How to Setup a Subsidiary Company in India

Setting up a subsidiary company in India is like standing at the edge of a great market with endless opportunities. However, it comes with a long list of processes, legal documentation, and approvals. Worry not though, every success story begins with a solid foundation. The solid economy and strategic location of India per se provide the perfect location to expand on any global venture. However, the regulatory landscape can only be conquered through proper planning.

You must do your homework well before setting up a subsidiary company in India. Whether you are learning what a subsidiary company is or finding a solution to skip complex Indian regulations, this blog will walk you through each process step by step. Additionally, this guide involves all the critical steps of subsidiary incorporation. A few of the mandatory steps of incorporation involve obtaining a director identification number, getting tax registrations, and following local law compliance.

Whether you are drawn to industrial growth or the impressive talent bank, India holds ample growth opportunities when you set up a subsidiary here. While having the necessary knowledge may seem complex, it is really all about setting up your subsidiary in a way that suits you the best.

What is a Subsidiary Company?

The subsidiary company hence is the child of a larger corporation created in another market to tap available opportunities in the local market. It is referred to as the company that has the same owner as its parent company. The parent company will enjoy the control and liability separation thereby affording the smooth running of global operations. 

As Mark Zuckerberg adequately quoted, “In a world that’s changing really quickly, the only strategy that is guaranteed to fail is not taking risks.” So, in this sense, having a subsidiary can be quite an intelligent risk. However, you must know the specifics about the local regulations and market dynamics.

Subsidiary creation enables firms to enjoy yet another one of the many pleasures. The subsidiary would constitute an independent legal entity. You’d be able to make decisions specifically pertinent to the local business. This is all while keeping the parent firm relatively risk-free from the dangers of foreign operations. You also get a way into the global pool of talent and growing digital infrastructure across nations which is ideal for rapid expansion.

A subsidiary is indeed a very flexible means and an avenue for the expansion of a company in its new market. Managed correctly, it is sure to be a win-win in globalization.

Notably, subsidiaries remain the most popular form of entry for international companies in the Indian market. Moreover, with the inflow of FDI standing at a record USD 44.4 billion in the fiscal year 2023-24, it still is an uncontrollable destination to establish subsidiary companies. So, let us invade the steps of how to set up a subsidiary company in India smoothly and successfully. 

 

Challenges for Establishing a Subsidiary Company in India

The setting up of a subsidiary in India seems to be an Eldorado opportunity. There are definitely some bumps on the road towards success. Going through bureaucratic complexities can feel like quite a homework task. Thus, paperwork along with countless regulations can be quite overwhelming. No matter, if one is looking to set up a wholly owned subsidiary in India or seeking joint ventures.

Legal Complicacies

One of the common challenges? Legal framework. International companies tend to downplay the sheer complexity involved in registering an Indian subsidiary. The number of regulatory authorities per se seems too overwhelming. As foreign companies begin to dig their teeth into Indian foreign company registration, it includes paperwork from the MCA and RBI, apart from others. Not to forget, it’s also quite a time-consuming exercise. It involves ensuring that they align with the Companies Act and FEMA regulations, apart from sector-specific guidelines.

Timely Filings

Timelines? Yeah, right! Expect delays! The official process may give a particular deadline, but actual timelines vary since locals interpret the law differently. Insider tip: build in extra time for approvals and double-check your filings. You don’t want to go back and fill out forms again because the signature wasn’t signed or there’s an error.

Cultural Differences

Cultural and operational differences are very much a reality. For example, your global HQ is ticking perfectly. But in India, the wheels could be moving at a different speed. Thanks to holidays, regional variances, or just the way business is conducted in that market. It’s pretty crucial to build an on-the-ground team that understands these nuances as well as the global vision.

The location where you plan to form your subsidiary must be culturally fit for your business, even within India. So, stay ahead of the game and learn about the parameters to decide on location while forming a subsidiary in India. 

Taxation

The last is taxation and financial structuring. Balancing the potential for profitability with a corporate tax regime in India and international accounting standards is the catch. Determining the right structure for your wholly-owned subsidiary in India is full-time planning at best. One that maximizes all financial benefits without causing tax authorities to come knocking.

Read the 5 things to know before forming a subsidiary company in India

What Are the Essential Procedures for Setting Up a Subsidiary Company in India?

Preparation for registration of the subsidiary company in India must be without errors and loopholes. You must be paper-ready for all the necessary approvals and registrations. Let’s break it down step by step.

Company Incorporation

Company incorporation is a two-step process here in India. First is the name approval and then applying for a Certificate of Incorporation from the Ministry of Corporate Affairs (MCA). In many ways, it can be considered your ticket to lawfully operate in India. The MCA will see to it that the documents are correctly registered and compliant with your business. This certificate is, in simple words, your green light to start operations.

