Incorporating a Foreign Company's Subsidiary in India: A Guide for Each Step

With more and more foreign companies looking to enter the Indian market, setting up a foreign subsidiary in India is becoming a popular option. Subsidiary merger allows the foreign company to operate in India while maintaining a separate legal entity from the parent company. This structure can offer advantages such as limited liability protection and the ability to raise capital locally.

However, setting up a branch of a foreign company in India can be difficult and time consuming. In this article, we provide a detailed guide to help foreign companies navigate the process and successfully set up a branch in India.

Contents

Step 1: Choosing the Right Business Structure

Step 2: Obtain Reserve Bank of India (RBI) Approval

Step 3: Register the Branch with the Ministry of Corporate Affairs (MCA)

Step

: Obtain All Necessary Licenses and Permits

Step 5: Compliance with Indian Tax Laws

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STEP 1: CHOOSE THE RIGHT BUSINESS STRUCTURE

The first step in setting up a subsidiary in India is to choose the right business structure. The most common business structures for foreign companies in India are:

Limited Company: This is the most popular business structure for foreign companies in India. It offers limited liability protection for shareholders and is easy to install and use.

Joint Stock Company: This structure is suitable for large companies with a large shareholder base. It offers limited liability protection to shareholders and is more difficult to set up and use.

STEP 2: RESERVE BANK OF INDIA (RBI) APPROVAL

Before a foreign company can establish a branch in India, it must obtain approval from the Reserve Bank of India (RBI). RBI has specific guidelines for foreign investment in India and approval depends on the industry in which the subsidiary operates.

STEP 3: REGISTRATION OF THE BRANCH COMPANY WITH THE MINISTRY OF CORPORATE AFFAIRS (MCA)

Once the foreign company has received approval from the RBI, it can register the subsidiary with the Ministry of Corporate Affairs (MCA). The MCA is a government agency responsible for regulating corporate affairs in India.

To register a subsidiary with the MCA, the foreign company must submit the necessary documents and pay the required fees. Required documents depend on the business structure chosen and may include:

Memorandum of Association (MOA)

Articles of Incorporation (AOA)

Form INC-7 (Declaration of Subsidiary Status)

Form INC-22 (Active Business) Persons and Verification)

STEP

: OBTAIN ALL NECESSARY LICENSES AND PERMITS

After the subsidiary is registered with the MCA, the foreign company must obtain all necessary licenses and permits to operate in India. This may include:

Business Permits

Environmental Permits

Import/Export Permits

Work Permits

STEP 5: COMPLY WITH INDIAN TAX LAWS

Establishing a subsidiary in India also requires compliance with Indian tax laws. A foreign company must register for taxes such as corporate income tax, value added tax (VAT) and goods and services (GST). It is recommended to consult a professional tax advisor to ensure compliance with Indian tax laws.

In conclusion, setting up a subsidiary of a foreign company in India can be a difficult process, but it can offer many advantages to foreign companies looking to enter the Indian market. By following the steps described above and seeking help from professionals, foreign companies can successfully set up a branch in India.

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