A company's worldwide success is tied to its capacity for international expansion.
Companies looking to expand their operations have a number of viable choices in India.
Establishing a 100%-owned Indian subsidiary is one option. A WOS is a business that an outside organization controls.
This plan is excellent for launching a company in India while retaining full oversight of day-to-day operations and risk assessment.
This article explains why it is beneficial to establish a Wholly Owned Subsidiary (WOS) in India, as well as its unique qualities, permitted activities, required procedures, and tax and financial considerations.
Definition and Key Features of a Wholly Owned Subsidiary:
Organizations that are wholly owned subsidiaries are those that are under the total management of a foreign parent corporation.
Limited liability partnerships, private limited companies, and public limited companies are all acceptable business structures in India.
The parent firm has complete control over the management and day-to-day activities of the subsidiary because it fully owns it.
Due to its restricted liability, the WOS can only owe money against the assets it possesses. It is a separate legal entity from the controlling company. In India, the following are some fundamental traits of a WOS:
- wholly owned by the parent company
- Responsibility of the subsidiary is restricted
- A different legal status separates the activities and administration of the parent firm.
- being able to legally sign contracts and hold property in one's own name, being able to generate money without a parent company's assistance
Improved customer trust and quicker profit repatriation are only two advantages of having a WOS established in India.
Furthermore, if a parent company owns and manages a subsidiary, it may ensure that its operations align with the parent company's goals and principles.
Advantages of Setting up a Wholly Owned Subsidiary in India:
An international business opening a wholly owned subsidiary in India might have a number of advantageous effects. Several instances of these benefits include:
- Greater control over operations: A parent business may have more influence on a subsidiary's activities and guarantee that they are in line with the firm's broader aims and objectives if it fully owns and controls the subsidiary.
- Easier repatriation of profits: The parent business may access its money more readily since there are no limitations on the subsidiary's ability to repatriate profits.
- Improved credibility with Indian customers: Having a local presence through a WOS might increase the parent company's credibility with Indian customers since it shows a commitment to the Indian market.
- Limited responsibility: The subsidiary's debts and liabilities are only as large as its assets because of its limited liability. This might protect the parent company from obligations and threats.
- Possibility of signing contracts and owning property in one's name: The WOS is allowed to do so since it is a separate legal entity, giving the parent company more freedom.
Setting up a WOS in India may be advantageous for global corporations looking to join the Indian market.
By creating a local presence through a WOS, foreign companies may access a big and developing market in India while maintaining control over their company operations and lowering risks.
Functions of a Wholly Owned Subsidiary in India:
A completely owned subsidiary in India may perform a range of functions, depending on the parent company's needs. In India, one of a WOS's main obligations is to:
- Sales and marketing: The WOS can act as the parent company's Indian sales and marketing branch, promoting its products and services to Indian customers.
- Supply chain management and procurement: The WOS may help the Indian parent company acquire raw materials and components, manage inventory, and ensure quick product delivery.
- After-sales support: Installation, training, and maintenance services may be provided to Indian clients as part of the WOS's after-sales support.
- Research and development: The WOS may conduct research and development activities, thereby employing Indian talent and resources to produce new goods and services.
- Back-office duties: The WOS also oversees the parent company's Indian financial, accounting, and human resource operations.
By fulfilling these tasks, the WOS may help the parent company establish a strong presence in the Indian market and surpass local competitors.
Being a separate legal entity, the WOS can also enter into contracts and agreements in its own name, giving the parent firm more freedom.
Compliance Requirements for Wholly Owned Subsidiaries in India:
Like every business in India, wholly owned subsidiaries must abide by several rules. Some of the key compliance requirements for a WOS in India include the following:
- Registration: The WOS must be registered with the Indian Registrar of Companies (ROC).
- Appointment of directors: The WOS must select a minimum of two directors, one of whom must be an Indian national.
- Compliance with corporate laws: The Foreign Exchange Management Act of 1999 and the Companies Act of 2013 are two corporate laws that the WOS must follow.
