Compliance for Foreign Subsidiary Companies in India

Types of Compliances for Foreign Subsidiary Companies

in India

Many foreign companies have entered India with increasing globalization and liberalization to expand their business portfolio and diversify.

All companies that have been established and set up in India, whether Indian or international, must follow the laws and rules enacted by the government.

The difference is that the compliance requirements expected of a foreign subsidiary company in India are significantly greater than those required of an Indian entity.

Compliance for Foreign Subsidiary Companies in India

A foreign corporation is defined in Section 2(42) of the Companies Act, 2013.

“Foreign company” means any corporation or body corporate formed outside of India that:

• Has a place of business in India, whether directly or through an agent, physically or electronically; and
• Conducts any business activity in India in any other way.”

Compliance a Foreign Subsidiary Company :

There are three primary forms of time-based compliances, according to the regulated norms, rules, and statutes. The following are the types of compliances that must be met by a foreign subsidiary firm based on their intermittency:

1. Annual Compliances: 

   These are the compliances that must be done on an annual or yearly basis for foreign subsidiary enterprises. The corporation must comply with the rules at least once every financial year.

2. Whatever form of the foreign company it is, whether it is a wholly-owned subsidiary company or a partially-owned subsidiary company, these annual compliances must be completed every year.

• • Reserve Bank of India compliance for foreign subsidiaries (RBI).
  • SEBI (Securities Exchange Board of India) laws and regulations are followed.
  • FEMA-mandated compliance (Foreign Exchange Management Act).
  • Tax Deducted at Source (TDS) returns must be filed in accordance with the Income Tax Act.
  • Compliance with regulations governing ESI and EPF.
  • The following statements are included in the annual financial statements.
  • Transfer of funds
  • Earnings and revenue that have been repatriated.
  • Transactions involving parties, such as sales, property transfers, and acquisitions.
  • GST (Goods and Services Tax) is a type of tax that is levied on goods and services.
  • For a foreign subsidiary, compliance also entails timely filing of the following forms:
  • FC-1
  • FC-3
  • FC-4

 

2. Event-based:

Compliance requirements for a foreign subsidiary include: Event-based compliance is another sort of compliance for a foreign subsidiary. This means that the corporation must comply with such regulations, particularly when doing certain activities or at significant events. There are two event-based compliances for foreign enterprises, according to RBI regulations and guidelines and the Foreign Exchange Management Act (FEMA) are as follows:

• Form FC-TRS: 

  When shares of a foreign subsidiary firm are transferred from an Indian resident to a non-resident investor and vice versa, this form must be filled. Such transfers are possible through a sale or a gift.

• Foreign Direct Investment (FDI) policies demand that such transactions or transfers be reported within 60 days of the transaction date. It should be noted that the obligation to file Form FC-TRS as compliance for a foreign subsidiary, as the case may be, is entirely on the Indian resident or company investee. It makes no difference whether the Indian resident is a transferor or a transferee.
• FC-GPR Form: This form relates to the remittances or payments received by the shareholders of the foreign subsidiary company. It must be filed in order to specify the manner in which such transfers were made by the company.

• Periodic Compliances:

  These are the compliances that must be completed on a regular basis for a foreign subsidiary. These compliances, unlike yearly compliances, have to be performed at regular intervals throughout the year. These can be done on a monthly, quarterly, or half-yearly basis, depending on the needs.

The importance of complying with the regulations for a foreign subsidiary:

All of the above-mentioned compliances for foreign subsidiaries must be met regardless of when they occur. If the company fails to meet them, harsh consequences like as penalties, interest, and other forms of punishment may be imposed.

If the noncompliance is substantial, the company may be subject to criminal charges and accusations under applicable legislation.

The penalties for non-compliance for the foreign subsidiary are outlined in Section 392 of the Companies Act, 2013. According to the clause, which took effect from April 1, 2014.

“392. Punishment for contravention:  Without prejudice to the provisions of section 391, if a foreign company violates the provisions of this Chapter, the foreign company shall be punished with a fine of not less than one lakh rupees but not less than three lakh rupees, and in the case of a continuing offense, with an additional fine of fifty thousand rupees for each day after the first during which the foreign company violated the provisions of this Chapter.”

Section 392 and the penalties it applies for failing to comply with compliance requirements for foreign corporations can be explained as follows.

• If the foreign subsidiary company is found guilty of violating any of the provisions of Chapter XXII of the Companies Act, 2013, the firm can be fined or penalized up to Rs. 1 lakh, despite anything indicated in Section 391 of the Act.
• This penalty can be increased up to Rs. 3 lakh depending on the severity of the failure to meet the compliances for the foreign subsidiary. If the company continues to violate the regulations, a penalty of Rs. 50,000 per day is levied up to the date of the non-continuation.
• Each and every officer in default of the foreign subsidiary company is charged with imprisonment for a period of not more than 6 months or a fine of Rs. 25000, which is extendable up to Rs. 5 Lakh.

