5 Things to Know Before Forming a Subsidiary Company in India

Are you excited to start your India subsidiary? Before you hop on to the express train, there are 5 important things we would like you to know before forming your India subsidiary.

These insights are essential for a smooth setup and operation and are curated so that you can have a powerful impact. 

As you read through this article, I am sure that the journey to your India subsidiary began, and you have identified key drivers such as brand building, exit valuation, and sales opportunities well. So, we are here to help answer the questions about the incorporation process before you start forming a subsidiary company in India.

Through our comprehensive guide, we will walk you through the practical aspects of the India subsidiary and discuss its associated costs. These include operational costs, margins, arms-length pricing, and time and resources available with the management to learn about the new culture.

Incorporation of Foreign Subsidiary Company in India (Process)

India grabs the attention of many foreign companies. Its market is growing quickly, and it’s known for its talented workforce. Many US companies are choosing to set up subsidiaries in India, especially in Bangalore, Pune, Mumbai, Delhi, and Hyderabad. These cities offer a skilled workforce and strong infrastructure.

Remunance has a mission to inspire foreign companies to build successful businesses in India. Remunance offers a range of services, from Professional Employer Organization (PEO) support to foreign company registration in India. We’ve built a strong global presence with over 100 clients from 22 countries.

What is a Subsidiary Company in India?

A subsidiary company in India is a business in control of more than half of its equity shares through foreign parent company ownership. This framework lets foreign businesses build a local presence in the Indian market and profit from its expanding economy and huge talent pool. 

Though it runs as per Indian laws, the subsidiary complies with the strategic objectives of its parent company. Establishing a subsidiary in India might be a calculated action for companies trying to increase their worldwide presence, acquire market knowledge, and seize regional prospects. 

Know more: A Complete Guide for Setting Up a Subsidiary Company in India

Forming a subsidiary company in India

To form a subsidiary company in India, you need to register and have a corporate address in India. This process is known as subsidiary company registration in India.  Company formation in India is straightforward, but understanding the rules and regulations is crucial.

This knowledge will help you decide whether to incorporate a foreign subsidiary in India. As there are additional paperwork requirements for local company incorporation.

Drivers for Forming a Subsidiary Company in India

Every company has one or many of the drivers listed below as the reason for forming a subsidiary company in India. Ensure you have thought through the process, objective, and reason for why you want to incorporate the Indian subsidiary.

Building Company Culture and Branding

When you, as a foreign company, contemplate setting up a business in India. The first and foremost driver to attracting talent in India is to create a brand and culture for your company. Your brand has a significance that attracts potential employees.

Global technology companies look at the Indian market through many lenses, to get more users or revenue. Business-focused SMEs are stepping up their investments in the Indian market for the availability of a talent pool.

The Entity that can be Controlled and is a Part of the Group

As a wholly owned subsidiary (WOS), the holding company has full control over decision-making and financial matters. This is because you make a 100% investment into the subsidiary.

IP Protection

Protection of intellectual property in the earlier times demanded physical presence and manual logins of the employees. Today, you can easily control Intellectual Property by integrating all your data into the cloud. A cloud-based information security system makes this process seamless.

Valuation During the Exit

The companies who are eyeing the acquisition as a possible exit, do see a better overall valuation by having a subsidiary company in India. This is because of the lower burn rate and better talent pool.

Sales Opportunity in India

The Indian economy is projected to remain the fastest-growing in 2017, with a growth rate of 7.7%. This forecast comes from the United Nations’ “World Economic Situation and Prospects 2017” report.

India is a place with many opportunities for business expansion. Narendra Modi encourages building international relations and shifting their focus from China to India. Whether it’s in consumer goods, OTT (over-the-top), online education, or the gaming industry, India has promising emerging markets in the world.

Ready to witness the thriving potential of the Indian market?

Incorporate your subsidiary in India today and leverage the talent, growth, and opportunities.

Contact us to get started!

5 Key Considerations Before Forming a Subsidiary Company in India

1. Process of Incorporation and Registrations

To start registering a foreign company in India, your subsidiary needs two directors and two shareholders. One director must live in India. Both directors need a DIN (Director Identification Number). This helps avoid administrative delays.

Shareholders can be individuals or businesses. The parent company must be publicly limited. The company has to comply with the rules and regulations of the Companies Act, 2013. In simple words, it cannot be owned by an LLC, partnership, or individual. The process involves name approval and incorporation when bylaws are submitted.

For a corporate address in India, your subsidiary firm must be registered in India. Your parent company can be anywhere. After forming, a business must register with numerous government entities to operate successfully.

2. Time Required for Incorporating a Subsidiary Company

Setting up a business entity in India may require a duration of 2-4 months. All the decisions need to be approved by your parent company over the subsidiary company.

3. Money

A subsidiary formation in India will cost anywhere from $645 to $2582. A public limited company with a minimum paid-up capital of $6436 can be formed.

In addition to this one-time cost, also consider the following 2 important cost considerations.

• What are the running costs of incorporating a subsidiary Company in India?

  Forming a subsidiary in India means it will undergo a statutory audit. This audit is as per the Companies Act, Income-tax Act, and transfer pricing audit.

  You’ll also need to comply with labor laws, pay taxes, and handle filings such as monthly, quarterly, and annual returns. This includes Goods and Services Tax (GST) and Tax Deducted at Source (TDS). Else it will be subjected to delayed filing fees and penalties considering the professional fees for each of these.

• Compulsory margin money, income tax (arm’s length pricing), and repatriation of money

  To manage a business or form a subsidiary company in India, you must prove the government profit. Because Indian subsidiaries can’t lose money. Your subsidiary company must invoice its cost. Because it’s a cost center (no sale). Without other money, you’ll need to pay staff, auditor fees, office rent, and more.

