A company must follow rules and regulations applicable or impose on it by a state of government as per the nature of the business carried, number of employees, annual turnover, type of company, etc. Every foreign subsidiary company is required to maintain compliance with the Companies Act, Income Tax act, GST Act, and Indian Contract Act, with SEBI & RBI rules.
What is a Foreign Subsidiary Company?
As per section 2(87) of the companies act, 2013 Subsidiary company is a company controlled by a holding company. If the holding company has control over more than 50% voting power of a company then the company controlled by the holding company became a subsidiary company. Hence, if a foreign company controls more than 50% voting power of a company in India then a company in India is a Foreign Subsidiary Company.
As per the Companies Act, 2013 A foreign company is a company that has been incorporated outside India but performs business operations in India. Therefore, a company incorporated in India and has performed business in India but is controlled by a foreign company called the foreign subsidiary company.
Importance of Foreign Subsidiary Company compliances
The company established in India and carried activity in India must comply with the rules and regulations set up by the government. When a person or entity earned any income in a state then should pay the tax on the income earned in the same state. Hence, foreign company subsidiaries should act in accordance with the compliances of India. In case of failure to meet the compliances result in serving penalties of fine, charges, imprisonment, etc.
Mandatory Compliances for Foreign Subsidiary Company
The following Forms are mandatory to file by a foreign subsidiary company –
Form FC-1 – As per Section 380 of the Companies Act,2013 and Rule 3 of Companies (Registration of Foreign Companies) Rules,2014, Every foreign subsidiary company shall file Form FC-1 within 30 days of the establishment of business in India to the Ministry of Corporate Affairs (MCA). The application shall also be supported with an attested copy of approval from the Reserve Bank of India (RBI) under FEMA Regulations and also from other regulators.
Form FC-3 - As per Rule 6 of Companies (Registration of Foreign Companies) Rules, 2014, Every foreign subsidiary company shall file a list of places of business in India to the Registrar along with a financial statement in Form FC-3 with prescribed fees.
Form FC-4 - As per Section 381 of the Companies Act, 2013 and Rule 7 of Companies (Registration of Foreign Companies) Rules,2014, Every foreign subsidiary company shall prepare and file within a period of 60 days from the last day of its financial year to the Registrar in annual return Form FC-4 with prescribed fees.
Financial Statement – Every company shall file a financial statement including the director report in Form AOC-4 within 30 days of AGM and shall file an Annual Return in MGT-7 within 60 days of AGM to the Registrar or in eForm at MCA Portal. Financial statement including a statement of Asset & Liabilities, statement of Income & Expenditure, statement of Related Party Transaction, etc.
Audit of Accounts – As per Rule 5 of Companies (Registration of Foreign Companies) Rules,2014, Every foreign Subsidiary company shall get its account audited in respect of Indian business operations by a practicing Chartered Accountant or LLP of a practicing Chartered Accountant.
Authentication of Translated Documents – As per Rule 10 of Companies (Registration of Foreign Companies) Rules, 2014, All the documents required to be filed with the Registrar by Foreign Subsidiary Company shall be in the English Language, where any document is not in the English Language there shall be attached a translation in the English language certified by an Advocate.
Compliances under Income Tax and GST Act
A company carried business activity in India controlled by a foreign company i.e Foreign Subsidiary Company shall compliance with Income Tax Act, 1961 and Goods & Service Tax,2017-
ITR 6 – As per section 139 of the Income Tax Act, 1961 A foreign Subsidiary Company shall file an annual return of its income in Form ITR – 6 before the due date i.e 31st October of the relevant assessment year. For the Financial year 2021-22 and Assessment year 2022-23 a company must file its income tax return by 31st October 2022.
GSTR-1 - Form GSTR-1 is a monthly or quarterly Statement of Outward Supplies that summarizes all sales of taxpayers. Form GSTR-1 needs to be filed even if there is no business activity (Nil Return) in the tax period.
GSTR- 3B – As per section 39 of the CGST Act and rule 61 of CGST Rules Form GSTR-3B is a simplified summary return that contains a summary of sales, Input Tax Credit (ITC) claimed, details of paid taxes, etc. GSTR-3B is required to file monthly by the 20th day of the succeeding month. It is a mandatory form for every company even if there is no business activity in the tax period.
GSTR- 9 – Return GSTR-9 is to be filed once for each financial year, by the registered taxpayers who were regular taxpayers. The taxpayers are required to furnish details of purchases, sales, input tax credit or refund claimed or demand created, etc. in this return.
Conclusion
To operate a business an entity must comply with the rules and regulations made by the government of the state in which it carries a business. To comply with the regulations an entity has to file many returns under different compliances or to follow the guidelines of the regulating authority like RBI or FEMA etc.
eStartIndia will help you with Annual Compliances for Foreign Subsidiaries from the comfort of your home.
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