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Establishing a foreign subsidiary involves creating a company in another country, operating under local laws. It offers market expansion opportunities but requires navigating regulatory complexities. Expert guidance is essential for success.
Consult Our Experts for Seamless Foreign Subsidiary Establishment: Navigate International Waters with Confidence.
Sec 2(42) of the Companies Act, 2013 (‘Act’) defines a foreign company as a body corporate or company that is incorporated outside India, but has a business place in India, whether through an agent or by itself, either physically or through electronic mode and conducts business activity in India in any other manner.
A foreign national can establish a foreign company as a private limited company in India. Establishing a private limited company is the fastest way to set up a company in India. FDI of up to 100% into a private limited company is permitted under the FDI policy under the automatic route.
A foreign entity will elect a local partner in India with whom it wishes to enter into a joint venture to operate its business in India. A Letter of Intent or Memorandum of Understanding (MOU) is signed between the foreign entity and the local partner, which will state the joint venture agreement basis. The joint venture agreement contains all the business terms, and it must be consistent with regional and international law.
A foreign national / company can invest 100% FDI in an Indian company through the automatic route for the purpose of registering foreign company in India. When a foreign entity invests 100% FDI in an Indian company, the Indian company will become a wholly-owned subsidiary of the foreign entity/company.
A foreign company can establish a liaison office for all liaison activities in India. The parent company (foreign company) will meet all the expenses of a liaison office through foreign remittance.
A foreign company can establish a project office in India to execute projects awarded to them by an Indian Company. However, to establish such a project office, the foreign company may be required to obtain approval from the Reserve Bank of India.
A foreign company can establish a branch office in India. To establish a branch office, the foreign company must be a large business and provide proof of profitability.
✅ A joint venture is a contract / arrangement where two or more parties get together to run a business or achieve a commercial object.
✅ To establish a company in India through a joint venture, the foreign entity/national has to choose a local partner with whom they want to enter into a joint venture.
✅ Then, the foreign entity and the local partner should sign an MOU or a Letter of Intent.
✅ The MOU or a Letter of Intent should state the basis for the joint venture agreement.
✅The foreign entity and the local partner must negotiate and discuss all the terms of the joint venture agreement thoroughly.
✅ The joint venture agreement must be consistent with regional and international law.
✅ It should contain essential matters like dispute resolution agreements, holding shares, applicable law, transfer of shares, confidentiality, board of directors non-compete, etc.
✅ A minimum of two directors are required to register a wholly-owned subsidiary, out of which one director must be a resident in India.
✅ All directors must apply for DIN (Director Identification Number) and DSC (Digital Signature Certificate).
✅ The Memorandum of Association (MOA) and Article of Association (AOA) must be drafted.
✅ The shareholders must subscribe to the MOA.
✅ The company’s name must be reserved through Part-A of the SPICe+ form (company registration application).
✅ The registration application must be filled (Part-B of the SPICe+ form) on the Ministry of Affairs (MCA) portal.
✅ The Registrar of Companies (ROC) will verify all the documents and SPICe+ form and provide approval.
A foreign company can open a liaison office in India with the prior approval of RBI. The process is as follows:
✅ The foreign company must have a profit-making record during the prior three financial years in the home country. Its net value should not be less than USD 50,000 to set up a liaison office in India.
✅ The foreign entity should forward the application to establish a liaison office to the Foreign Exchange Department through a designated Authorised Dealer Category–I Bank (AD).
✅ It should file the English version of the certificate of incorporation/registration or MOA or AOA and its latest audited balance sheet attested by the Indian Embassy or Notary Public in the country of registration.
✅ The RBI will give the liaison office a unique identification number.
✅ The foreign company has to obtain PAN from Income Tax Authorities when setting up the liaison office in India.
✅ All the expenses should be met entirely through inward remittances of foreign exchange from the Head office located outside India.
