vary from 100 percent foreign owned to lower percentage owned businesses subject to the business sector you want to invest into. Defence and Insurance for example have foreign ownership percentage caps.

Auto Issuance of PAN, TAN, GST – The Ministry has also integrated the MCA21 System with the CBDT for issue of PAN and TAN. Stakeholders submit applications for PAN and TAN at the time of submitting applications for incorporation. The PAN/TAN allotted by Income Tax Department are being affixed on the Certificate of Incorporation of the company

Documents Required –

The documents required from the Foreign Company for the preparation of documents are:

  1. Apostille / Notarized copy of resolution of foreign Company ‘mentioning the name of authorized representative, no. of subscription of shares’.
  2. Apostille/ Notarized copy of ID & Address Proof of authorized representative.
  3. Apostille/ Notarized copy of Charter of Foreign Company.
  4. ID & Address Proof of Directors duly apostille or notarized in country of origin, including one Resident Director. PAN No. mandatory in case of resident Directors.
  5. Proof of office address(Conveyance/ Lease deed/ Rent Agreement etc.)
  6. NOC from the owner of the property.

Some important requirement as per Companies (Incorporation) Rules, 2014 – 

  1. PAN undertaking of foreign subscriber or foreign authorised representative should be attached pursuant to General circular 12/2014 dated 22.05.2014.  PAN undertaking should contain the acceptance of applying for PAN whenever required as per Income Tax Act.
  2. As per rule 16(1) of the Companies (Incorporation) Rules, 2014, Residence proof shall be either of following (electricity bill, bank statement, water bill, telephone bill).
  3. MOA/AOA in case of foreign subsy shall be apostilled/notarized in the foreign country.

(Disclaimer: This content is meant for our clients or professional friends only for stimulating discussion on the subject matter not to frame any commercial opinion. All efforts are made to compile correctly with no guarantee of extreme accuracy)

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