Five things to know before you form a subsidiary company in India

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Five things to know before you form a subsidiary
company in India
If you are thinking of expanding your business to
India by forming a subsidiary company, you must
give a thought to the critical five points
suggested by the expert in the field. Once you
have identified your drivers like building your
company brand, exercising control over your
holding company, IP protection, valuation during
exit, and sales opportunity to form a subsidiary
company in India. You may have questions about
the preparation for the incorporation of a
foreign subsidiary in India, it will be helpful
to give a thought to a few considerations. Let us
take you through the practical aspects of
incorporation of a foreign subsidiary in India,
time, cost aspects with regard to running costs,
compulsory margin, arms length pricing, and
repatriation of money. Also, the availability of
time bandwidth with the management, and
understanding the Indian culture. In this
article, experts from the field advise you to
test the Indian ground before forming an entity
with the hand-holding support of a Professional
Employer
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Organization. And to also consider the
time-consuming and pre-conditions the closure
procedure of a subsidiary company demands, before
you decide on expanding your business operations
to India. Incorporation of foreign subsidiary in
India (process) India piques the interest of a
lot of foreign companies as it has a fast-growing
market and is recognized for its skill pool.
Research shows that a lot of US companies see
Bangalore, Pune, Mumbai, Delhi, and Hyderabad as
fit places for subsidiary formation because of
the availability of skilled force and
infrastructure. Remunance has a mission to
inspire foreign companies to build successful
businesses in India. That is how Remunance has
devised a basket of services from professional
employment organization (PEO services) to foreign
company registration in India and has 70 plus
clients from 16 countries. Through this article,
we help you gather information on a few
considerations and solutions to form a
subsidiary company in India. What is a subsidiary
company? A subsidiary company is controlled by a
parent or holding company. The subsidiary
company can be WOS (wholly owned subsidiary) or
partially owned. To qualify as a partially owned
subsidiary company, the parent entity must own
at least 51 stock in the subsidiary
company. Forming a subsidiary company in India To
form a subsidiary company in India, you need to
register and have a corporate address in India.
This process is known as subsidiary company
registration in India. Company formation or
incorporation in India is a straightforward
procedure, but knowing about the rules and
regulations will help in deciding on
incorporating a foreign subsidiary in India. As
it has additional requirements of paperwork over
local company incorporation. Drivers for forming
a subsidiary company Every company has one or
many of the drivers listed below as their reason
to form a subsidiary in India. Ensure you have
thought through the process, objective, and
reason for why you want to incorporate the
subsidiary in India.
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Building company culture and branding When you,
as a foreign company contemplate setting up a
business in India. The first and foremost driver
to attracting talent in India is to create a
brand and culture of your company. Your brand
has a significance that attracts potential
employees. Global technology companies look at
the Indian market through many lenses, to get
more users or revenue. Business-focused SMEs are
stepping up their investments in the Indian
market for the availability of a talent
pool. Entity that can be controlled and is a part
of the group When your subsidiary company is a
WOS, the holding company can exercise complete
control over decision-making and other financial
decisions as you make 100 investment into the
subsidiary company. IP protection Protection of
intellectual property in the earlier times
demanded physical presence, and manual logins of
the employees. But today, you can control
Intellectual Property at the click of a button
by integrating all the information on the cloud
with the help of a cloud-based information
security system. Valuation during the exit The
companies who are eyeing the acquisition as a
possible exit, do see a better overall valuation
by having a subsidiary in India. This is because
of the lower burn rate and better talent
pool. Sales opportunity in India The Indian
economy will remain the fastest developing
economy in the fiscal year 2017 with a growth
rate of 7.7, according to a report projected by
the United Nations World Economic Situation and
Prospects 2017. India is a place of many
opportunities for business expansions. Narendra
Modi encourages building international relations
and shifting their focus from China to India.
Whether its in consumer goods,
OTT(over-the-top), online education, or the
gaming industry, India has promising emerging
markets in the world. 5 key considerations before
forming a subsidiary company in India
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• Process of incorporation and registrations

To initiate the procedure of foreign company
registration in India, your subsidiary company
will need two directors and two shareholders. One
of the directors should be an Indian resident
and both should have a DIN (Direct Identification
Number) to avoid administrative time delays. The
shareholders can be individuals or businesses
and the parent company should be publicly
limited. The company has to comply with the
rules and regulations of the Companies Act, 2013.
In simple words, it cannot be privately owned,
in a partnership, or an LLC (limited liability
company). There are two steps to the process,
namely, name approval and incorporation on
submission of by laws. Your parent company can be
located anywhere, but if you wish to incorporate
a company in India, the subsidiary company has
to be registered in India to have a corporate
address. After an entity is formed, it has to be
registered with multiple government agencies to
continue the business operations smoothly. Time
required for incorporating a subsidiary
company Setting up a business entity in India may
require a duration of 2-4 months. As all the
decisions need to be approved by your parent
company over the subsidiary company.

