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FOREIGN SUBSIDIARY

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Major Compliance for Foreign Subsidiary

India is a preferred destination for investment from NRIs, Foreign Nationals and Foreign Companies due to its booming economy and wealth of resources. Generally foreign Companies incorporate Private limited Company in India.
Foreign subsidiary companies are mandatorily required to maintain compliance as per Income Tax Act, Companies Act, transfer pricing guidelines and FEMA guidelines. Hence, maintaining compliance for a foreign subsidiary company would includes filing of income tax return with the Income Tax Department, annual return with the Ministry of Corporate Affairs and other filings with authorities like Reserve Bank of India or Securities & Exchange Board of India (SEBI). Finally, like all companies, foreign subsidiaries would also have to comply with other Indian tax regulations like TDS regulations, GST regulations, VAT / CST regulations, Service Tax regulations, ESI regulations and others. The compliance requirement for a foreign subsidiary company would vary based on the industry, state of incorporation, number of employees and sales turnover.
Foreign investment into India is at an all-time high and is pegged to grow even higher with regulatory reforms and an investor friendly climate. In this context, we look at the process and procedure for a NRI or Foreign National or Foreign Company to invest or start, manage and grow a business in India.

Significant Compliances for a Foreign Subsidiary Company

GST Filing
Under the GST administration proposed to be taken off in 2017, one individual organization having GST enrolment would be required to record month to month, quarterly and yearly GST returns.
ESI Return
ESI return must be documented by every one of the one individual organizations having ESI enrolment. ESI enrolment is required once the one individual organization utilizes more than 10 representatives.
TDS Filing
Quarterly TDS returns must be recorded by one individual organizations that have TAN and are required to deduct assess at source according to TDS rules.
Service Tax or VAT
On the off chance that a one individual organization has benefit assessment or VAT enlistment, it must document the separate returns. Administration government forms are expected half-yearly while VAT return due date changes from state to state.

Tax Audit for Foreign Subsidiary

Foreign Representation Entities
For annual compliance, foreign representation entities are required to file the following:

  • Audited balance sheet
  • Profit and loss accounts
  • Director's report
  • Statutory auditors' report
  • Annual account of holding company
  • List of places of business in India

Liaison office(s) that are not engaged in any trading, manufacturing or other commercial activities in India are (with approval of the Reserve Bank of India that is valid up to the end of the relevant accounting year) only required to file Indian business accounts, along with:

  • A copy of an approval letter issued by the Reserve Bank of India, valid up to the end of the relevant accounting year
  • Statement of receipts of payments made by the Indian branches of the company
  • A statement of the company’s assets and liabilities in India
  • A certificate that the company did not carry out any trading, manufacturing or commercial activity or undertake any invoicing of goods in India

All statements must be verified by an authorized representative of the foreign office and a chartered accountant practicing in India.

These documents must be submitted to the Registrar of Companies within nine months from the end of the financial year of the entity.

Guidelines for the annual accounts are as follows:

Filing accounts

  • Annual accounts must be filed with the office of the concerned ROC within 30 days after the AGM. If an AGM is not held, then accounts should be filed within 30 days of the last date on which the AGM was required to be held.
  • Accounts must relate to a financial year, comprising 12 months and not exceeding 15 months. The company can obtain prior permission from the ROC for an extension of the accounting period to the extent of 18 months. Submissions to the ROC must be accompanied by forms 23 AC and 23 ACA.
  • Annual accounts must cover a period ending no more than six months ahead of the AGM, except for the first annual accounts of a newly incorporated company, which should cover a period ending no more than nine months ahead of the AGM.

Required forms for ROC filings

  • Balance sheet: e-form 23 AC
  • Profits and loss account: e-form 23 ACA
  • Annual return: e-form 20 B for companies with share capital and e-form 21 A for companies without share capital
  • Annual compliance certificate: Form 66 to be filed by companies with paid up capital between INR1 million and INR20 million

Appointing auditors

  • Auditors are appointed by the Board of Directors
  • The appointed auditor must be a chartered accountant
  • She or he may not be an employee or partner of the company, hold security of the company, or be indebted to it
  • The auditor is always appointed from one AGM to another by the shareholders, except for the first auditor, who is responsible from start of business until the first AGM
  • Auditors shall have right of access at all times to the books, accounts and vouchers of the company

Audits

  • The Income Tax Act stipulates that every person carrying out a business or profession in India is required to get their accounts audited by a chartered accountant. Applicability varies according to type of work.
  • Foreign representation entities – liaison offices, branch offices and project offices – have a legally limited scope of activity and as a result, their compliance requirements are significantly different from those for Indian setup entities.
  • An audit becomes applicable when income exceeds INR10 million for companies dealing in trade and manufacturing of goods (“business”) and INR1.5 million for companies dealing in services (“profession”).
  • The income tax audit is applicable to companies privileged to tax on a presumptive basis only if they claim their tax to be lower than that presumed. The audit generally focuses on disallowances and non-compliance under the Income Tax Act.
  • Indian law also specifies a number of audits that are limited to specific business types. These apply to, but are not limited to manufacturing, trading and service activities.

How we can help foreign subsidiary company compliances?

Annual Return Preparation
Our Compliance Expert will prepare the Annual Return for your Company based on the financials and performance during the previous financial year.

Annual Return Verification
Once the Annual Return is prepared in the requisite format, the Client's Finance Team can verify the prepared annual return and affix the digital signature.

Filing
Once the Annual Return is prepared and verified, the Annual Return can be filed with the Ministry of Corporate Affairs along with the necessary attachments.