A foreign subsidiary is a legal entity that is separate and distinct from its parent company and is treated as a local business in the country in which it is established.
When it comes to India, the foreign subsidiary is incorporated in India under the Indian Companies Act, 2013 and is owned either wholly or partially by a foreign parent company. It is also subject to Indian taxation laws and regulations.
Three main reasons why a foreign subsidiary should be established in India are as follows:
1. Access to a Huge Domestic Market: India is one of the fastest-growing economies in the world and is home to over 1.3 billion people. This provides foreign companies with an immense opportunity to expand their operations in the country and tap into the growing demand for products and services. By establishing a foreign subsidiary in India, companies can easily access this large and lucrative domestic market.
2. Favourable Tax Regime: India has a favourable tax regime that allows foreign companies to benefit from various tax incentives. These incentives include higher depreciation rates on capital investments, lower corporate tax rates, and exemptions from customs duty on imports. Furthermore, foreign companies can also avail of double taxation avoidance treaties with various countries, which allow them to pay reduced taxes.
3. Easy Access to Skilled Labour: India is home to a large pool of highly-skilled professionals who can provide companies with the necessary resources to meet their operational needs. Companies can also easily access a wide range of skilled labour, including engineers, accountants, and IT professionals. This makes it easier for foreign companies to set up operations in India and take advantage of the skilled labor force.
These are just some of the reasons why companies should consider establishing a foreign subsidiary in India. By doing so, they can easily access the country’s huge domestic market, benefit from the favourable tax regime, and access a wide range of skilled labor.
How To Establish A Foreign Subsidiary In India
Setting up a foreign subsidiary in India is a complex process and involves a variety of legal and regulatory considerations. This article will provide an overview of the steps required for establishing a foreign subsidiary in India, as well as some tips for making the process smoother.
1. The first step is to decide on the type of legal structure your foreign subsidiary should take. The most commonly used structures for foreign subsidiaries in India are either a branch office or a wholly-owned subsidiary company. A branch office is typically easier and less expensive to set up, but it may be subject to greater scrutiny from the Indian government. A wholly-owned subsidiary, on the other hand, has more autonomy, but it requires more paperwork and is more costly.
2. Once you’ve decided on a business structure, you’ll need to obtain the necessary licenses and approvals from the Indian government. This process will vary depending on the type of business you’re running, but typically includes obtaining foreign direct investment clearance, registering with the Reserve Bank of India (RBI), and obtaining any other relevant licenses or permits.
3. Once you’ve obtained the necessary licenses, you’ll need to register your foreign subsidiary with the local state government. This typically involves the submission of documents such as the Memorandum of Association, Articles of Association, and a copy of the certificate of incorporation.
4. Once your foreign subsidiary is registered and licensed, you’ll need to begin the process of hiring employees. This typically involves recruiting and interviewing potential hires, and then obtaining the necessary work permits for them.
5. Your foreign subsidiary in India will also need to register for taxes with the Indian government. This typically involves filing documentation such as the company’s Income Tax Return, Value Added Tax (VAT) return, and Goods and Services Tax (GST) return.
By following these steps, you’ll be on your way to establishing a successful foreign subsidiary in India. While the process may seem intimidating at first, with the right resources and guidance, you can make the process much smoother and ensure your foreign subsidiary is set up for success.