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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.
A foreign subsidiary company is any company, where 50% or more of its equity shares are owned by a company that is incorporated in another foreign nation. The said foreign company in such a case is called the holding company or the parent company.
For a company to be a foreign subsidiary company in India, the company itself must be incorporated in India. It does not matter which country the parent company is incorporated in.
Compliances are based on many aspects of the company. One must understand what all compliances are supposed to be met according to the type of company that is incorporated, the industry of operations, annual turnover, number of employees. A foreign company is defined under section 2(42) of the Companies Act, 2013, such a company must follow regulations and rules established under multiple legislations and orders such as:
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:
There are three types of compliances based on the intermittency of these 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.
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
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:
It is mandatory for a foreign subsidiary company to meet all compliances as there can be severe consequences if they fail to do so. The failure to meet required compliances may result in the company being fined, being levied penalties and can also lead to criminal charges with imprisonment under relevant provisions of applicable law(s). The following are the penalties that may be levied against a company for not meeting their compliances: –
Under Section 392 of the Companies Act 2013 (effective from April 1, 2014):
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