Today, we are in an ever changing world with new nicks-trends each day, and to survive here you need to be Pacey with the norms, and we guarantee you this. There are various compliance which are required to be followed once your business is incorporated. We have elaborated below some of the common compliance's which a Company has to mandatorily ensure:
Introduction
A foreign subsidiary company is "a company incorporated outside India and is either controlled by a resident entity in India or has more than 50% of its share capital owned by a resident entity in India, and the foreign entity assumes the role of a holding or parent company. The regulatory compliance requirements applicable to such companies depend on various factors, such as the nature of the business, industry-specific regulations, annual turnover, number of employees, and other relevant criteria. Therefore, it is imperative to understand the specific compliance obligations applicable to a company based on its individual characteristics.
Foreign subsidiary companies in India must comply with various legal and regulatory requirements as it ensures that they operate within the legal framework of the country and avoid any legal or regulatory penalties. The compliances for foreign subsidiary companies in India under the legal framework are in adherence to provisions of the Income Tax Act, Companies Act, Transfer Pricing Guidelines, and Foreign Exchange Management Act (FEMA) guidelines. These compliances for foreign subsidiary companies in India entail fulfilling statutory requirements such as income tax filing with the relevant income tax department, filing annual returns with the Ministry of Corporate Affairs, and other necessary filings with regulatory authorities such as the Reserve Bank of India or Securities and Exchange Board of India (SEBI).
Adopting Rubber Stamp, letter heads, Stamps, Name Board, Sign Board, minutes sheets, Binders etc. and affix Board outside the Registered office as per Sec- 12(3)(c).
Receipt of share subscription amount
Submission of 'Commencement of Business Form' with RBI/ MCA
Appointment of Auditor and related filling of documents with MCA
Creation of "Entity User" and "Business User" with RBI
Allotment of Shares to subscriber and Issue of share certificates
Facilitate payment of relevant stamp duty for issuance of share certificate
Issuance of Company Secretary Certificate under FEMA
Submission of Form FCGPR with RBI and related formalities like FIRC issuance, etc
Annual Recurring Compliances
Filing of FLA Returns by 15th July each year: FLA Return is required to be filed by the following entities which have received FDI and/or ODI in the previous year(s) including the current year i.e. who holds foreign assets or/and liabilities in their balance sheets: A Company within the meaning of section 1(4) of the Companies Act, 2013
Transfer Pricing Regulations: Transfer pricing regulations in India require that transactions between a foreign subsidiary company and its related parties (including the parent company) be conducted on an arm's length basis. If the transaction is not conducted on an arm's length basis, the Indian tax authorities can adjust the prices and tax the subsidiary company accordingly.
Goods and Services Tax (GST): Foreign subsidiary companies that are engaged in the supply of goods or services in India are required to register for GST.
Income Tax: Foreign subsidiary companies are required to pay income tax on their profits earned in India. The tax rate for foreign companies is 40%, plus a surcharge and education cess. Additionally, foreign companies are subject to withholding tax on various payments made to them by Indian residents, such as dividends, interest, and royalties.
Employment & Labour Laws: Foreign subsidiary companies operating in India are required to comply with various employment and labour laws that govern the rights and obligations of employers and employees. These are as follows:
Minimum Wages: The Minimum Wages Act, 1948, sets out the minimum wage rates that must be paid to employees engaged in various industries and occupations. Employers are required to pay their employees at least the minimum wage rates specified by the state or central government, whichever is higher.
Employee Benefits: The Employees' Provident Funds and Miscellaneous Provisions Act, 1952, requires employers to contribute a percentage of their employees' salary to the Employees' Provident Fund (EPF) and other social security schemes. Employers are also required to provide employees with other benefits such as medical insurance, gratuity, and maternity leave as per the applicable laws.
Workplace Safety: The Factories Act, 1948, and other related laws require employers to provide a safe and healthy working environment for their employees. Employers are required to comply with various safety standards related to the design, construction, and maintenance of the workplace.
Anti-Discrimination and Harassment: The Indian Constitution and various labour laws prohibit discrimination based on gender, religion, caste, or race. Employers are required to provide equal opportunities to all employees and prohibit sexual harassment at the workplace under the Sexual Harassment of Women at Workplace (Prevention, Prohibition, and Redressal) Act, 2013.
Statutory Audit
Statutory audit is a legally required review of the accuracy of a company’s or governments financial records. The purpose of a statutory Audit is the same as the purpose of any other type of audit: to determine whether an organization is providing a fair and accurate representation of its financial position by examining information such as bank balances, book-keeping records and financial transactions.
Corporate Governance:
Foreign subsidiary companies operating in India must adhere to corporate governance regulations that govern the composition of the board of directors, shareholder meetings, and annual filings. These regulations are as follows:
Board Composition: Foreign subsidiary companies are required to have a board of directors with at least two directors, one of whom must be a resident of India. The board must meet at least four times a year, and the minutes of the meetings must be maintained as per the applicable laws.
Shareholder Meetings: Foreign subsidiary companies must hold an annual general meeting (AGM) of shareholders to present the annual financial statements and to appoint or reappoint directors. Shareholders are also entitled to receive notice of the meeting, participate in the meeting, and vote on the resolutions proposed at the meeting.
Maintenance of Statutory Registers and Records: A Private Limited Company has to maintain various statutory registers and records as required by the Company law such as Register of shares, Register of Members, Register of Directors etc. Besides, Incorporation documents of the company, Resolutions of the meetings of the Board of Directors, Minutes of the Board Meetings and Annual General Meeting etc are also required to be preserved by the Company.
Such records are to be kept at the registered office of the company and shall be open for inspection to its members during business hours. Also, the books of account of every company relating to a period of at least eight financial years should be preserved and kept in good order.
Annual Filings: Foreign subsidiary companies must file various documents with the Ministry of Corporate Affairs, such as the annual financial statements, the director's report, and the auditor's report. The annual financial statements must be audited by a qualified auditor, and the auditor's report must be filed along with the financial statements.
An Annual Return should consists of the following:
Form MGT-7 (Annual Return): Every Private Limited Company is required to file its Annual Return within 60 days of holding of Annual General Meeting. Annual Return will be for the period 1st April to 31st March.
Form AOC-4 (Financial Statements): Every Private Limited Company is required to file its Balance Sheet along with statement of Profit and Loss Account and Director Report in this form within 30 days of holding of Annual General Meeting.
Other Event Based Filings
Besides Annual Filings, there are various other compliance's which need to be done as and when any event takes place in the Company. Instances of such events are:
Change in Authorized or Paid up Capital of the Company.
Allotment of new shares or transfer of shares
Giving Loans to other Companies.
Giving Loans to Directors
Appointment of Managing or whole time Director and payment of remuneration.
Loans to Directors
Opening or closing of bank accounts or change in signatories of Bank account.
Appointment or change of the Statutory Auditors of the Company.
Different forms are required to be filed with the Registrar for all such events within specified time periods. In case, the same is not done, additional fees or penalty might be levied. Hence, it is necessary that such compliance's are met on time.
Non-Compliance
If a Company fails to comply with the rules and regulations of the Companies Act, then the Company and every officer who is in default shall be punishable with fine for the period for which default continues. If there is delay in any filing, then additional fees is required to be paid, which keeps on increasing as the time period of non-compliance increases.
It should be noted that some of the Annual Filing Forms can also be revised but the fees for subsequent revised filing shall be charged, assuming it as a new filing.
We will be pleased to help you with statutory and mandatory compliance’s for your Private Limited Company. Get in touch with us at connect@taxaj.com or call us at 8961228919