Expanding your business into India? Setting up a foreign
company in India—especially as a Private Limited Company (Pvt Ltd)—comes
with specific legal, tax, and regulatory obligations. Here’s a comprehensive
list of the most important points to keep in mind when incorporating a
foreign subsidiary in India.
1. Mandatory Requirement: Appoint a Resident Director
As per the Companies Act, 2013, every Indian Private
Limited Company must have at least one resident director. A resident
director is someone who has stayed in India for 182 days or more in
the previous financial year. This is a mandatory requirement for company
incorporation.
Keywords: resident director in India, foreign company
registration, private limited company compliance
2. File Form FLA to RBI Annually
If your Indian subsidiary has received foreign direct
investment (FDI) or share capital from its overseas holding company,
it's mandatory to file Form FLA (Foreign Liabilities and Assets) with
the Reserve Bank of India (RBI) by 15th July each year. This
filing discloses foreign assets and liabilities.
Keywords: Form FLA RBI, foreign investment in India,
FDI compliance India
3. Conduct Board Meetings via Video Conference
Indian companies must hold a minimum of four board
meetings annually, with at least one meeting every 120 days. If
foreign directors are part of the board, these meetings can be held via video
conferencing. Ensure that the recordings are archived for audit or
regulatory use.
Keywords: board meeting compliance, video
conferencing for board meetings, foreign directors India
4. File Form 61A (SFT) if Raising Capital Above ₹10 Lakhs
If your company raises share capital exceeding ₹10 lakhs
during a financial year, you must file Form 61A (Statement of Financial
Transactions - SFT) by 30th May of the following year.
Keywords: Form 61A filing, SFT compliance India,
capital raise reporting India
5. Obtain Foreign Inward Remittance Certificate (FIRC)
Upon receiving foreign funds as share capital, the Indian
subsidiary must obtain a Foreign Inward Remittance Certificate (FIRC)
from the bank. The purpose code for share capital should be correctly
mentioned in the certificate.
Keywords: FIRC for share capital, foreign remittance
compliance India, FDI bank certificate
6. Draft a Detailed Agreement Between Holding and
Subsidiary Company
Ensure a clear contract or inter-company agreement is
signed between the foreign holding company and the Indian subsidiary.
The agreement should outline products/services exchanged, commercial
terms, and payment structure to comply with Indian tax laws and
avoid disputes.
Keywords: holding-subsidiary agreement India,
intercompany contract India, foreign subsidiary legal compliance
7. Analyse Permanent Establishment (PE) Risk in India
Foreign companies must evaluate whether their operations in
India could constitute a Permanent Establishment (PE). PE can arise
from:
- A
physical presence (office, branch, etc.)
- A
digital presence (e.g., servers or platforms)
- A
dependent agent
If a PE is established, the foreign company may be taxed in
India at 35%. It is essential to conduct a PE risk analysis
before starting operations.
Keywords: Permanent Establishment India, PE taxation,
digital PE in India
8. Tax Implications on Share Issuance: Section 56(2)(x)
When issuing shares to the foreign holding company, always conduct
a valuation and issue shares at or above Fair Market Value (FMV). If
shares are issued below FMV, the difference is taxable under Section
56(2)(x) as "Income from Other Sources" at a rate of 30%
in India.
Keywords: Section 56(2)(x), share valuation India,
taxation on share issue India
9. Prepare a Transfer Pricing Report & File Form 3CEB
All international transactions between the holding
company and the Indian subsidiary must comply with Transfer Pricing regulations.
A Transfer Pricing Study Report should be prepared using the most appropriate
method to determine the Arm’s Length Price.
Additionally, Form 3CEB must be filed by 30th
November of the assessment year.
Keywords: transfer pricing India, Form 3CEB filing,
arm's length transaction India
Final Thoughts
Setting up a foreign-owned private limited company in India can be a strategic move, but it demands strict adherence to Indian regulatory frameworks. From appointing a resident director to managing PE risks and filing RBI forms, each step must be handled with precision. It’s highly recommended to consult a corporate legal or tax advisor with cross-border experience to ensure complete compliance.
