All companies based in India must follow the rules and regulations set by the government. This applies regardless of whether the companies are owned by Indian or foreign companies or citizens. The only difference between the two is that foreign subsidiaries have more rules and regulations than Indian companies.
• What is a foreign subsidiary?
• Essential compliance
• Compliance with tax law and GST law
• Importance of respecting compliance
1. What is a Foreign Subsidiary Company?
A Foreign Subsidiary Company is a company in which 50% or more of its shares are owned by a company registered in another foreign country. In such a case, the foreign company in question is called the parent company or parent company.
For a company to be a Foreign Subsidiary Company in India, the company itself must be registered in India. It does not matter in which country the parent company is registered.
Compliance is based on many aspects of the business. Understand what compliances need to be met based on the type of business, industry, annual turnover, and a number of employees. A foreign company is defined in section 2 (42) of the Companies Act 2013. Such business must follow the rules and regulations set forth in various laws and ordinances, such as:
Companies Law of 2013
Income Tax Act of 1961
TPS, 2017
Rules and regulations of SEBI
FEMA (Foreign Exchange Management Act), 1999
RBI compliance, etc.
2. Essentials Compliances
These are the main compliances that the foreign subsidiary must comply with by virtue of articles 380 and 381 of the 2013 Companies Act:
• Form FC-1 under Section 380: Form FC-1 is important since the form must be submitted within 30 days of the incorporation of the branch in India. The form does not have to be submitted alone, but must be accompanied by the required files, certifications, etc. other supervisory authorities in India like the RBI.
• Form FC-3 as per Section 380: This form must be submitted to the relevant Registrar of Companies (ROC) according to where the company is incorporated in India. The form should include details of the areas in which the business will operate and the company's financial records.
• Form FC-4, Section 381: This form is for the company's annual income. It must be filed within sixty days of the end of the previous fiscal year.
• Financial Statements: the company must provide annual accounts of its activities and operations in India. This must be submitted within six months after the end of the fiscal year. They must contain:
Explanations of the money transfer
Income statement returned
Declarations on transactions with related parties, such as declarations on sales, property transfers, purchases, etc.
• Audit of Accounts: All audits of the foreign subsidiary must be audited by a practicing auditor. These accounts must be properly organized and available by the company for review.
• Authentication and Translation of Documents: All documents submitted by the ROC company must be validated by a lawyer practicing in India. These documents must also be translated into English before being validated and sent.
3. Compliance with the Income Tax Law and the GST Law
There are three types of conformities that are based on the interruption of these conformities:
1. Periodic compliances: Periodic compliances are conformities that must be periodically observed by the company. Unlike annual compliances, this type of compliance takes place several times a year at regular intervals. These compliances may need to be observed quarterly or semi-annually.
Annual compliance: Annual compliance is compliance that must be observed once a year. The company must comply with these conformities every year. For example, each year the company must do the following:
GST Presentation
TDS deposits under the Income Tax Law
Compliance under RBI
Compliance with SEBI rules and regulations
Annual accounts
3. Event-based compliance: As mentioned above, there are three types of compliance. One of them is event-based. This means that these conformities are only binding in the case of a certain event or a certain action of the company. There are two event-based compliances under RBI regulations and FEMA guidelines:
FC-TRS: This is the transfer of shares of foreign subsidiaries from an Indian resident investor to a non-Indian resident investor or vice versa. This transfer can be made by sale or donation. Foreign direct investment guidelines require such a transaction to be reported within sixty days of the date of the transfer. The obligation to submit this form rests with the India based investment company or firm. This regardless of whether the Indian resident is the transferor or the buyer.
FC-GPR: It is the transfer received by the shareholders of a foreign subsidiary. The form specifies the type of transfer of the company to its shareholders.
4. Importance of respecting compliance
A Foreign Subsidiary Company must comply with any compliance, as it can have serious consequences if it does not do so. Failure to comply with the required compliance may result in fines and penalties for the Company, and may also result in criminal prosecution with imprisonment in accordance with the relevant provisions of applicable law. The following sanctions can be imposed on a company for failure to comply:
- In accordance with article 392 of the 2013 Companies Act (entered into force on April 1, 2014):
1. Notwithstanding any provision of article 391, if it turns out that a foreign company has violated the provisions of Chapter XXII of the law, the company will be sanctioned with a fine of at least Rs 1 lakh and up to '1 lakh. Rs 3 lakh. If the violation continues, a fine of Rs 50,000 is added for each day the violation continues.
2. Any senior executive of a foreign company in default will be punished with a prison sentence of up to 6 months and/or a fine of at least Rs 25,000, up to Rs 5 lakh.
It is important for a company to meet all compliance requirements to ensure that it can carry out business operations without interference from authorities.
Connect with the team CORPSEED to discuss specific requirements for your business at IVR: +91 7558 640 644 or hello@corpseed.com. It takes 20-25 minutes to discuss requirements.
Comments