Introduction: Is your subsidiary compliant or only waiting for the next audit to expose gaps?
Many international companies choose India as a growth market and set up wholly owned subsidiaries here. The real challenge begins not with incorporation, but with staying compliant in a system layered with complex laws and reporting rules. If you’re wondering what it actually takes to stay compliant year after year, this article breaks it down.
India’s regulatory environment is rigorous. Alongside opportunities come equally serious compliance demands. Annual compliance for a foreign-owned Indian subsidiary isn’t a box-ticking exercise. It’s a strategic process that protects your reputation, ensures smooth operations, and reassures investors and regulators alike.
Here we outline the essential annual compliance requirements and offer clarity for directors, in-house legal teams, and decision makers.
Understanding the Structure of a Foreign-Owned Indian Subsidiary
A foreign-owned subsidiary in India is a locally incorporated company where the parent company holds more than 50% of the shares. Such entities fall under the Companies Act, FEMA regulations, RBI rules, and SEBI oversight. Regardless of ownership percentage, the compliance burden is multi-layered and strict.
Key Annual Compliance Requirements
Board Meetings and Annual General Meeting (AGM)
A minimum of four board meetings each year is mandatory, with no more than 120 days between meetings. An AGM must be held within six months of the financial year-end to approve financial statements and statutory matters.
Statutory Audit and Financial Statements
Every subsidiary must undergo a statutory audit by a Chartered Accountant registered with ICAI. Audited financials—including the balance sheet, P&L account, cash flow statement, and notes—need board approval before being presented at the AGM.
Mandatory ROC Filings
Form MGT-7 (Annual Return): Records the company’s shareholding, directors, and other statutory details. Must be filed within 60 days of the AGM.
Form AOC-4 (Financial Statements): Discloses the company’s financial statements to the ROC within 30 days of the AGM.
Form DIR-3 KYC (Director KYC): Every director must file this annually to keep their DIN active.
Failing these deadlines attracts penalties, director disqualification, or other legal action.
Taxation and Transfer Pricing
Subsidiaries must follow Indian tax rules including annual income tax returns, TDS deductions, GST compliance, and maintaining transfer pricing documentation for transactions with the parent company. Transfer pricing compliance is crucial to ensure arm’s length transactions and avoid tax disputes.
FEMA and RBI Reporting
Foreign investment-related filings with the RBI under FEMA are non-negotiable. Key submissions include:
Form FC-GPR: For reporting new equity investments.
Annual Return on Foreign Liabilities and Assets (FLA): By 15 July each year.
ECB Returns: For external commercial borrowings.
These filings help the RBI track foreign exchange flows and confirm compliance with the law.
Maintenance of Statutory Registers and Records
Companies must maintain updated registers of members, directors, charges, and minutes of meetings at their registered office. Company Secretaries often oversee this but the board retains ultimate accountability.
Compliance with Securities Rules
If the subsidiary does not qualify as a small company, it must comply with dematerialization norms under the Companies (Prospectus and Allotment of Securities) Rules, 2014. This includes issuing securities in electronic form and facilitating dematerialization with a depository participant.
THis content is originally posted on : https://www.ahlawatassociates.com/blog/annual-compliance-for-foreign-subsidiaries-india
Why Company Secretarial Services Matter
The range of filings, deadlines, and record-keeping tasks makes it hard for directors to manage compliance alone. Engaging a qualified Company Secretary ensures filings are timely, records are maintained, and regulatory changes are tracked. Still, the board remains legally responsible for compliance.
The Cost of Missing Deadlines
Missing statutory deadlines for MGT-7 or AOC-4 can lead to:
Heavy monetary penalties
DIN deactivation or director disqualificationLegal proceedings
FAQs
Q1: What happens if we miss MGT-7 or AOC-4 deadlines?
You risk fines, DIN deactivation, disqualification of directors, and potential litigation.
Q2: Is Director KYC mandatory for all directors?
Yes. Every director with a DIN must file it annually or risk deactivation of their DIN.
Q3: Can a Company Secretary handle all compliance requirements?
Yes, they can manage filings and records, but the legal responsibility rests with the board.
Conclusion: Director KYC and Annual Compliance Are Non-Negotiable
Annual compliance for Indian subsidiaries sits on three pillars—corporate governance, financial disclosure, and regulatory reporting. Foreign-owned subsidiaries must juggle Indian and international compliance requirements simultaneously. The only way to stay safe is to know the rules, follow deadlines, and maintain a clear checklist.
For directors, in-house counsel, and compliance teams, preparation and tracking aren’t optional—they’re the foundation of operating with confidence in India.
