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Published on 5 April 2025

Compliance Requirements for Foreign Companies Establishing a Business in India

Introduction

Foreign companies looking to establish a business presence in India have multiple avenues available to them, including forming subsidiaries, holding companies, joint ventures, or project and liaison offices. Ensuring compliance with both the Companies Act, 2013, and the Foreign Exchange Management Act (FEMA) regulations is crucial for seamless operations. This article outlines essential compliance requirements to consider when setting up a subsidiary or holding company in India.

Establishing a Business in India

Foreign companies can enter the Indian market through the following methods:

  1. Creating a Subsidiary Company or Holding Company
  2. Forming a Joint Venture
  3. Merging or Amalgamating with an Indian Company
  4. Setting Up a Project or Liaison Office

ROC Compliance Requirements

When establishing a subsidiary or holding company in India, the following Registrar of Companies (ROC) compliance points must be adhered to:

  1. Resident Director Requirement

    • As per the Companies Act, 2013, a company must appoint at least one resident director, defined as a person who has stayed in India for a minimum of 182 days in the preceding year.

  2. Apostilling of Documents

    • Documents issued by a foreign country must be apostilled prior to submission to the Registrar of Companies, Income Tax Department, or any other regulatory authority.
    • For instance, documents such as a foreign director's driving license or tax identification must be apostilled, along with the foreign company’s Certificate of Incorporation, Memorandum of Association (MOA), and Articles of Association (AOA).

  3. Conducting Meetings via Video Conferencing

    • All meetings, including Board meetings, Annual General Meetings (AGMs), and Extraordinary General Meetings (EGMs), should be conducted through video conferencing. These meetings must be recorded and preserved for future reference.

  4. Share Capital Issuance

    • The foreign company must inject capital within the time frame indicated by the board after the share offer is made.

  5. Dematerialization of Shares

    • It is mandatory for companies that are subsidiaries of foreign entities to dematerialize their shares.

Other ROC compliance requirements align with those for domestic companies.

FEMA Compliance Obligations

Given the involvement of foreign exchange, compliance with FEMA is paramount. Key FEMA compliance requirements include:

  1. Filing of FCGPR Form

    • The FCGPR form must be filed when an Indian company issues share capital. This filing is due within 30 days following the share allotment.

  2. Filing of FLA Form

    • The FLA (Foreign Liabilities and Assets) form is required when the Indian company possesses foreign assets or liabilities, particularly if it is a subsidiary or holding company of a foreign entity. This form must be submitted by July 15 of the following year.

  3. Filing of APR Form

    • The APR (Annual Performance Report) must be filed by residents who hold investments outside India, such as an Indian company with a foreign subsidiary. This is due by December 31 of the succeeding year.

Income Tax and Transfer Pricing Compliance

  1. Filing of Statement of Financial Transactions (SFT) Form

    • If an Indian company issues share capital exceeding ₹10 lakhs, it must file the SFT form by May 31 of the following year. Note that the foreign company must obtain a Permanent Account Number (PAN) in India to validate this form on the Income Tax Portal.

  2. Preparation of Transfer Pricing (TP) Study

  • For share capital issues and any transactions involving loans, sales, or purchases that fall under transfer pricing provisions, a TP study must be prepared to confirm that all transactions adhere to arm's length pricing principles per the prescribed methods.
  1. Filing of Form 3CEB
  • Form 3CEB must be filed wherever transfer pricing is applicable. Following the completion of the TP study, this form ensures that the transactions comply with arm's length pricing and are audited by a designated auditor.

Conclusion

For foreign entities seeking to do business in India, understanding and adhering to these regulatory requirements is essential for successful operations. By following the compliance measures outlined above, foreign companies can navigate the complexities of the Indian business environment more effectively.

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