Nov 29, 2024, Posted by Admin
Comprehensive Compliance Requirements for Foreign Subsidiary Companies Incorporated in India
Comprehensive Compliance Requirements for Foreign Subsidiary Companies Incorporated in India
Establishing a subsidiary of a foreign company in India requires strict adherence to various legal, financial, and regulatory compliances. Whether the subsidiary is set up as a private limited or public limited company, these obligations must be met. This article provides an overview of the essential compliances that foreign subsidiaries must follow under Indian law.
Key Compliance Areas
- Compliances under the Companies Act, 2013
- Compliances under FEMA Regulations
- Compliances under the GST Act, 2017
- Compliances under the Income Tax Act, 1961
- Compliances under Labour Laws
A. Compliances under the Companies Act, 2013
Foreign subsidiaries must adhere to several requirements under the Companies Act, 2013, starting from incorporation through to ongoing annual obligations.
Post-Incorporation Obligations:
- Board Meeting: The first Board Meeting must be held within 30 days of incorporation.
- Director's Disclosures: Directors must disclose their interests and file Form MBP-1 at the first Board Meeting.
- Registered Office Verification: If the registered office is not declared at the time of incorporation, e-Form INC-22 must be filed within 30 days.
- Appointment of Statutory Auditors: Statutory auditors must be appointed within 30 days of incorporation, with their term lasting until the first AGM.
- Bank Account Activation: A bank account must be opened within 2 months of incorporation, and the share subscription amount must be deposited.
- Share Allotment and Certificates: Shares must be allotted within 2 months, and share certificates (Form SH-1) must be issued shortly thereafter.
Ongoing Compliance Requirements:
- Board Meetings: At least four Board Meetings must be conducted each year, ensuring no gap of more than 120 days between consecutive meetings.
- Annual Statutory Audit : Every company must get their account audited every year.
- Annual Filings: The company must file its financial statements (e-Form AOC-4) and annual return (e-Form MGT-7) within the prescribed deadlines.
- Director’s KYC: Directors’ KYC forms (e-Form DIR-3 KYC) must be submitted by September 30 every year.
B. Compliances under FEMA Regulations
The Foreign Exchange Management Act (FEMA) governs foreign exchange transactions and the reporting of foreign ownership in Indian entities. Compliance with FEMA regulations is essential for managing capital inflows and ownership stakes.
Key Requirements:
- Issuance of Shares to Foreign Subscribers: Any issuance of shares to foreign investors must be reported to the Reserve Bank of India (RBI) through Form FC-GPR within 30 days of allotment.
- Annual Return on Foreign Liabilities and Assets: An annual return must be filed by July 15 each year via the RBI's FLAIR system.
C. Compliances under the GST Act, 2017
Under the Goods and Services Tax (GST) regime, foreign subsidiaries must ensure compliance with tax filing and turnover reporting obligations.
Key Requirements:
- GST Registration: Foreign subsidiaries must obtain GST registration within 30 days once their turnover exceeds the prescribed threshold limits.
- Outward Supply Reporting: Monthly or quarterly GST returns (GSTR-1) must be filed by the 11th or 13th of the following month, depending on the turnover, also to file GSTR-3B return 20th of every month and pay the GST accordingly.
- Annual GST Return: Subsidiaries with an annual turnover exceeding ₹2 crores are required to file GSTR-9 by December 31 each year.
D. Compliances under the Income Tax Act, 1961
Foreign subsidiaries are subject to various tax-related obligations under the Income Tax Act, which includes compliance with tax deductions, returns filing, and transfer pricing regulations.
Key Requirements:
- Tax Deduction at Source (TDS): The company must deduct and deposit TDS on relevant payments. This is due monthly, and payments must be made by the 7th of the following month.
- Income Tax Return Filing: The company must file an annual income tax return, by October 31, depending on whether the company is subject to an audit.
- Tax Audit Requirements : If the company cross the threshold limit of 10 crore then mandatory get the tax audit to be done for that year.
- Transfer Pricing: For transactions with related parties, the company must submit a Transfer Pricing Report (Form 3CEB) by October 31 each year.
E. Compliances under Labour Laws
Compliance with India’s labour laws ensures that foreign subsidiaries meet employee welfare and statutory contribution requirements.
Key Requirements:
- Provident Fund (PF) Contributions: Monthly contributions must be made towards employees' PF, with payments due by the 15th of the following month.
- Employee State Insurance (ESI): Similar to PF, ESI contributions must be made by the 15th of each month.
- Labour Welfare Fund: Depending on the state of operation, the company may be required to file an annual return for the Labour Welfare Fund.
Conclusion
For foreign subsidiaries in India, complying with the country’s legal, financial, and regulatory framework is crucial for both operational success and legal standing. From initial incorporation to ongoing compliance obligations, these requirements must be diligently met to ensure smooth business operations. As regulations may vary depending on business nature and industry specifics, consulting legal and financial professionals is recommended to remain up-to-date and ensure full compliance. we Jain Anurag & Associates, Chartered accounts have team of professional who have rich experience to handle the compliance and advisory part of foreign subsidiary company in India so if any client have any requirements kindly connect to us.
At Jain Anurag & Associates, Chartered Accountants, we have a dedicated team of professionals with extensive experience in managing the compliance and advisory needs of foreign subsidiary companies in India. If you have any requirements or need assistance, please feel free to connect with us. We are here to support your business with expert guidance and seamless compliance solutions.