- Filing of annual returns: The WOS provides annual reports to the ROC and the Ministry of Business and Corporate Affairs.
- Taxation compliance: The WOS must follow both the Income Tax Act of 1961 and the Goods and Services Tax (GST) Act of 2017 to avoid any potential tax penalties in India.
- Regulatory compliance: The WOS is bound by several statutes that protect employees and the environment's rights.
If these rules are broken, the WOS and the parent firm could be held responsible.
Therefore, the parent company is responsible for ensuring that the WOS follows all applicable regulations in India.
Taxation and Financial Considerations for Wholly Owned Subsidiaries in India
- Corporate Tax: Wholly Owned Subsidiaries The current corporation tax rate in India for completely owned subsidiaries is 25%.
- Transfer Pricing: Wholly Owned Subsidiaries must adhere to the transfer pricing regulations when dealing with linked parties. Transfer pricing regulations state that related party transactions must be conducted at arm's length.
- Goods and Services Tax (GST): The Goods and Services Tax (GST), a single tax system, has supplanted a number of indirect taxes levied by India's federal and state governments. Fully owned subsidiaries in India are obligated to follow GST regulations and make monthly and yearly filings.
- Profit Repatriation: Wholly owned subsidiaries in India are permitted to transfer earnings back to the parent firm with the Reserve Bank of India's approval. Both the Income Tax Act of 1961 and the Foreign Exchange Management Act of 1999 must be followed during the repatriation.
- Accounting and auditing: In India, wholly owned subsidiaries must maintain correct accounting records and conduct annual audits. The audited financial accounts must be sent to the ROC and the tax authorities.
- Foreign Exchange Regulations: Wholly owned subsidiaries must follow foreign exchange regulations while doing transactions in foreign currencies.
- Capital Gains Tax: Wholly owned subsidiaries are responsible for paying capital gains tax when selling assets. The capital gains tax rate depends on the asset type and the period of possession.
The parent company should consult with tax and financial experts before creating a wholly owned subsidiary in India to better understand the tax repercussions and compliance requirements.
With the help of efficient tax planning, the WOS may limit tax liabilities and increase revenues.
Conclusion
In conclusion, setting up a wholly owned subsidiary in India might be smart for foreign companies wishing to join the Indian market and build a local presence.
More operational control, easier profit repatriation, improved credibility with Indian clients, limited liability, and the ability to enter into contracts and hold property in their own names are all advantages for foreign enterprises that form a WOS.
A WOS might manage a variety of business operations, including administrative tasks, customer service, R&D, buying, and supply chain management.
WOS must follow a variety of regulations in order to conduct business lawfully, just like other companies in India.
These rules include incorporating the business, abiding by corporation law, submitting yearly reports, paying taxes, and fulfilling regulatory obligations.
Penalties and legal repercussions may follow noncompliance with these regulations.
As a result, international businesses setting up a WOS in India should carefully consider the advantages and disadvantages.
They should also research the laws and regulations that are now in effect in India. This improves the outlook for long-term strategic success in India for international enterprises.
FAQ’s Related Functions & Features of Wholly Owned Subsidiary in India
1. How much money do you need to start an Indian subsidiary that you control 100% of?
The starting point for a wholly-owned Indian subsidiary is not specified. However, the sum needed may change based on the nature and size of the business.
2. Can a foreign company turn its liaison or branch office in India into a totally owned subsidiary?
A foreign business may transform its present Liaison Office or Branch Office into a Wholly Owned Subsidiary in India, provided it complies with all applicable rules and regulations.
3. Can you bring profits from an Indian subsidiary that you control 100% back home?
Profits from a wholly owned Indian subsidiary can be repatriated to the parent company under specific conditions.
4. How long does it typically take to establish a 100% owned Indian subsidiary?
The length of time it takes to launch a fully owned subsidiary in India is influenced by a number of variables, including the nature of the business, the location, and the compliance standards. Four to six weeks pass following surgery.
5. Can a totally owned subsidiary in India hire foreign nationals?
A wholly owned subsidiary in India may engage foreign workers, provided all requirements are met.
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