India is the 5th largest economy in the world and is on track to become the 3rd largest economy as per the recent statement of the Prime Minister of India. There are a lot of opportunities and inclinations for overseas businesses in the Indian market.
Currently, many foreign businesses are showing interest in forming subsidiaries in India. India’s vast market, skilled workforce, and diverse opportunities attract foreign businesses. Also, expanding business beyond boundaries is beneficial in terms of having access to new markets and resources but when it comes to other aspects such as rules and regulations, cost, compliance, location, and tax complexities, they may impact the financial health of the subsidiary if not adhered to.
Through this blog, let’s thoroughly understand the steps of forming a subsidiary in India and an alternative to the subsidiary.
Requirements for Company Formation in India
It is imperative to understand all the legal requirements to avoid issues in terms of tax law and regulations.
Companies Act 1956 suggests that a company will be called a wholly-owned subsidiary only when the parent company possesses all the shares.
Legal Application for Name Approval
Rule 8 of the Companies Rules, 2014 suggests if an overseas company is forming a subsidiary in India, the company can keep the original name and add India or the name of any Indian state or city.
The applicant has to submit two names. These two names are supposed to be prime objects of the Wholly Owned Subsidiary (WOS) company. These names are submitted to the MCA for approval. The MCA approves one name, and the parent company can keep the name of the trademark.
Application for digital signature certificate(DSC)
Once you’re done with the name approval, you may apply for the digital signing of the application forms of the DSC of shareholders or directors.
You can skip this step if the DSC is already present with directors or shareholders.
Incorporation Forms Submission
After the DSC process, the submission of the incorporation application in SPICE+ (Simplified Proforma for Incorporating Company electronically Plus) forms along with AGILE form, MOA, AOA, INC 9 form, Declarations, and KYC documents of directors or shareholders for final approval. Apostillation is one of the important processes in case of documentation that is executed in a foreign country. It usually takes 5 to 7 days to get the incorporation certificate and setting up a functional subsidiary in India can take anywhere from 6 to 8 weeks.
Open a bank account
Opening a bank account requires you to submit documents like MOA, AOA, PAN, TAN, and Incorporation Certificate. The payments are expected to be done through banking channels.
Registration for regulatory compliance
In India, GST registration is mandatory for business engagement activities. Also, depending on the business category, you may require additional licenses, permits, and registrations from different jurisdictions or government agencies to be fully compliant.
There are important documents and details one has to submit, such as member information, share capital, liability of members, and shareholding details.
If your business activities are related to research and development, a reduction of 17.65% tax rate will be applied. If the company distributes dividends to the parent entity a 15% Dividend Distribution Tax (DDT) rate will be applicable if you’re not compliant with transfer pricing regulations that may result in penalties.
A better alternative than forming a subsidiary
Forming a subsidiary in India has a lot of regulations to follow, where tax implications and the tax rules complexities can be barriers. However, a foreign company can establish a team in India without registering a company with the help of the Employer of Record (EOR) services. The foreign company can rely on an EOR for payroll, tax documentation, finance, legal requirements, and administration of employees.
Advantages of EOR
- GST exempt
- Low on monetary investment
- Low on time and effort investment
- Quick to start
Let Remunance solve your administration issues
Remunance is a globally recognized EOR services and international PEO services provider that has a share in many success stories. Remunance helps foreign companies set up a talented remote team in India without forming their entity in India. Remunance also aims to provide the best opportunities and excellent work experience to Indian talents by providing the best EOR service.
Remunance has to date collaborated with more than 85 clients from 16 different countries worldwide. With the outstanding achievement of hiring more than 800 Indian Employees situated in 34 cities, Remunance has unlocked a milestone.
Forming a subsidiary in India would be a tedious but rewarding process. EOR offers a great opportunity to expand your business in India by forming a talented team without forming a subsidiary. Ultimately, your decision to form a subsidiary or opt for an EOR solution depends on your business goals! Remunance can guide you in the right direction through our experience in helping over 80 organizations build their remote team or set up an Indian subsidiary.