• Money

A subsidiary formation in India will cost
anywhere from 645 to 2582. A public limited
company can be formed with a minimum paid-up
capital of 6436. In addition to this one-time
cost, also consider the following 2 important
cost considerations. What are the running costs
of incorporating a subsidiary in India?
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When you form a subsidiary company in India, it
will be subjected to a statutory audit under the
Company Act, Income-tax Act, and a transfer
pricing audit. Other labor law compliances,
payment of taxes, and other related filings like
monthly, quarterly and annual returns like Goods
and Service Tax(GST) and Tax Deducted at
Source(TDS). Else it will be subjected to delayed
filing fees and penalties considering the
professional fees for each of these. Compulsory
margin money, income tax (arms length pricing),
and repatriation of money If you have to run a
business in India or establish a subsidiary in
India, it is imperative to show the government
that profit is made. Because in India,
subsidiaries arent allowed to make losses. Your
subsidiary company has to raise an invoice
equivalent to its cost. Because its a cost
center (no sale) here. Since there will be no
other revenue to offset the cost incurred in the
local subsidiary, like salaries, auditors fees,
office fees, etc. So in such a scenario, your
cost center needs to raise an invoice to the
parent company to run its operations. When you
set up a business in India, it is mandatory to
invest a 12-18 margin also known as arms length
costing along with your investment. This
percentage is decided by an auditor. The
government in India does not support a 0 profit
margin. You, as a parent company, have to send an
additional percentage to keep your subsidiary
company functioning. Until your subsidiary
company doesnt generate revenue to incur the
operational costs, you have to back it up by
sending a decided percentage margin. This
percentage keeps accumulating in the Indian
banks and cannot be touched. The only way you can
repatriate that money or send it back to your
country is by paying the dividend to the
shareholders. On that dividend tax, the
government charges 30. Plus on the profit
margin, the government will charge you another
percentage of the tax slab. This in turn impacts
your fund flow in the parent company.

• Availability of time-bandwidth with the management

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You may have to consider staffing your subsidiary
with the right potential by creating a
comfortable workspace for your employees as well.
You may have to map out a strategy to execute
HR, insurance, benefits, payroll and risk
management, and admistrational operations. You
may also need to devise a plan to ensure proper
employee training is conducted in a well set-up
office infrastructure. You may have to ensure
mandatory compliance as per Indian laws, monthly
payroll execution, taxation compliances,
accounting, employee benefits, bookkeeping,
coordination with auditors, etc. You will need to
hire a dedicated team and recruit. Monitor
performance management, periodic interactions,
and direct reporting. You have to evaluate the
time and energy required to run a foreign company
in India. You will have to consider the time
zone differences and the geographical barriers.
Also, consider the language barriers and
communication through digital applications to
get your subsidiary company running in India.
Along with managing your parent company, you and
your team of managers will have to dedicate
additional time to monitoring the business
operations in India. Increased compliance load If
you wish to run a business in India, you will
have to put up with the additional costs of
business compliance and running the business as
well. These include HR operations,
administration fees, auditor fees, taxes on
salary deductions, paying government taxes per
employee on time, etc. You will have to consider
the employee-related laws like PF, employee state
insurance, salary TDS, professional tax, minimum
wages, bonus, maternity costs, and retirement
benefits like gratuity, and leave encashment.

• Understanding the Indian culture to form a
  subsidiary company in India

Culture plays an important role in the decision
of establishing a subsidiary in a particular
country.
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You choose India for its diversity. India is a
country that has many regional states. These
individuals are unique in their own way given to
their language and geographical differences. In
order to establish a subsidiary company here, you
need to consider if you are prepared to conduct
business operations with such a diverse
population. My advice to you At Remunance, we
focus on small and medium enterprises that wish
to set up a local company in India. The founder
of the company, Rajendra has carved out a
business model that works in the best interest of
India ensuring the PEO business is strategic and
compliant.

• If a subsidiary is a cost center, consider the
  taxation aspect closely

Incorporating an entity has become more
convenient today as compared to traditional
times. If a subsidiary is a cost center (no sales
in India), it is advisable to consider the
taxation aspect closely. This includes a transfer
pricing margin and a minimum 25.168 income tax
in India, that needs to be maintained.

• Test the ground before forming a subsidiary
  company

A PEO, i.e. professional employment organization
provides hand-holding while setting up a legal
entity and business operations. Remunance extends
its expertise in forming a subsidiary in India
without any hassles or security issues.
Remunance ensures that the entity functions
smoothly in India with proper government
authority registrations. Subsidiary company
registration in India is a specialized task in
comparison to any company formation, and we
assure end-to-end support to overseas companies
only.
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Get started with Remnunances PEO services for
more information.

• Ensure you can transfer the staff from the
  outsourcing/PEO agency

You can efficiently hire a desirable staff with
the help of a PEO agency. A PEO agency will
provide you with hand-picked potential employees
through their trained professionals. After you
have successfully built your team in India
through a PEO or an outsourcing agency, you can
move that team to your subsidiary to ensure a
smooth transition and kick start your subsidiary.

• Delay it as much as possible to ensure you can do
  without a subsidiary company

Once you consider all the aspects required to
open a subsidiary in India, like the bandwidth
of time, cost of operations, administrational
headaches, tax payments, and HR management. It
is best to procrastinate on forming a subsidiary
company in India as much as possible. We do not
think you shouldnt open a subsidiary company
here, but just consider if you can do without
one for a considerable time.

• The closure is more difficult

Closing a company is far more demanding than
forming one. It is not only an expensive affair
but also time-consuming. You are bound by
preconditions. You
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have to consider the possibilities of triggering
bankruptcy clauses or acquiring a no-objection
certificate. The duration of time it takes to
strike off a companys name from the Registrar of
Companies is tentatively around 3-4 months. It
may take longer if ROC objects or rejects the
application. You need to apply by filling out the
E-form STK-2 and your documents need to be
verified. However, winding up a private limited
company may take a year or two after getting
clearances from government departments. So
ensure you do everything necessary to make your
subsidiary successful. Get it formed from an
agency that has done it multiple times Remunance
addresses your concerns regarding time-bound
company formation, complete compliance, hiring a
reliable team, and conducting methodical
work. Remunance understands the Indian pulse
better. We have a deep knowledge of the laws
here. We will help you set up a company
conveniently under the provisions of the Company
Act and get approval from the Reserve Bank of
India as well. Your concern about entering into
new territory, and dealing with compliance
issues will be smoothly taken care of by
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