All companies established in
India must follow the rules and regulations set up by the government. This is
in effect, regardless of whether Indian or Foreign entities or citizens own the
companies. The only difference between the two is that foreign-owned subsidiary
companies have more rules and regulations to regard compared to Indian owned
companies.
Essential Compliances
The following are the more
important compliances that have to be met by the foreign subsidiary company as
per Section 380 and 381 of the Companies Act, 2013:
- Form FC-1 under Section
380: The FC-1 form is important as the form has to be filed within thirty
days of the incorporation of the subsidiary company in India. The form is not
to be submitted alone, it must be accompanied by the required files,
certifications etc. from other regulatory bodies in India such as the RBI.
- Form FC-3 under Section
380: This form needs to be submitted to the respective Registrar of
Companies (ROC) depending upon where the company is incorporated in India. The
form must contain the details of the areas where the business is going to
conduct operations as well as the financial records of the company.
- Form FC-4 under Section 381: This
form is concerned with the annual returns of the company. It has to be filed
within sixty days from the end of the preceding financial year.
- Financial statements: The
company has to submit financial statements on its Indian business and
operations. This must be submitted within six months of the end of the
financial year. They must contain: – Statements on the transfer of funds –
Statements of earnings repatriated – Statements on related party transactions
such as statements on sales, transfer of property, purchases etc.
- Audit of accounts: All
accounts of the foreign subsidiary company must be audited by a Practising
Chartered Accountant. These accounts should be properly arranged and made
available by the company for the audit.
- Authentication and translation of
documents: All the documents that are submitted by the company to the ROC
must be validated by a practising lawyer in India. These documents also need to
be translated into English before their validation and submission.
Compliances under the Income Tax Act and the GST Act
There are three types of
compliances based on the intermittency of these compliances:
1. Periodic Compliances
Periodic compliances are
compliances that have to be met by the company on a periodic basis. Unlike
annual compliances, this type of compliance happens in regular intervals
multiple times a year. These compliances may need to be met on a quarterly or a
half-yearly basis.
2. Annual Compliances
Annual compliances are compliance
that needs to be met once every year. Every year the company has to meet these
compliances mandatorily. For example, the company has to do the following every
year: – GST filings – TDS filings under the Income Tax Act – Compliances under
RBI – Compliances under SEBI’s rules and regulations – Annual Financial
Statements
3. Event-based Compliances
As mentioned earlier, there are
three types of compliances; one of them is event-based. This means that these
compliances are only mandatory in case of a certain event or action of the
company.
There are two event-based
compliances under the RBI regulations and FEMA guidelines, they are:
- FC-TRS: This concerns the
transfer of a foreign subsidiary company’s shares between an Indian resident to a
non-resident investor or vice-versa. Such a transfer may be done by way of sale
or gift. The Foreign Direct Investment policies require that such a transaction
should be reported within sixty days from the date of the transfer. The
obligation of filing this form rests upon the Indian resident, or the investee
company as the case may be. This is regardless of whether the Indian resident
is the transferer or the transferee.
- FC-GPR: This is concerning
the remittance received by the shareholders of a foreign subsidiary company.
The form specifies the mode of transfer of the remittance by the company to its
shareholders.
Created & Posted by Pooja
Income Tax Expert at TAXAJ
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