  Your cost center must invoice the parent firm to operate.When starting a business in India, you must include a 12-18% arm’s-length costs margin. Auditors set this proportion. The Indian government opposes 0% profit margins. Your parent firm must provide a percentage to keep your subsidiary company running.

  If you don’t have revenue to cover costs, send a percentage margin to your Indian subsidiary. This amount builds up in Indian banks and is out of reach. You can only send that money home by paying shareholders’ dividends. The government taxes dividends 30%. On top of the profit margin, the government will add a tax slab percentage. This affects parent company fund flow.

4. Availability of Time Bandwidth with the Management

Staffing your India Subsidiary with the right talent is crucial. It’s essential to create a comfortable workspace and implement a robust strategy for managing HR, insurance, benefits, payroll, risk management, and administrative operations. This strong foundation ensures your India Subsidiary can operate smoothly while maintaining high standards in employee training and office infrastructure.

In addition, compliance with Indian laws is key covering monthly payroll, taxation, accounting, and auditor coordination. Hiring a dedicated team and implementing effective performance management, periodic interactions, and direct reporting will empower your India Subsidiary to overcome challenges such as time zone differences, geographical barriers, and language hurdles. Balancing these factors with the demands of your parent company will help streamline operations and foster long-term success for your India Subsidiary.

Increased compliance load: If you wish to run a business in India, you will have to put up with the additional costs of business compliance and running the business as well. This includes HR operations, administration and auditor fees, salary tax deductions, and timely government tax payments per employee. Consider employee-related laws such as PF, employee state insurance, salary TDS, professional tax, and minimum wages. You’ll also need to account for bonuses, maternity costs, gratuity, and leave encashment.

5. Understanding the Indian Culture to Form a Subsidiary Company in India

Culture plays an important role in the decision to establish a subsidiary in a particular country.

You choose India for its diversity. India is made up of diverse regional states, each with its own unique language and geography. These differences make each individual distinct in their own way.

Before establishing a subsidiary in India, consider whether you’re ready to conduct business with such a diverse population. This diversity plays a key role in shaping operations.

Expert Guidance for Forming a Subsidiary Company in India with Remunance

At Remunance, we focus on small and medium enterprises that wish to set up a local company in India. Rajendra, the founder, has crafted a business model that benefits India by ensuring the PEO business is both strategic and compliant.

If a subsidiary is a cost center, consider the taxation aspect closely

Incorporating an entity has become more convenient today as compared to traditional times. If a subsidiary is a cost center (no sales in India), it is advisable to consider the taxation aspect closely. This includes a transfer pricing margin and a minimum 25.168% income tax in India, that needs to be maintained.

Test the ground before forming a subsidiary company

A PEO, i.e. professional employment organization provides hand-holding while setting up a legal entity and business operations.

Remunance extends its expertise in forming a subsidiary in India without any hassles or security issues. Remunance ensures that the entity functions smoothly in India with proper government authority registrations. Registering a subsidiary in India is more specialized than standard company formation. We offer end-to-end support exclusively for overseas companies.

Get started with Remunance’s PEO services for more information.

Ensure you can transfer the staff from the outsourcing/PEO agency

You can efficiently hire a desirable staff with the help of a PEO agency. A PEO agency will provide you with hand-picked potential employees through their trained professionals. Once you’ve built your team in India through a PEO or outsourcing agency, you can transfer them to your subsidiary. This ensures a smooth transition and helps kick-start your operations.

Delay it as much as possible to ensure you can do without a subsidiary company

Once you consider all the aspects required to open a subsidiary in India, like the bandwidth of time, cost of operations, administrational headaches, tax payments, and HR management. It is best to procrastinate on forming a subsidiary company in India as much as possible.

We do not think you shouldn’t open a subsidiary company here, but just consider if you can do without one for a considerable time.

The closure is more difficult

Closing a company is far more demanding than forming one—it’s both costly and time-consuming. You face several preconditions, such as the risk of triggering bankruptcy clauses or the need to secure a no-objection certificate, all of which can complicate the process.

For your India Subsidiary, striking off the company’s name from the Registrar of Companies generally takes around 3-4 months, though delays may occur if the ROC objects. You’ll need to complete the E-form STK-2 and have your documents verified. Winding up a private limited company can take a year or two after obtaining clearance from government departments. Plan carefully to ensure a smooth closure and secure the future of your India Subsidiary.

Get it formed from an agency that has done it multiple times

Remunance addresses your concerns regarding time-bound company formation, complete compliance, hiring a reliable team, and conducting methodical work.

Remunance understands the Indian pulse better. We have a deep knowledge of the laws here. We will help you set up a company conveniently under the provisions of the Company Act and get approval from the Reserve Bank of India as well. Your concern about entering into new territory, and dealing with compliance issues will be smoothly taken care of by us.

Click here to learn more about our services and how we can help you.

Why Choose Remunance for Your Subsidiary Formation in India?

Remunance, as a leading EOR service provider in India, has assisted over 120 clients from 22 countries ensuring smooth compliance operations.

We understand the Indian pulse and have deep expertise in Indian employment laws and regulations. Our comprehensive support—from recruitment to ongoing compliance assistance—ensures that setting up your India Subsidiary under the Company Act and Reserve Bank of India guidelines is hassle-free. We address your concerns about entering new territory and managing compliance issues seamlessly.

At Remunance, our mission is to empower foreign companies to succeed in India. With our expert services, you can experiment and learn how to manage all your requirements effectively, paving the way for a successful India Subsidiary. When you’re ready to operate independently, you can transition your dedicated team smoothly to your India Subsidiary for a strong market start.