A subsidiary company is controlled by another company known as the Parent or Holding Company, which owns a majority of its shares, granting it control. When the holding company possesses 100% of the subsidiary's shares, it becomes a wholly-owned subsidiary, which can be established or acquired by the holding company.
What is an Indian Subsidiary?
According to Section 2 (87) of the Companies Act 2013, a subsidiary company, in relation to a holding company, is a company where the holding company either:
Controls the Board of Directors composition, or
Has more than 50% of the total share capital, alone or with its subsidiary companies.
However, there are limitations on the number of subsidiary layers for certain prescribed holding companies.
Legal Identity: An Indian subsidiary company has a distinct legal identity recognized by the law.
Independent Management: It operates with its own management structure separate from the parent company.
Limited Liability: Shareholders or owners of the subsidiary enjoy limited liability towards the company's debts and obligations.
FDI Allowance: Indian subsidiaries allow 100% Foreign Direct Investment (FDI) without prior permission, with post-facto filing to the Reserve Bank of India.
Full Ownership: The parent company can maintain 100% ownership of its Indian counterpart.
Financial Support: The parent company can provide funding to initiate new ventures and products.
Tax Structure: The Indian subsidiary follows the same tax structure as a domestic Indian company.
Tax & Process
Tax Rates: Foreign subsidiaries in India are generally taxed at a 40% corporate rate. However, exceptions exist a 20% rate if the foreign company is headquartered in India and 15% with significant investments in India.
Dividend Withholding: Indian subsidiaries must withhold taxes on dividends to parent companies, typically at a 15% rate, but it may vary based on double taxation agreements.
Exemptions and Deductions: Foreign subsidiaries may be exempt from taxes on exported profits or claim deductions for expenses like research and development or interest payments.
Branch Profits Tax: Foreign subsidiaries are subject to a 20% branch profits tax on attributed Indian profits.
Dividend Distribution Tax: Dividends paid by foreign subsidiaries to Indian parent companies face a 15% dividend distribution tax (DDT) on the gross amount declared.
From Parent Company: Registration Certificate (with name and address), Board Resolution authorizing a director for India company registration.
From Proposed Directors/Representative Shareholders: Passport copy, Address proof (utility/bank/credit card statement), Scanned photograph, Email ID.Mobile number
Documents Prepared and Notarized: Declarations from directors PAN declarations from directors
Affidavit from Directors/Shareholders
Memorandum of Association and Articles of Association (Charter of companies)
From India Director/Shareholder: PAN and Aadhar Bank statement or Mobile bill or credit card bill, Email ID, Photo, and Mobile Number
After Company Registration you will get a Certificate of Incorporation, MOA and AOA, Fee payment challans, Digital Signature, and Draft of the first board resolution for bank account opening.
Step 1:Apply for the company's name on the MCA portal.
Step 2: Obtain digital signatures and director identification numbers for directors.
Step 3: Prepare necessary documents like a Memorandum of Association (MOA) and Articles of Association (AOA).
Step 4: Have the documents like MOA and AOA notarized and apostilled.
Step 5: File the incorporation form on the MCA portal.
Step 6: Open a bank account.
Step 7: Begin your business operations.
What types of subsidiary companies can be registered in India?
A foreign company can register either a Private Limited company or a Branch office as its subsidiary in India.
What are the minimum requirements for registering a company in India?
You need a minimum of 2 directors, with at least 1 being a resident director. An office address in India is required, along with 2 shareholders.
How long does it take to register a subsidiary in India?
The timeline for registration is as follows:
Company Registration: 12 days
Bank account opening for the subsidiary: 15 days
GST and other tax registrations: 15 days
What are the compliance requirements for a subsidiary company in India?
Compliance requirements include monthly bookkeeping, monthly tax filing, and annual tax returns, among others, for foreign companies.