What is a Foreign Subsidiary Company?
When a Company is Incorporated in another country where the company owns 50% equity shares or more than 50% equity shares, it is known as a Foreign Subsidiary Company. Then the Foreign Company is known as the Holding Company or Parent Company.
It is important for a company that wants to be considered as a Foreign Subsidiary Company to bemused incorporated in India also. Even though in which country was the parent company incorporated?
The Compliance of the Company depends upon various factors such as the type of industry, type of company, what is annual turnover and the no. of employees. Under Section 2(42) of the Companies Act, 2013 a foreign company is defined as a foreign company that must follow all the regulations from multiple statutes including:
Companies Act, 2013
Income Tax Act, 1961
FEMA (Foreign Exchange Management Act), 1999
RBI Compliances, etc.
GST, 2017
SEBI Rules and Regulations
Foreign Subsidiary Company Compliance in India
Foreign Exchange Management Act (FEMA): FEMA requirements are crucial as FEMA regulates the inflow and outflow of foreign currency in India and makes rules regarding foreign investments.
Tax Laws: Foreign subsidiaries must follow the Indian tax laws which include Central Goods and Service Tax Acts, 2017 (GST), Corporate Tax, Professional Tax etc.
Labour Laws: Indian Labour law compliance is necessary which covers aspects like minimum wathe working hours, employees etc.
Company Law: Follow Indian Company Law which includes the Companies Act, 2013, and other related nuthatch govern the incorporation and closure of companies.
Environmental Regulations: Compliance with Indian Environmental regulations is necessary which state the rules of air and water pollution, waste management and protection of wildlife.
Indian Intellectual Property Laws
Foreign Direct Investment (FDI) Policy
India's Goods and Services Tax
What is the mandatory Registration for a Foreign Subsidiary in India?
The mandatory registrations generally required for foreign subsidiary companies Falling Under the Companies Act, 2013 are as follows:
1. Incorporation/Registration with the Registrar of Companies (ROC): You have to register your Foreign Subsidiary under the provisions of Chapter XXI Part I and II of the Companies Act, 2013 which will ensure that you are abiding by this law.
2. PAN for Tax: For purposes in India PAN registration just must be the nature of your foreign subsidiary.
3. Getting a Tax Deduction and Collection Account Number (TAN): TAN is necessary to deduct taxes at source while remitting it which helps you avoid any penalties.
4. GST Registration: Should get registered in case of an Indian company, when its foreign subsidiary reaches the threshold limit.
5. Import-Export Code (IEC): Obtaining an IEC from the DHFT (Directorate General of Foreign Trade) is mandatory
6. Other Industry-Specific Registrations: If there Is any other industry of operation, there might be specific registrations or licenses required. For example:
Regulatory approvals from sector-specific regulatory bodies.
Environmental clearances from relevant authorities.
Any specific licenses or permits required for the business activity.
8. Employer Registrations: Registering with relevant authorities for:
Employee Provident Fund Organization (EPFO)
Employees’ State Insurance Corporation (ESIC)
Professional tax registration, if applicable.
Penalty for Non – Non-Compliance Foreign Subsidiary Company
For Non- Non-Compliance by a Foreign Subsidiary Company in India, the penalties depend on various factors such as the nature and severity of non-compliance. Some penalties are:
1. Monetary Penalties: The Penalties and fines will imposed by the regulatory authorities for various compliance like:
Late Filing with the Registrar of Companies (ROC) of Statutory documents.
Upon failure of following the tax laws which includes late payment or non-payment of taxes.
Under FEMA if the company violates the regulations of foreign exchange
Non-compliance with the GST regulations.
2. Legal Actions Against Directors: Fines and disqualifications be faced by the Directors of the Company as a legal action.
3. Suspension or Cancellation of Registrations/Licenses: Authorities may if there is non-compliance cancel or suspend the registrations, licenses or any approval obtained by the subsidiary.
4. Injunctions: Injunctions can be granted by the courts whrestrainains the compfrom for doing certain activities until compliancefiledfile.
5. Criminal Liability: Criminal proceedings can also be initiated in severe cases of non-compliance or fraud, which may be initiated against the company and its officers which may lead to imprisonment or any fines.
7. Blacklisting: There are chances that the Non- Compliance Company may be blacklisted which restricts them to conduct business in India.
Conclusion
Compliance is necessary for a foreign subsidiary Company that is operating in India. If there is non-compliance by the companies they may impose fines and penalties and to avoid the penalties and fines the companies must ensure that they do compliance for smooth business operations.
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