FOREIGN COMPANY REGISTRATION IN INDIA
SUBSIDIARY COMPANY REGISTRATION IN INDIA
WHOLLY OWNED SUBSIDIARY
Branch Office Vs Subsidiary Company Registration in India
Whenever a foreign company is desirous of setting up business in India, it has many options of foreign company registration in India like branch office registration, liaison office registration, LLP registration and subsidiary company registration in India.
In this write up, we have made a comparison between branch office registration and subsidiary company registration in India.
What is a Branch Office?
A Branch Office is a direct expansion of the parent company and it is engaged in core activities like a head office. It is meant to help generate revenue for the company and within the particular geographic region or territorial boundary. However, it is not a separate legal entity from the parent company or head office. It performs support and implementation-related tasks without having any individual business identity. The entire expenses of the BO will be met either out of the funds received from Head Office or through income generated by it in that particular region or boundary.
What is a subsidiary company?
A Subsidiary Company is, more complex than a branch office. It is an entirely separate legal entity that has been established by another company to do business in a particular place. To become a subsidiary, the head office must own more than 50 percent of the entity’s voting rights. A wholly-owned subsidiary is, as the name suggests, is 100% owned by another company. In India, a Subsidiary is an incorporated entity formed and registered under the Companies Act, 2013. It is a distinct legal entity, apart from its shareholders and Parent Company.
What are the major difference between Branch Office and Subsidiary Company?
Basis
Branch Office
Subsidiary Company
Meaning
It is an establishment set up by the parent company in India, to perform the same business operations, at different locations.
It is understood as the company whose full or partial (more than 50%) controlling interest is held by another company.
Activities which are permissible
i. BOs are allowed to do following activities by RBI
· Rendering professional or consultancy services.
· Representing parent company in India & acting as buying / selling agent in India
· Export/ Import of goods ( only on wholesale basis)
· Carrying out research work in areas in which the parent company is engaged
· Rendering technical support to the products supplied by parent/group companies
· Rendering services in Information Technology and Development of software in India
· Representing a foreign shipping company and Airline
a) WOS can do any business activities which are prescribed under its memorandum of association subject to FDI guidelines.
b) Indian WOS can be set up subject to FDI guidelines. Foreign companies can invest in majority of business sectors in India under automatic route. Only for investment in some sectors and for investment in excess of specified limit, prior approval of government is required which is called as government route.
Activities not permissible
BOs cannot do following activities in India:
· Construction Development activities
· Manufacturing and Processing
· Retail Trading
There are some prohibited lists of business in FDI guidelines. It means WOS cannot be engaged in prohibited business activities.
Conditions required for registration
a) Foreign company must be having a profit making track record during immediately preceding 5 financial years in home country.
b) Net worth of foreign company should not be less than USD 100,000 or its equivalent.
Minimum 2 shareholders and 2 Directors are required out of which at least 1 Director shall be Indian Resident and Indian Citizen
Liability
The liability of the Branch is unlimited.
The liability of the Parent company is limited.
Taxation
If the branch office is considered as a foreign company, the tax slabs are below:-
If earning is more than 10 crores then the tax rate is 43.68%
If earning is between 10 crores to 01 crore then the tax rate is 42.43%
If earning is less than 1 crore then the tax rate is 41.60%
In the case of Indian Subsidiary the tax slabs are below:-
If gross income exceeds 250 Crores then the tax rate shall be 30%
If gross income is up to 250 crores then the tax rate shall be 25%
Accounts Maintenance
It has to maintain either separately or jointly.
They have to maintain books of accounts Separately.
Borrowing
The Branch Office is not allowed to borrow from the local market unless the prior approval of RBI is taken.
There is no restriction on local borrowing. External Borrowings are subject to guidelines issued by the RBI.
Business Activity
Branch does the same business as the parent organization.
A Subsidiary may do or may not conduct the same business as a parent organization.
Registration
Companies incorporated outside India engaged in different activities can set up a BO in India with the approval of RBI.
It is an incorporated entity formed and registered under the Companies Act, 2013.
Authority of Approving
Reserve Bank of India and Ministry of Corporate Affairs
Ministry of Corporate Affairs
Examples
Banks Branches (like HDFC, SBI, ICICI, etc.)
NBFCs (like JP Morgan Chase, Muthoot Finance, etc.)
Titan - Subsidiary of Tata Group.
Jio - Subsidiary of Reliance Industries.
