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Foreign Subsidiary Company
A company where 50% or more of its equity shares are owned by a foreign company is a foreign subsidiary company. The foreign company in such a case is called the holding company or the parent company.
Foreign Subsidiary Company Compliances are based on the company that is incorporated. Hence, it is necessary to understand what compliances are supposed to be met according to the type of the company, the operations of the industry, annual turnover, number of employees, etc.
Foreign subsidiary companies are mandatorily required to maintain compliance according to the Income Tax Act, Companies Act, Transfer pricing guidelines, and FEMA guidelines.
Foreign Direct Investment of up to 100% is allowed into an Indian private limited company and limited company for most of the sector. The amount of FDI in India has increased manifold over the last few years due to a booming economy and welcoming environment for foreign investors.
Essential Compliances for Foreign Subsidiary Company
The following are the Required compliances that have to be fulfilled by the foreign subsidiary company as per Section 380 and 381 of the Companies Act, 2013:
Form FC-1 under Section 380: The FC-1 form is important as the form has to be filed within 30 days of the incorporation of the subsidiary company in India. The form is not to be submitted alone, it must be accompanied by the required files, certifications etc. from other regulatory bodies in India such as the RBI.
Form FC-3 under Section 380: This form needs to be submitted to the respective Registrar of Companies (ROC) depending upon where the company is incorporated in India. The form must contain the details of the areas where the business is going to conduct operations as well as the financial records of the company.
Form FC-4 under Section 381: This form is concerned with the annual returns of the company. It has to be filed within sixty days from the end of the preceding financial year.
Financial statements: The company has to submit financial statements on its Indian business and operations. This must be submitted within 6 months of the end of the financial year. They must contain: –
● Statements on the transfer of funds
● Statements of earnings repatriated
● Statements on related party transactions such as statements on sales, transfer of property, purchases etc.
Audit of accounts: All accounts of the foreign subsidiary company must be audited by a Practising Chartered Accountant. These accounts should be properly arranged and made available by the company for the audit.
Authentication and translation of documents: All the documents that are submitted by the company to the ROC must be validated by a practising lawyer in India. These documents also need to be translated into English before their validation and submission.
Compliances under the Income Tax Act and the GST Act
There are three types of compliances based on the intermittency of these compliances:
Frequent Compliances:
Frequent compliances are compliances that have to be met by the company periodically. Unlike annual compliances, this type of compliance happens in regular intervals multiple times a year. These compliances may need to be met on a quarterly or a half-yearly basis.
Annual Compliances:
Annual compliances are compliance that needs to be met once every year. Every year the company has to meet these compliances mandatorily. For example, the company has to do the following every year: – GST filings – TDS filings under the Income Tax Act – Compliances under RBI – Compliances under SEBI’s rules and regulations – Annual Financial Statements
Event-based Compliances:
As mentioned earlier, there are three types of compliances; one of them is event-based. This means that these compliances are only mandatory in case of a certain event or action of the company.
There are two event-based compliances under the RBI regulations and FEMA guidelines, they are:
FC-TRS: This concerns the transfer of a foreign subsidiary company’s shares between an Indian resident to a non-resident investor or vice-versa. Such a transfer may be done by way of sale or gift. The Foreign Direct Investment policies require that such a transaction should be reported within sixty days from the date of the transfer. The obligation of filing this form rests upon the Indian resident, or the investee company as the case may be. This is regardless of whether the Indian resident is the transferer or the transferee.
FC-GPR: This is concerning the remittance received by the shareholders of a foreign subsidiary company. The form specifies the mode of transfer of the remittance by the company to its shareholders
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