DIN Allotment for Directors

Now, on to the persons in charge! Each director of your subsidiary must have a unique Director Identification Number (DIN). It’s a one-time registration but indeed necessary for directing your company legally. No DIN, no directorship-period.

Permanent Account Number (PAN)

The PAN is your company’s tax identification number. Without one, neither your company will be able to pay its taxes, nor your company will be able to file any returns. So take enough time to get it right. The PAN is well and truly equivalent to your company’s social security number. It is a must for any form of financial transaction done in India.

Tax Collection Account Number (TAN)

Another somewhat lesser-known but no less important acronym in Indian subsidiary registration is TAN. This number will enable your company to deduct and collect taxes at source. This may well include salaries, dividends, or payments for contracts. It will ensure that you are up to date with the government on taxation. So do not let this step pass by.

Social Security Registration

If you’re hiring employees locally, you’ll need to register with India’s social security. That’s mainly through the Employees’ Provident Fund Organisation, or EPFO. This caters to the interests of your employees and satisfies your desire to be a law-abiding citizen. After all, your employees are the lifeblood of any thriving enterprise.

Profession Tax Registration

Depending upon the city your subsidiary is based at, you would need to get registered for Profession Tax. This is a state-level tax and applicable on both the principal’s as well as the employee’s end. Sounds pretty minor, but skip it at your own risk – there might be penalties incurred. Don’t forget it.

Bank Account Selection

No business can be operated without having a bank account. Your subsidiary will require a particular corporate account to accommodate all the transactions. This is quite a straightforward process, but go for the best! A good banking partner will make life simpler and easier for your financial transactions in India.

GST Registration

Finally, you will have to get registered for GST. This is particularly so when your subsidiary is most probably going to sell services to consumers in India. Think of GST as the tax that links your subsidiary to a much more extensive economy. No GST, no business – as simple as that.

This way, your foreign company registration in India goes through without a hitch. Yes, it is quite a lot of paperwork. However, each piece plays a crucial part in successfully setting up a subsidiary company in India.

Know the detailed steps to form a subsidiary in India

What Are the Post-setup Requirements for an Indian Subsidiary?

Here are the post-setup requirements for an Indian subsidiary:

Hold Your First Board of Directors Meeting

This is an important initial step. After 30 days of incorporation, it is now the time to call for the first Board of Directors. Section 173(1) of the Companies Act 2013 does not make this a mere formality. Instead, it forms the very foundation of subsidiary governance. Where key strategies will be aired, and your mission will be set in motion. So, line up that agenda and get those directors together!

Administrative Disclosures

Now, isn’t that just basic transparency? Section 184(1) of the Companies Act 2013 is something you’ll find a need to comply with. Your directors will definitely be required to communicate in writing any other director or key managerial personnel’s interest. It might involve their concern in any other firm, company, or association. This must be sent mandatorily on Form MBP 1. Therefore, it is very much essential to maintain transparency with your board. And to align and regulate everyone’s interests for the benefit of your subsidiary company.

Issuing Share Certificates

An individual needs a claim over their stake. Isn’t it? So, do not let this step become irrelevant for you. In fact, you get 60 days following the incorporation. These share certificates represent ownership. And would ensure that your shareholders have a formal claim over their respective stakes in the business. It’s one of the most crucial steps where trust and commitment build confidence among investors.

Compliance with RBI

Why do you need this process? Of course, regulators love you. I know. Puns aside now. Registering a foreign company in India incurs some formalities of the Reserve Bank of India. Keep the necessary compliance formalities intact with the central bank by filing FCGPR and FC-TRS forms.

Employee Benefit Setup

Your employees must be thinking perks! Hence, it is a “CAN’T MISS” deal for you to enroll your employees under provident fund (PF), employee state insurance (ESI), and health schemes. Setting up an Indian subsidiary also ensures that the well-being of your team members is taken care of!

Accounting and Auditing

It’s time to crunch those numbers! Indian subsidiaries must have all accounting records and be audited annually. A good accountant will become your best friend for this purpose.

Annual Compliance

Party time for papers! Filing annual returns and financial statements with the Ministry of Corporate Affairs (MCA) is not optional. Indian subsidiary registration is not an event, but it is a process. This will make your business legit when you do so.

Corporate Tax Filings

This is a necessary evil. Remember to file corporate tax returns on time. Registration of a foreign company in India definitely comes with the fun experience of frequent tax compliance.

Remember these steps and be in control while managing your Indian subsidiary.

Conclusion

So, that is how you set up your subsidiary in India! The journey is long and winding, but each twist is part of building something significant. That too in one of the world’s most vibrant markets. From bureaucratic paperwork to assembling the local team, the process bears its challenges. But the rewards might be just that substantial.

Just as it takes patience to plant a seed in fertile soil, but with good care, its growth potential is immense! 

All set to spread your branches? India is definitely waiting to give you a grand welcome. And with the right strategy, setting up a subsidiary company in India isn’t just a possibility – it’s inevitable!