As a result, it is critical to comply with all regulatory requirements for both the foreign subsidiary and the parent company in order to continue operating without interruption from regulatory organizations or authorities.

Foreign Company Compliance list :

The Companies (Registration of Foreign Companies) Rules, 2014, which give standards for foreign company registration in India, regulate the incorporation of a business in India by a foreign business.

Foreign Company Compliance:

Compliance requirements for wholly-owned subsidiaries and other provisions were explored in other articles. we will go over the other important compliance and requirements for such businesses.

Types of compliance for a subsidiary company:

The following are the other types of compliance for the subsidiary company in India.

Particulars concerning with directors & Secretary:

A foreign company must provide the Registrar of Companies with all information about its directors and secretary (ROC). While fulfilling this compliance for a foreign company, the following points must be kept in mind.

• • The international company must provide all the information set out in Section 380(1) of the Company Act, 2013 and the list and specifics of all directors and secretaries in the company within thirty days of registration or incorporation of a business and its registered place of business in India with the Registrar of Corporations, 2013 (ROC).
  • The list of directors and secretaries must include all of the required information for each and every person on the list.
  • Within thirty days after registering its place of business, every foreign firm must complete Form FC-1 with the registrar. According to the Companies (Registration Offices and Fees) Rules, 2014, such form must be filed along with the prescribed fees.
  • In addition, the company is required to provide documents for a company registered under Section 380(1) of the Companies Act, 2013, which must be supported by an attested approval copy from the Reserve Bank of India under the Foreign Exchange Management Act (FEMA) and other regulatory bodies for approving the company’s place of business.
  • If a declaration is provided by an authorized representative of the foreign company, no approval is required.
  • In the event of any alteration in the documents submitted to the Registrar of Company (ROC), the foreign company shall file Form FC-2 with the fees prescribed in the Companies (Registry Offices and Fees) Rules of 2014 in accordance with Section 380(1.) of the Act.
  • For all details and details relating to the modification, the form must be submitted. Within thirty days of the date of such modification or occurrence, the foreign firm must comply with the foregoing.

The foreign company’s financial statements:

For the purpose of foreign company compliance, it must prepare for each financial year financial statements for the business operations in accordance with Schedule III of the Act. The following items must be included in the company’s financial statements to ensure compliance for a foreign company:

• • All documents must be attached in accordance with Chapter IX of the Companies (Accounts) Rules.
  • In accordance with the provisions and regulations formulated in the host country, the parent or holding company must submit the most recent copies of the consolidated financial statements to the relevant authority or bodies. If the documents are not in English, the company must submit a certified translated copy of the English documents.
  • According to Section 380(2) of the Companies Act of 2013, such translated certified copy must be provided.
  • The following documents attached to the financial statements shall be filed, as part of their compliance with the foreign company –
  • Profit repatriation statement.
  • Statements of related parties to transactions.
  • Statements concerning funds transfers between a foreign company and other related parties outside India.
  • In six months from the last date of the preceding financial year, all documents referred to above and other related documents shall be submitted to the ROC.
  • The time limit to present such documents may, for any special reasons described in the request made by the foreign company in written format, be extended to three months and not more than that of the ROC.

Foreign company account audit: 

They must have their accounts audited at regular intervals following registration for foreign companies in India. In accordance with Section 381(1) and Rule 4 of the Company Act, all foreign companies incorporated in India must have their accounts audited by a practicing Indian Chartered Accountant or by a Chartered Accountant firm.

Foreign company’s place of business:

All foreign companies are required to file details, in FC3 form, concerning the company’s entire place of business and locations in India until the date of the preparation of their balance sheet. It is important compliance for foreign companies that must be met in order to avoid penalties.

Filing of Annual Returns:

The foreign company must file annual returns with the registrar using Form FC-4. This must be filed within sixty days of the fiscal year’s end. To complete this compliance for a foreign company, the prescribed fees must be submitted along with the form.

Documents in a foreign company’s prospectus :

The following documents must be annexed or attached to the company's prospectus:

1. 1. An expert’s approval is required for the prospectus to be published.
   2. A copy of the underwriting agreement.
   3. Copy of the managing director and the company managers’ appointment contracts. In the event of a written contract not being entered into, full details and details on the memorandum shall comply with the foreign company.
   4. A copy of the powers of the prospectus should be provided if the prospectus is signed by the authorized officer of the director.
   5. Copy of the material contracts entered into in the last two years but not in the normal course of the business.

 

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