An Indian subsidiary is a company that is owned by a foreign company and operates in India. The foreign company is known as the parent company, and the Indian subsidiary is a separate legal entity that is subject to Indian laws and regulations.
Here are some important things to know about Indian subsidiaries:
- Legal requirements: To set up an Indian subsidiary, the parent company must register the subsidiary with the Registrar of Companies (ROC) in India. The subsidiary must have a minimum of two directors and two shareholders, and the parent company must own at least 50% of the shares of the subsidiary.
- Taxation: Indian subsidiaries are subject to Indian taxation laws and must file tax returns with the Indian tax authorities. The subsidiary will be taxed on its income in India, and the parent company may be subject to taxes in its home country on the income earned by the subsidiary.
- Employment laws: Indian subsidiaries must comply with Indian employment laws and regulations. These laws cover areas such as minimum wages, working hours, and employee benefits.
- Banking and finance: Indian subsidiaries can open bank accounts and conduct financial transactions in India. The parent company can also transfer funds to the subsidiary for business purposes.
- Intellectual property: Indian subsidiaries must comply with Indian intellectual property laws and regulations. These laws cover areas such as patents, trademarks, and copyrights.
- Compliance: Indian subsidiaries must comply with all Indian laws and regulations, including those related to corporate governance, accounting, and financial reporting.
Advantage of Indian Subsidiary
Setting up an Indian subsidiary can have several advantages, including:
- Limited Liability: One of the primary advantages of setting up an Indian subsidiary is that it provides limited liability to the parent company. This means that the parent company is not personally liable for the debts and obligations of the subsidiary.
- Local Presence: Setting up an Indian subsidiary allows the parent company to have a local presence in India. This can help to build relationships with customers, suppliers, and other stakeholders in the Indian market.
- Access to Indian Market: India is a large and growing market with a rapidly expanding middle class. Setting up an Indian subsidiary can provide the parent company with access to this market, which can help to increase revenue and profits.
- Tax Benefits: Setting up an Indian subsidiary can provide tax benefits to the parent company. India has a number of tax incentives and exemptions for foreign companies that invest in certain sectors or regions.
- Skilled Workforce: India has a large pool of skilled and educated workers, particularly in the technology and engineering sectors. Setting up an Indian subsidiary can provide the parent company with access to this talent pool.
- Lower Operating Costs: India has lower operating costs compared to many developed countries, which can help to reduce the overall cost of doing business.
- Political and Economic Stability: India has a stable political and economic environment, which can provide a favorable business climate for foreign companies.
Overall, setting up an Indian subsidiary can provide the parent company with many advantages, including access to a large and growing market, a skilled workforce, tax benefits, and a favorable business environment.
Disadvantage of Indian Subsidiary
Setting up an Indian subsidiary also comes with some disadvantages, including:
- Complex Legal and Regulatory Environment: India has a complex legal and regulatory environment that can be difficult to navigate. Setting up an Indian subsidiary can involve significant legal and regulatory compliance requirements, which can be time-consuming and costly.
- Cultural and Language Differences: India has a diverse and complex culture, with many different languages and customs. Cultural and language differences can pose challenges for foreign companies setting up a subsidiary in India.
- Corruption: Corruption is a problem in India, and foreign companies may face challenges in dealing with government officials and regulatory agencies.
- Infrastructure Challenges: India has significant infrastructure challenges, including inadequate transportation networks, power shortages, and inadequate internet connectivity. These challenges can pose operational challenges for foreign companies.
- Slow Bureaucracy: The bureaucratic processes in India can be slow and inefficient, which can delay the process of setting up a subsidiary or obtaining permits and approvals.
- Labor Laws: India has complex labor laws, which can be difficult to navigate. Companies must comply with minimum wage laws, employee benefits, and other labor regulations.
- Cost of Doing Business: While India has lower operating costs than many developed countries, the cost of doing business can still be high due to the high compliance costs and the need to invest in infrastructure and other business assets.
In summary, while setting up an Indian subsidiary can provide many advantages, it also comes with some challenges, including complex legal and regulatory compliance requirements, cultural and language differences, corruption, infrastructure challenges, slow bureaucracy, complex labor laws, and high compliance costs.
Procedures for Indian Subsidiary
Here are the general procedures for setting up an Indian subsidiary:
- Obtain Digital Signature Certificates (DSC): The first step in setting up an Indian subsidiary is to obtain Digital Signature Certificates (DSC) for the proposed directors of the subsidiary. A DSC is an electronic form of signature that is used to sign documents online.
- Obtain Director Identification Number (DIN): The next step is to obtain a Director Identification Number (DIN) for the proposed directors of the subsidiary. The DIN is a unique identification number that is required for all directors of Indian companies.
- Reserve a Company Name: The next step is to reserve a unique name for the Indian subsidiary with the Registrar of Companies (ROC). The name must be unique and should not be similar to the name of any other registered company in India.
- Draft Memorandum and Articles of Association (MOA and AOA): The MOA and AOA define the scope of the subsidiary’s business activities, its objectives, and its rules and regulations. The MOA and AOA must be drafted in compliance with the Indian Companies Act and must be filed with the ROC.
- File Incorporation Documents: Once the MOA and AOA are drafted, the incorporation documents, including the DINs and DSCs of the proposed directors, must be filed with the ROC.
- Obtain Permanent Account Number (PAN) and Tax Account Number (TAN): The Indian subsidiary must obtain a PAN and TAN from the Indian tax authorities. The PAN is used for tax purposes, while the TAN is used for deducting taxes at source.
- Open a Bank Account: Once the Indian subsidiary is incorporated, it must open a bank account in India. The bank account can be used for conducting financial transactions, including paying taxes and receiving payments from customers.
- Register for Goods and Services Tax (GST): The Indian subsidiary must register for the Goods and Services Tax (GST), which is a value-added tax that is levied on goods and services in India.
- Register for Other Licenses and Permits: Depending on the nature of the subsidiary’s business activities, it may be required to obtain other licenses and permits, such as environmental permits or import/export licenses.