✅ If a foreign entity that is also a subsidiary of other company does not fulfil the above condition, it can submit a Letter of Comfort from its parent company if it satisfies the above conditions.
✅ A foreign insurance company can establish a liaison office after getting approval from the IRDAI (Insurance Regulatory and Development Authority)
✅ A foreign bank can establish a liaison office after getting approval from the Department of Banking Regulation (DBR).
A liaison office can undertake the below activities:
The RBI prescribes the process for setting up a project office in India by a foreign company when the following conditions are fulfilled:
✅ A foreign company can establish a project office without prior permission from RBI only when it has obtained a contract from an Indian company for executing a project in India.
✅ The project should be funded directly by inward remittance from abroad.
✅ The project should be funded by a bilateral or multilateral International Financing Agency.
✅ An appropriate authority has cleared the project.
✅ A company or Indian entity providing the contract has been granted a term loan by an Indian bank or Public Financial Institution for the project.
✅ If the above conditions are not complied with, the foreign entity must approach the RBI for approval to set up a project office.
A foreign company can open a branch office in India and conduct business activity with the prior approval of RBI. The process is as follows:
✅ The foreign company should be engaged in trading or manufacturing activities.
✅ It should have a profit record during the preceding five financial years and a net worth of not less than USD 1,00,000 in its home country.
✅ The foreign entity should forward the application to establish a liaison office to the Foreign Exchange Department through a designated Authorised Dealer Category–I Bank (AD).
✅ It should file the English version of the certificate of incorporation/registration or MOA or AOA and its latest audited balance sheet attested by the Indian Embassy or Notary Public in the country of registration.
✅ RBI will give the branch office a unique identification number.
✅ The foreign company has to obtain PAN from Income Tax Authorities when setting up the branch office in India.
✅ All the expenses should be met entirely through inward remittances of foreign exchange from the Head office located outside India.
✅ It requires specific approval from the Reserve Bank of India (RBI) under FEMA 1999 and approval from the Insurance Regulatory and Development Authority (IRDA).
✅ If a foreign entity that is also a subsidiary of other company does not fulfil the above condition, it can submit a Letter of Comfort from its parent company if it satisfies the above conditions.
A branch office can undertake the below activities:
✅ Import and export of goods.
✅ Providing consultancy or professional services.
✅ Undertaking research work in areas in which its parent company is engaged.
✅ Promoting financial or technical collaborations on behalf of the parent company.
✅ Representing the parent company in India and acting as a selling or buying agent in India.
✅ Developing software and providing IT services in India.
✅ Giving technical support for products supplied by the parent company.
✅ Foreign airline or shipping company.
✅ It cannot undertake retail trading activities and manufacturing or processing activities in India, indirectly or directly.
Registering a foreign subsidiary company in India offers a diverse range of advantages and serves as a strategic step for companies aiming to expand their global reach. When a subsidiary is registered in India, a local presence is established, facilitating a deeper understanding of the market, enabling customer connections and customisation of products or services to cater to local needs. Through this registration, companies gain insights into the real Indian market, its diverse demographics and cultural landscape, making stronger relationships with stakeholders. Such strategic positioning enhances market competitiveness and aids in long-term growth and profitability.
We at Satkriti Advisors, can aid with everything from providing advice in the beginning phase to ensuring that you meet all the necessary requirements and also keeping your company in good legal standing.
Our services includes the following:
✅ Assistance with the preparation and submission of essential documents required for subsidiary company registration in India.
✅ Expertise in navigating the compliance and regulatory framework for foreign subsidiary company registration.
✅ Provision of services related to obtaining necessary approvals, such as DIN and DSC.
✅ Support in the registration process for securing PAN, TAN and GST numbers for the subsidiary company.
✅ Assistance in opening bank accounts and fulfilling financial requirements for the subsidiary company in India.
✅ Expert advice on tax implications and compliance related to foreign subsidiary company registration.
✅ Professional support and services to ensure smooth operations and compliance for the subsidiary company in India.